Mahindra Holidays sets higher inventory target

Mahindra Holidays & Resorts India that missed the inventory addition target last year is looking to cover ground by adding 800 rooms this fiscal.

The time-share hospitality firm had added 148 rooms last fiscal against a target of 500.

Ramesh Ramanathan, managing director, Mahindra Holidays, told DNA that the company which has total room strength of 1,624 is building inventory through a mix of greenfield, long-term lease arrangements and acquisitions.
“The plan is to add 800 rooms this fiscal, of which 400 will be greenfield developments. The balance is in various stages of negotiations, including around seven projects through the inorganic route. We are in a fairly advanced stage of due diligence for three projects,” he said.
Of the capex of ¤700 crore for this fiscal, which would be mainly funded through internal accruals, ¤300 crore would be used for acquisitions.
 “Some of the acquisitions will very likely get closed in the first two quarters,” he said.
Mahindra has ¤200 crore cash of which ¤75 crore is the IPO money and balance is from operations. “We also have ¤800 crore of receivables (EMIs due from customers) which can be securitised to raise the balance,” Ramanathan said.
The company added 69 rooms in the latest March quarter including 44 rooms in Udaipur and 25 rooms in Kanha. Lat year’s backlog of 352 rooms is part of the current year plan as well.
Exuding confidence that the company would meet this fiscal’s target easily, he said its project in Tungi will bring in 155 rooms, one near Coorg 150 rooms and Gir and Kanha projects 100 rooms.
The Tungi project was the part of last year’s inventory but is stuck for occupational certificate, he said.
However, analysts had expressed concerns about the management’s ability to execute expansion plans.
“Only meaningful addition of rooms will help the company sell its offerings aggressively. We believe headwinds in membership additions will continue for a few more quarters before the restructuring starts showing results. New schemes to be launched are far in future to have a meaningful impact on the near-term financials,” said Manav Vijay and Manish Sarawagi, analysts with Edelweiss Securities, in their report on Tuesday.
Ramanathan said the company relates rooms with the number of members on board and that anyone buying membership will not be eligible to take a holiday unless they have paid the company in full.
“There is a time delay between when you enrol and when you can go on holiday. Presently we have an enrolled membership base of over 125,000 of which 80,000 are eligible for a holiday. Our current inventory is sufficient to meet requirements of the eligible membership base. Thus, if you look at work-in-process versus what we have accomplished, we are doing pretty good,” he said.
Mahindra added net 3,418 members in the March quarter against 3,758 in the preceding December quarter and 774 year on year. During fiscal 2011, the company added 15,285 members taking its total membership to 125,169.
Last fiscal Mahindra rationalised its membership base which saw a considerable number being categorised as non-performing members. The number of such members was significantly high at over 7,000 in calendar year 2010. It is 2,000 for January-March for this year.
“We are putting in place a very robust system to ensure the non-performing membership numbers are brought down significantly. We cannot completely eliminate it but there are always ways to reduce the number,” he said. 
However, writing-off of around 2,000 members during last quarter, analysts feel, also showed that the pain is far from over.
“We would like to maintain our 16% growth or around 20,000 membership addition estimates for fiscal 2012, along with 10% increase in average membership ticket size,” the Edelweiss analysts said in their report.