520-Key Resort Expansion Will Enrich Guest Experiences In India

Key Takeaways

• Expansion with new resorts in India and strategic upgrades could boost revenue and long-term property value.
  
• Focus on premiumization and digital member acquisition strategies may enhance margins and cash flow while reducing marketing expenses.
  
• Strategic shifts toward premiumization and reliance on leased resorts may pressure margins and hinder flexibility, with economic risks from external factors like weather impacting growth.

Catalysts

Operates in the leisure hospitality sector.

• Expansion plans with the addition of 520 keys and 7 new managed resorts across India, as well as future greenfield and brownfield projects, could significantly increase revenue through higher occupancy and enhanced offerings.
  
• A strategic focus on premiumization and targeting of higher income, suitable customers, may improve net margins by increasing average unit realizations (AUR) and reducing lower-margin member additions.
  
• Continued growth in average unit realization (up 39% Y-o-Y) driven by focused member additions, upgrades, and strategic pricing could improve overall earnings and cash flow.
  
• Emphasis on member referrals and digital channels for new member acquisitions (up to 59% in F '25) might reduce marketing expenses while maintaining growth in member base, potentially boosting net margins.
  
• Greenfield projects and refurbishments planned for older resorts, while increasing short-term CapEx, are likely to drive long-term value uplift and revenue growth as the quality and attractiveness of properties improve.

Mahindra Holidays & Resorts India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mahindra Holidays & Resorts India's revenue will decrease by 21.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 22.5% in 3 years time.
• Analysts expect earnings to reach ₹3.0 billion (and earnings per share of ₹15.16) by about May 2028, up from ₹1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.2x on those 2028 earnings, up from 49.1x today. This future PE is greater than the current PE for the IN Hospitality industry at 33.8x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.77%, as per the Simply Wall St company report.

Mahindra Holidays & Resorts India Future Earnings Per Share Growth

Risks

• Dependency on factors like weather patterns and economic conditions in regions such as Finland can negatively affect revenue from the Holiday Club Resorts, impacting overall earnings.
  
• The company’s strategy of reducing member additions to focus on premiumization and increasing average unit realization (AUR) could limit revenue growth, affecting earnings potential despite higher per-member income.
  
• Increased capital expenditure in FY '26 due to large projects and resort refurbishments may pressure net margins and reduce immediate profitability until completed projects contribute to revenue.
  
• Challenges in ensuring member-to-room ratio improvements to enhance availability could strain customer satisfaction and retention, potentially affecting future revenue streams and brand loyalty.
  
• Reliance on leased resorts, which could shift from a 50:50 owned-to-leased ratio to 30:70, might impact the company’s control over operations and long-term strategic flexibility, affecting net margins and operational stability.

Valuation

• The analysts have a consensus price target of ₹480.0 for Mahindra Holidays & Resorts India based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹13.5 billion, earnings will come to ₹3.0 billion, and it would be trading on a PE ratio of 50.2x, assuming you use a discount rate of 16.8%.
  
• Given the current share price of ₹310.75, the analyst price target of ₹480.0 is 35.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.