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Club Mahindra Cannot Serve 47,000 Customers, But PAT Up 20%: Result Analysis


Club Mahindra’s financial results were out today; the company Mahindra Holidays (which owns the brand) has shown a growth in profit after tax of 20%, to 30.13 cr. from 25.20 cr. last year.
Revenues were up about 9% to 249 cr. in the quarter. But they managed to keep employee costs absolutely flat and even managed reduced depreciation charges in the quarter, which should raise a few eyebrows. Club Mahindra Financials
However the company continues to be substantially over capacity. We have written about this:

This is a problem that continues even now.
They claim to have 203,000 members. Each member gets a week free, every year.
They have 3004 rooms. If you run it on full tilt (no down time) each room can serve a maximum of 52 customers per year. Meaning, they can serve a maximum of 3004 x 52 = 156,208 customers per year.
And that’s assuming all the customers are perfectly fine with spreading their holidays out evenly through the year. Kids’s exams, weekdays etc. don’t bother these awesome customers.
Even in this idealistic situation, Club Mahindra will have about 47,000 customers who they can just not serve. (That’s about 30% more than they can serve).
In reality, strange things happen:

  • People bunch their travel in long weekends or winter/summer school holidays
  • There are going to be unused locations – so if I’m in Bangalore I might not want to go to, say, Shimla in the winter.
  • Club Mahindra denies a few people – the immediate joiners – a holiday for one year. Given their customer addition is just 3,000-4,000 per quarter that only leaves 12,000 members out – there’s still 35,000 unserveable customers.
  • Club Mahindra also gives out rooms to non members so you can enjoy their facilities without paying the hefty fee. They made about Rs. 10 cr. in the March quarter on room sales – which great about 124% from the previous year, so they are selling more rooms to non-members.
  • Some members will choose an RCI affiliation and move to rooms abroad. But this is probably a small number and then RCI members will also come back into Club Mahindra to use rooms.
  • And what all of this means is that their ability to service customers over the longer term deterioriates, and there will be bad, angry customers all over the place.

They have planned a 500 room expansion in the next two/three years, but you can see that still won’t be enough – they’ll add only about 15,000 serveable customers and then they’ll go get some more customers next quarter that will add to the buffer.
While this is great as a business today, the lack of serviceability will impact the brand in the longer term. They have acquired a timeshare business in Scandinavia, and that seems to be in better shape. Financials are decent, but the stock hasn’t done much after that massive push post the IPO. Here’s a Weekly Chart:
There’s a conference call at 6:30pm if you want to attend.
Disclosure: No positions.


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