Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mahindra Holidays & Resorts India Ltd (BOM:533088, Financial) reported a robust profit growth of 19%, reaching INR45 crores, with margins expanding by 110 basis points.
- The company added 3,692 new members, crossing the milestone of 3 lakh memberships.
- Resort occupancy remained stable at 90%, even with a higher inventory base, indicating strong demand.
- The company is on track to achieve its goal of 10,000 rooms by FY30, with a mix of greenfield developments and capital-light strategies.
- Significant progress in ESG initiatives, including six new resorts becoming net zero waste to landfill and 10 new Green Resorts achieving platinum certification.
Negative Points
- Membership additions declined by 21% year-on-year, attributed to a focus on higher Average Unit Realizations (AUR).
- Resort income growth slowed to 2% on a standalone basis, raising concerns about the ability to optimize further.
- The European subsidiary, HCRO, continues to face challenges due to economic constraints and the impact of the Russia-Ukraine war.
- The company anticipates an increase in member retirals, which could impact overall membership growth.
- There are concerns about the return on investment from the HCRO acquisition, with shareholders questioning its long-term viability.
Q & A Highlights
Q: My first question pertains to the membership additions in this quarter that we are seeing a decline around 21% Y-o-Y basis. As you stated that the focus is clearly on the high AUR, so is this a strategy that we are going to follow going ahead and in that scenario, how do you see the total membership addition for the year?
A: Thank you for the question, Pankaj. The decline in membership additions is due to our focus on higher Average Unit Realization (AUR). We pruned out several offers and plans that contributed to lower AURs. This change impacted member additions, but we expect stabilization in Q2. We are balancing member additions, quality of revenue, and total sales. While I don't have a full-year number yet, we aim to get close to previous member addition numbers.
Q: My second question pertains to the room inventory additions plan. Can you give us some sense of how it is going to ramp up over the next five to six years? Will it be more front-end loaded or back-end loaded?
A: Simplistically, if you look at 5,000 rooms in 5 years, that's 1,000 per year. The initial two years will be lower, and it will catch up in the next three years. For the current year, we expect to exceed last year's net additions. We are also optimizing our room inventory based on member feedback.
Q: My third question is on the growth strategy. How do you see the options available from the inorganic growth perspective in the current supply-constrained environment?
A: Inorganic growth is probably not very realistic in the current environment. However, we keep this option open as we can leverage our 300,000 member base. Currently, there are no active inorganic opportunities, but we remain open to them in the future.
Q: Can you help me understand the drop in quarterly run rate of member additions? Is there some change in strategy in terms of member acquisition?
A: We focused on improving AUR by rationalizing product offerings, down payments, and offers. This impacted member additions in the short term, but we expect stabilization in Q2. The changes take time to percolate.
Q: When I look at your resort income, it has been growing at a healthy rate, but this quarter it seems to have slowed down. Is there a limit to optimizing resort income, or do you still have levers to increase it?
A: The standalone resort income growth is about 2%, but including subsidiaries, it's 4.5%. We are not satisfied with this and believe there are levers to increase it. We are focusing on creating differentiated experiences in F&B and other offerings to capture more share of wallet.
Q: On the member addition front, do we stick to the target in sync with our inventory additions, maintaining the member-to-room ratio, or focus more on AUR?
A: We are working on the model and aim to bring down the 56 members per room ratio to improve room availability. The focus on quality and targeting the right customer with the right product will continue. We will provide more details in the next three to four months.
Q: Any early thoughts on strategy or changes you would like to implement going forward?
A: Inventory addition and superior customer service at resorts remain unchanged. We are focusing on making the booking process easier and improving the sales process to target the right customers with the right products. More specifics will come in the next three to four months.
Q: Considering the boom in domestic tourism, would you want to allocate capital and management resources to the European business or rethink it?
A: The European business is stabilizing, and we are focusing on improving its performance. We will take 2-3 quarters to come back with a detailed plan. We are open to all possibilities but need more time to assess the situation.
Q: Are we planning to have clear key metrics like revenue growth and RoE for Mahindra Holidays similar to M&M?
A: We hope to get to a clear set of strategic initiatives and metrics as we go through the rethink process. This will probably take around 4 months. We are sharpening the focus on a few things and will approach it methodically.
Q: The retirals of members have been on the higher side. Will this be the new normal?
A: The retirals number will go up this year, and the baseline should be higher than 1,000 per quarter, probably closer to 1,200 to 1,300. This includes shorter tenure members ending their tenure. The trend will stabilize in 2-3 years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
