A quick note on Club Mahindra (MHRIL) .
Rooms: Where?
On September 30, 2010, they have 117,993 members. And 1,473 apartments.
Even if they use them 100% for members, with one week per member and 52 weeks a year, they can only accomodate about 77,000 numbers. 35% of their members can’t be accomodated – 1 in 3 won’t get a chance. Given that holidays are usually taken in bunches (not spread out evenly across the year), there are likely to be even more disappointments.
Their response…
The standard reply is that listen, people don’t qualify to take holidays immediately on membership. In a mail I was forwarded, the statement made was:
…members avail of financing plans from us for their membership purchase. In light of that a certain no. of EMIs would need to realized before the member becomes “Eligible” to holiday
Oh, that way.
But…
Their member FAQs say:
The maximum that members will need to wait is 12 months, it seems.
One year ago
Let’s look back, to 15 months ago. During their IPO they said they had 96,000 members.
By now, all of them will be able to take rooms, because they’ve done their one year of tapasya. But even now, MHRIL can accomodate just 77,000. Around 20,000 will be unsatisfied. Sure the RCI affiliation takes care of some of them, but I doubt 35% of their members will want to pay the even higher RCI charges instead.
Even if we spread out holidays evenly across all members, across all resorts, and allow no “one-time” visitors or complimentary free room-nights. Which is a joke – in reality, holidays are bunched, people want to go to certain resorts (who’ll spend time in the Himalayas in winter?) and they do let in one-timers.
This model is simply not sustainable. They have to get more resorts on board. In the last one year, they have only added 200 or so rooms, but about 20,000 members. That itself is zany – 200 rooms can only satisfy 10,400 members!
Valuation
It all comes down to valuation. The stock price at 346 seems low, but is it really? Look at EPS growth:
The TTM (Trailing Twelve Month) EPS is Rs. 10.39. That’s a P/E of 34, for a company that hasn’t grown EPS much in the last full year.
Chart
Looks like a giant head and shoulder pattern. Technically the support bottom is 323. Break that with volume and this stock could go to half the current price.
Disclosure
No positions. Not even technical ones.
What brought me to the analysis was: This MoneyLife post that must be read. Yeah, I write about them too often; even I wonder why I bother. But this is an interesting lesson – markets reward branding, not performance, in the short term. In the long term, performance has to make up. (Or so I think!)
