Unique business model and consistent track record drives stock to a record high.
One size does not fit all. Similarly, the market discovers gems even within sectors that are down in the dumps. Similar was investors fancy for shares of hospitality firm Mahindra Holidays & Resorts India (MHRI) which was on a joy ride despite the overall languishing sector. After consolidating in a band of about Rs 320-Rs 370 for the past four months to mid November 2009, the stock staged a breakout in the upward direction with the company’s consistent financial performance boosting investor confidence.
Net profit rose 38.4% in Qi June 2009 over Q1 June 2008. It had logged a 37.7% rise in Q2 September 2009 and a sharp 169.3% in Q3 December 2009 over the previous quarterly periods. Net sales grew at a scorching pace of 3 9.9% in the latest quarter ended December 2009, after rising 2.5% and 15.8% during the previous quarters.
Due to its unique business model MHRI, a relatively new kid on the bourses, was able to stand tall at a time when the hospitality sector is still languishing with low average room rates and poor occupancy levels and is yet to recover fully from the setback it had suffered following the global economic crisis and outbreak of the swine flu pandemic. The stock advanced 40.28% to Rs 504.50 in the three months to 20 January 2010.
The Chennai-based MHRI is a leading leisure hospitality provider of family holidays, primarily through vacation ownership memberships. However, the company also earns interest income from members who finance their vacation from loan funds. The earnings are based on the difference between the interest its pays to banks and the interest rate in- built into the EMI schedule of its members.
MHRI had around one lakh members end September 2009. With the company’s membership fee running into lakh rupees, most of the members opt for finance rather than making one-time payment.
The MHRI stock also hogged the limelight with travel services provider Cox & Kings (India)’s initial public offer (IPO) attracting a modest 29.10% premium over its issue price of Rs 330 per share on its debut on 11 December 2009. The company had mopped Rs 610 crore through the IPO, which was subscribed 6.31 times.
Re-rating saw the MHRI stock striking a recordhighofRs 536.8Oon l9January20l0 with investors lapping up shares to bridge the wide valuation gap. However, the scrip eased 15.46% to Rs 426.50 on 29 January 2010 since then on profit booking. Its 52- week low of Rs 306.65 was on 17 July2009. The stock’s journey to all-time high was accompanied by higher average daily traded volume, which rose to 44,873 shares in the fortnight to 29 January2010 compared with 32,222 shares in the half-year.
In June 2009, MHRI had raised about Rs 278 crore through an IPO, which was subscribed nearly 1 0 times. Based on the latest price of Rs 426.50, shares of MHRI command a 42.16% premium to its lPO price of Rs 300 a piece. Promoters held an 83.09% stake in MHRI end December 2009, with public holding in the stock pegged at 4.17%. The MHRI stock attracting a PE multiple of 31.10 based on the current market price of Rs 426.50 and trailing-12 month EPS of Rs 13.71 is overvalued compared with the industry average of 27.60 of small hotels.
