Q1 Review: Analysing Mahindra Holidays' Q1 Report Card

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00:00 Hi, thanks so much for joining in. You are watching BK Prime. My name is Alex Mathew

00:03 and this is an earnings conversation with the management of Mahindra Holidays. I am

00:07 joined by Kavindar Singh as usual. Kavindar, thanks so much for taking the time. And well,

00:13 always a pleasure speaking with you. Could you take us through the key highlights? As

00:16 I see it, India business is growing strong but the overseas business seems to be giving

00:20 you a little bit of trouble. At a broader level, your assessment is right. India business

00:28 has done extremely well. We had 90% plus occupancies during this quarter on an expanded base of

00:34 about 5000 groups. This quarter also turned out to be the best of a quarter in terms of

00:40 total income growth at about 17% and the absolute number of income at about 355 crores excluding

00:47 one-offs. And if I were to look at our beta, it crossed 100 crores for the first time and

00:53 that grew by about 90% on a YOY basis and so did the profit before tax which also grew

00:58 by about 90%. So India business performance, financial performance was also supported by

01:05 as I mentioned 90% occupancies leading to resort income, again becoming the highest

01:10 ever resort income for us in the first quarter, which grew by about 10% on a year-on-year

01:14 basis. If I were to look at the member additions, they were also very robust. They grew by about

01:20 23% at about 4,700 member additions, taking our member count total to about 286,000 odd

01:27 numbers. And most importantly, the upgrades were extremely robust. We grew our upgrades

01:34 by about 16% and even if you were to look at the membership sales value, it was up by

01:40 about 23%. And if I were to look at the big picture, as you know that we are looking at

01:48 increasing our total inventory count from 5,000 to 10,000 in about six to seven years

01:54 time and we made some moves already in quarter one. We acquired a resort in Jaipur which

01:59 is already operational in quarter one. We also broke ground in Dhanpathi Phule, a very

02:06 beautiful beachside resort which will come up which is a 236-room resort with an investment

02:10 of about 250 crores. So as I speak, we have 800 to 900 crores investment already in play.

02:17 I will talk about other projects later. But let me come back to your question on the international

02:22 operations. I think you made a very important point that international operations are having

02:30 a bit of a bump as we saw. If you were to look at the situation, and this is very important

02:36 for all of us to understand that Europe is seeing and particularly Finland is seeing

02:41 inflation at the levels which they have never seen before. Despite that, the timeshare performance

02:47 was extremely good. As you know, Finns love to own a second home. They are not able to

02:53 afford a second home because Unibor and the mortgage rates are high. So they're looking

02:57 at timeshare and timeshare sales is robust. Where we lost out was in the spa hotels, because

03:03 in the spa hotels, the cost cannot be flexed down and the occupancies were low and the

03:08 sentiment is affected because of the inflation. People were not spending enough at the resorts.

03:13 And by the way, Q1 is also a seasonally weak quarter, as a result of which we saw the holiday

03:20 club resorts performance muted. Having said that, from mid-June onwards, the holiday season

03:26 has started and Finns are holidaying like never before. So the second quarter definitely

03:31 is going to be better than the Q1. And therefore, as I must say always, that we remain optimistic

03:39 about even the performance in the European operations moving forward. As you saw in the

03:44 quarter four, we turned around 6.4 million euro EBITDA and for the full year we ended

03:49 at 5 million euros.

03:51 Okay, very important points that you're raising there. In terms of strategy though, and you

03:57 again, you alluded to the addition of several rooms over the course of the next six to seven

04:02 years. You're well on course to adding quite a few at the start of the new financial year

04:07 as well. You pointed out the Ganpati Phule property. You also pointed out the new acquisition

04:13 that you've done. I'm also curious about the member additions, because if you remember,

04:18 I don't know if you remember, Kavinder, but we spoke about the mix earlier. And I'm just

04:22 trying to wonder or trying to understand whether what you were talking about in terms of diversifying

04:27 that mix, have you made any progress? Or is that slow moving? Is it something that will

04:32 pan out over a period of time?

04:35 So I think when you say diversifying the mix, you probably meant that we have different

04:41 products. Primarily, we have been a 25-year product company. And we also realized that

04:47 with times that people would like to commit for a slightly shorter tenure. So just to

04:52 give you a heads up, in this financial year, which went by, we actually launched a 15-year

04:59 product. And that's also beginning to do well. We already have a 10-year Bliss Points-based

05:05 product for people who are above 15, who can holiday in any season by burning the level

05:10 of points that they would like to burn. And we anyway have a Guzes product, which is a

05:15 three-year product to get millennials in. And that is something that is really, really

05:19 helpful because you get foot in the door and then you convert them to take the higher tenure

05:25 memberships. Also, in this quarter, we added a four-year product, which was launched in

05:31 April and that's also beginning to do well. So on an overall basis, yes, majority is still

05:37 a 25-year product. But if I were to look at in the last one or two years, yes, we are

05:42 seeing momentum in Bliss, we are seeing momentum in Guzes.

05:48 Coming to the results in terms of what I started with, which is the fact that Europe is seeing

05:54 a bump and for various reasons, geopolitical, you're talking about economic conditions,

05:59 inflation, as you pointed out. Would you say then, from the perspective of how the business

06:06 is spanning out, that in the long-term vision or the medium to long-term vision, the focus

06:11 will be primarily on developing India and growing India? And would you shift focus a

06:18 little bit away or resources a little bit away from growing that side of the business?

