India Ratings & Research (Ind-Ra) has affirmed Mahindra Holidays & Resorts India (MHRIL) long-term issuer rating at 'A'. The outlook is stable. MHRIL has an 18-year-long track record in the Indian vacation ownership industry. It is one of India's largest companies in its segment and has a wide geographic presence across the country and in a few select international locations. On Sept. 30, 2014, MHRIL had 2,451 rooms across 40 resorts and around 175,000 members.
MHRIL's robust membership base assures a steady stream of recurring income in the form of annual subscription fees and income generated at resorts. These annuity streams of income significantly contribute to the company's cash flows and provide steadiness to the credit profile. Annual subscription fees and income generated from resorts together accounted for 34.3% (Rs 2,793.8 million) of the revenue in FY14.
MHRIL's cash flow from operations remained positive in FY14 (year end March) at Rs 1,535.2 million. Furthermore, possible securitisation of receivables indicates its strong financial flexibility. At end-FY14, receivables were Rs 12,290.6 million. MHRIL also has fund-based cash credit limits of Rs 600 million, which historically have been utilised minimally.
MHRIL added around 12,000 members in FY14, which was considerably lower than around 17,500 net additions seen in FY13. MHRIL attributes this to changes in the Telecom Regulatory Authority of India's guidelines on telemarketing coupled with the slowdown in the economy. However, the financial performance of the firm remained robust in FY14. Revenue grew 12.3% yoy to Rs 8,142.6 million in FY14 because of an increase in annuity-based income and sale of membership packages which yielded higher realisations. The EBITDAR margin for FY14 was 27.3% around the same level as last year (28.3%). Adjusted net financial leverage was comfortable and improved to 2.8x in FY14 due to lower receivable securitisations during the year.
MHRIL will add around 500 new rooms to its inventory in India, most of which will be added by end-FY15. These additions will include a mixture of self-constructions, acquisition of rooms from existing operators and leases (dry/wet). The company has already added/started construction on a considerable number of rooms. The capital outlay on this expansion is likely to be around Rs 3,500 million-Rs 4,000 million. This is being funded through a mixture of debt (receivable securitisations) and internal accruals. The credit metrics will moderate because of this expansion in the near term.
During 1HFY15, MHRIL acquired an 18.8% stake in Holiday Club Resorts Oy (HCR), Finland for an amount of EUR 13 million. The acquisition was funded through debt raised in overseas subsidiaries. MHRIL has provided a corporate guarantee of EUR 7.1 million for one of these loans. The agreement entered into with HCR's shareholders provides MHRIL the right to increase its ownership in HCR to 100%, which expires in August 2016. The agency has considered the current capital structure for the purpose of its analysis. Additional debt-funded acquisition of shares could lead to a further moderation in MHRIL’s credit metrics. The agency is treating this as an event risk.
Shares of the company declined Rs 5.1, or 1.93%, to settle at Rs 259.20. The total volume of shares traded was 7,899 at the BSE (Friday).
