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Mahindra Holidays Hits a TRAI Wall, Falls 20% Below IPO Price Five Years Ago

Club Mahindra’s been getting the rough end of the stick recently. With the stock languishing below their IPO level of 300 per share about five years ago, in 2009. It trades at about Rs. 232, down around 20% from the IPO price.



I didn’t like the IPO (Read my IPO notes) for an overvaluation and the lack of credibility of the idea of paying for a long term membership. They have been able to see revenue up, but profits have been stagnant.



With a 24 cr. profit in March, they had shown a lower profit than five years back, when they had made Rs. 29.80 cr.!

The earnings per share hasn’t done that well, especially since they have dropped EPS 25% year on year.




Still Have A Capacity Problem

They’ve always had a problem with the inability to satisfy customers properly. Each customer is given one week a year. There are 52 weeks in a year, so each room can effectively satisfy 52 members (max). So effectively, each room is 52 room-weeks; and if we multiply their total number of rooms by 52, we can see how many members they can satisfy. The answer continues to be horrible:


They can’t really support over 50,000 members, around 30% of the total. This has been increasing recently.

They’ve actually cut the number of rooms this month by giving up one resort. Mahindra Holidays is trying to change this equation by building about 500 rooms over the next 18 months, spending Rs. 400 cr. on the exercise.

Run-in with TRAI Hits Member Addition

They have had a run-in with TRAI, which seems to have affected their “model”. Apparently their model was based on some kind of spam calling, where TRAI would cut off all their lines if someone complained of spam. This has been mentioned in the last two quarters. This drastically reduced their marketing ability in the last two quarters.


Their addition numbers in my book include the net additions, which is gross additions net of cancellations and net of expiring members.

It seems they have managed to convince TRAI on a per-call basis that they have the authorization to call, such as their having signed a form etc.

My major concern is that the fix is short term. If the fact that they were calling DND numbers was causing TRAI to ding them, and they fixed that by only addressing people who weren’t in DND and who had signed something allowing them to call, this has probably resulted in a short term addition. Eventually they’ll hit that spam wall again, and the rapid growth they saw in earlier years will come down.

Exciting Enough To Buy?

Sadly, not for me. At a Twelve Month EPS of Rs. 10.75, the P/E, even at Rs. 231 is 22+. There are better businesses at far lower P/E ratios and way better growth.

And I’m not very excited about their product either. Their minimum costs are Rs. 3.5 lakh for membership, and I would do better by putting that money into a short term mutual fund, and using the money to pay for holidays each year, it seems. I just paid less than Rs. 50,000 for 6 nights for a 5 star hotel in Goa, including all meals, and all sorts of extras. This is way better than a pre-committed exercise; and has only reduced in price in 10 years!

Either ways, the issue is this: If they have 30% unserviceable members, then there’s no point even thinking of buying their product. And if enough people realize that, there’s no point buying their shares either.

  • Sarang says:

    Important point which cannot be ignored – 30% unserviceable members if we assume all members are allotted rooms on mutually exclusive basis – which is not-practical!
    The unserviceable customers during vacation times/holidays would be very high… somewhere around 70%/80%!!!
    Now for a customer, this is not just a customer service issue; this is plain cheating! (Selling something you don’t have is cheating, isn’t it?)
    So for people who invest based on fundamentals, the promoters are into a kind of a business where they almost cheat their customers!
    And this is a perfect example of Brand dilution…. I didn’t buy Mahindra 2 wheeler despite liking it because I have this ‘negative notion’ about brand ‘Mahindra’. I don’t feel like analyzing/buying M&M stock for the same reason! (To be fair, M&M is better company – just that I have always managed to find other options where I do not have mental block about the brand)

  • Adheer says:

    Rs 400CR for 500 rooms works out to Rs 80L per room.
    If you put Rs 80L in a bank FD, the room rental needs to be at least Rs 2,000 per day for 365 days (100% occupancy) just to cover the bank interest (opportunity cost).
    It doesn’t make sense.

    • The math might work out. Each room can service 52 members. Each member pays approximately 3.5 lakh per room (average). Interest on that money alone is Rs. 30K a year. So 52 members = approximately Rs. 15 lakh. They have 85% occupancy, but assume only 67%, then you get 10 lakh. Simplistically, on 80 lak investment, 10 lakh return is decent (of course there are other costs like maintenance and other incomes like ASF etc. which I’m not including).
      Just tried to worth the math.

  • drsuhask says:

    I got answer to my long lasted query. I was been forced by few friends to become member, but I thought in the same way. We can keep membership money in short term fund & enjoy holidays with the money earned in those funds.
    Dr.Suhas Kothavale.

  • Krish says:

    Me too never been the fan of their product. In membership, one would never get rooms in peak times or even on long weekends. By the way, these clubs charges annual maintenance charges from each member which works around 5-10% per annum. It is a free money for the organisers as many members would not utilise the facilities either due to non availability or dropping for personal reasons.
    It becomes frustrating time for the members, that their membership would not be useful for most of the time and it becomes emotional conflict with the family.
    I would never ever put my holidays plan into these membership hands. I don’t mind paying 10X price. I get a satisfaction that I would go on my dates, no limit of days, destination, type of rooms and so on.

    • Well said. I can’t imagine pre-paying and then having to face the frustration of bad service. While I hear good things about their resorts, getting the deal is difficult at the timeyou want it.
      Plus in a 25 year period things change. Today I am in resort-only mode since hte kids are small. As they grow older we will choose to go to places where we could go for a trek, go for different events (like Formula 1 or a world cup) or simply see sights like tourists do. The places we’ll visit will be vastly different, and it might be that we don’t need fancy resorts! (Staying in a beach shack in Goa costs

  • Jagrati says:

    They have mentality of a Indian real-state business, which would come and say that your property price has got appreciated from x to y, why are you complaining for delayed project. They have been changing membership rules left and right in last three-four years in one sided approach in the name of better customer experience.
    Company spends 60% of new membership income on sales.
    You should also look at more then 6 month receivables, if you discount part of that from income it will further increase member acquisition cost and reduce membership count.

  • Sanjeev B says:

    Thanks for the numbers Deepak. 30% unserviced customers with nowhere to go is a lot! The 3.5 lakh goes into capex, and the annual maintenance is actually the cost of the holiday (whether you can use it or not). Why would anyone want to do that? If I pay 3.5L, I would expect to get fractional ownership of the property that I’m funding.