06:24 Again, I must say that, let's go back a bit as to why did we acquire this company a few

06:34 years ago? The company at that time wasn't doing well and we felt that in Scandinavia

06:41 is a place where people will go in the future. Had it not been for COVID and now the Russia-Ukraine

06:48 war, we would have achieved our strategic objectives of creating significant enterprise

06:53 value. Having said that, we are well on our way to reduce the debt on that company. That

06:59 company will be acquired at a debt of about 50 odd million euros, it's down to now 15

07:04 million euros. So, there is a big improvement in the cash flow generation. The company has

07:09 tightened its belt. And by the way, the new timeshare destinations which are being launched

07:16 over there are getting very, very good response. So, timeshare as a business in Scandinavia

07:22 is going to do well. Our real challenge has been to manage the cost of spa hotels, particularly

07:28 during COVID and this situation that has arisen out of the geopolitical situation where people

07:33 feel the heat of the inflation. And as a result of which sometimes, particularly in a low

07:39 season quarter like this. So, the strategy that we have outlined for us is that can we

07:44 get international visitors to visit this place, not just India, but the rest of the world,

07:51 including Europe. And even if you were to leave Europe, the Asian travel itself can

07:56 ensure that our lean season is filled by the Asians because the Asian holiday season starts

08:01 from April, May, June, while their season starts from June, July, August. Similarly,

08:07 they don't have much of occupancy in the month of November. How can we fill up those rooms

08:13 in November? If we were able to get a few things right, then definitely this is a turnaround

08:18 story waiting to happen. As I mentioned already, that this is a turnaround that we actually

08:21 started in quarter four. Quarter one, we were hit again by the season and the low consumer

08:27 demand. We're just waiting for a few things to sort out. And I believe that this business

08:32 will deliver reasonably good levels of EBITDA. And then we have a belief that we can use

08:40 this business based on the potential opportunities that we might see on the horizon at that time,

08:46 not immediately, to grow our international business. Having said that, coming back to

08:51 your question, our intent and this 5,000 to 10,000 rooms when I talked about is definitely

08:58 India focused. We will definitely look at the Middle East. We will definitely look at

09:02 Southeast Asia to get more properties there. But we are currently focused on India. That

09:09 is anywhere where our energies are focused, even our resources. As far as the international

09:14 operation is concerned, it's fairly independent. All we have to do is a bit of a strategic

09:19 nudge or a guidance, which is what will help us achieve the objectives that I outlined

09:23 earlier.

09:24 Fantastic. And thanks so much for elucidating that point. When I look at the standalone

09:29 EBITDA margin, it's at what, 28.3%. And would it be fair, Kavinder, to say that the hospitality

09:38 industry has weathered the storm of COVID-19 and has learnt a few lessons in terms of operating

09:44 a tight ship, and as a result of which, those operational efficiencies are leading to much

09:51 higher margins. Is that going to continue? Is that going to grow even further or we reach

09:57 the peak?

09:58 So, you know, margin is a journey which never ends, in my view. There is always room for

10:07 improvement. And the areas that we are focusing on, and in our case, our margin is dependent

10:13 on two, three things. One is, of course, what you alluded to in terms of resort operating

10:17 costs. And by the way, we have made huge inroads during the pandemic time in terms of installing

10:22 solar panels in 22 of our resorts. 20% of our energy is now renewable. We want to take

10:29 it to 40%. This is also in line with our ESG objectives. In fact, we are committed to get

10:36 into 100% renewables in about 15 years from now. Maybe we will do it earlier. Having said

10:44 that, you know, the other cost which is extremely important in our business is cost of acquisition.

10:51 If we were to focus on reference, if we were to focus on, you know, getting members through

10:56 word of mouth, your cost of acquisition comes down and that also leads to improvement in

11:01 margins. So we have quite a few tricks up our sleeve to continuously look at improving

11:08 the margins. And I don't see any reason why we should not keep improving the margins.

11:13 And if you want to compare with us from the pre-pandemic levels, we are already up by

11:16 450 basis points.

11:18 Which is why I asked as well, and those upgrades don't hurt either, right, Kavindar? But, you

11:25 know, speaking of the additions, would you give us a sense of how much you're likely

11:28 to spend in terms of capacity expansion or addition in the current financial year?

11:35 So that's it. You know, that's a question I'd love to answer because the good news for

11:40 us there is that we have now, as I speak, we have about 800 crores of CapEx already

11:47 underway. Let me give you a quick rundown. We have a resort in Kandagad, which is near

11:52 Shimla, where a 200 crores expansion plan is on. I mentioned to you that Ganpati Phule,

11:58 we are launching, already launched a 250 crores project. So that made it about 450 crores.

12:04 We are also expanding our Goa resort by investment of 50 crores. And we are also adding rooms

12:12 in our Kuducherry resort by about 60 odd rooms. And we are looking at this moment of time,

12:19 of course, we acquired the resort in Jaipur of 72 keys. And we are planning to break ground,

12:26 already, in fact, broken ground for Kiyog also, which is going to be 150 crores investment.

12:31 So as I speak, about 800 to 850 crores of CapEx is underway, while our big strategic

12:39 objective of getting 5000 rooms in 7-year stands. But these steps to make that happen

12:45 have already been taken in terms of moving on with about 800 crores of CapEx investment

12:50 right away. Of course, this will only increase.

12:53 Kavindar Singh, Managing Director and Chief Executive Officer of Mahindra Holidays, thank

12:57 you so much for taking the time to speak to BQ Prime.

12:59 Thank you.

13:15 Thank you.

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