Mahindra Holidays & Resorts India Limited

Grading Rationale
The grading assigned to Mahindra Holidays & Resorts India Limited (MHRIL) is underpinned by the company’s established presence in the leisure holidays business in India. The grading also factors in the strong promoter background and advantages of the “Club Mahindra” brand that MHRIL has created for its flagship product offering. The business of MHRIL, which is aimed at the domestic urban market, has been supported by changing demographics, strong economic growth, and increasing disposable incomes in India over the last three years. The domestic travel and tourism industry has also been boosted by the increasing investment in infrastructure, such as roads, and the penetration of low-cost airlines.

MHRIL has seen increasing revenue and improving EBIDTA margins over the last four years, and the member base for “Club Mahindra” has increased to 91,946 as of 31 March 2009. MHRIL is currently the largest player in the industry, with few competitors. The financial commitment required for creation of an inventory of resorts, and the efforts involved in brand building, has created a considerable entry-barrier to MHRIL’s operating segment.

Fitch expects the domestic economy to continue to grow, which will help MHRIL’s performance. Future member additions could be affected by a slowdown in economic growth, and, as spend on leisure activities is largely dependent on disposable income; MHRIL’s revenue growth could be adversely affected. As MHRIL’s business is largely based on establishing direct contact with consumers, and considering that about 35% of new member additions in FY09 came from referrals by existing members, MHRIL’s ability to manage these relationships could be a key factor for future revenue generation. Members, several of whom make monthly payments for membership charges over a 6-month to 4-year period, deciding not to ntinue with membership may also affect future revenue generation. he proceeds from MHRIL’s proposed issue are expected to be deployed in the onstruction of new resorts and expansion of existing ones, to provide a larger ange of resorts, and hence a wider choice of holiday destinations to members.

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