22 JAN 2016 Company Report BUY Target Price:Rs 520

CMP : Rs 356 Potential Upside : 46%

MARKET DATA

No. of Shares : 89 mn Market Cap : Rs 32 bn Free Float : 25% Avg. daily vol (6mth) : 132,319 shares Mahindra Holidays & Resorts India 52-w High / Low : Rs 475 / Rs 232 Bloomberg : MHRL IB Equity MISCELLANEOUS Promoter holding : 75% FII / DII : 8% /5% Cash Machine Price performance 250 Sensex Mahindra Holidays & Resorts 200

150

100

50 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

Financial summary (consolidated) Key drivers Y/E Sales PAT (Rs Con. EPS* Change RoCE EV/E FY 15 FY 16 FY 17 FY 18 Mar (Rs mn) mn) (Rs) EPS (Rs) YOY (%) P/E (x) RoE (%) (%) (x) DPS (Rs) Mem. addn. FY15 8,119 803 - 9.2 (6.7) 38.6 10.9 14.7 17.5 4.0 8% 9% 8% 8% growth FY16E 9,839 1,200 13.0 13.8 49.5 25.8 15.9 20.8 12.3 4.8 FY17E 11,514 1,600 15.4 18.4 33.3 19.4 19.0 25.6 10.0 7.4 Mem./Room 65 65 65 65 FY18E 13,423 1,972 17.6 22.7 23.3 15.7 20.9 29.1 8.3 10.2 RoCE 15% 21% 26% 29% Source: *Consensus broker estimates, Company, Axis Capital 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Reminiscences of a member… MISCELLANEOUS

 I realized the perils of a time-crunched sell-side job when my wife threatened Holiday activities at resorts to go on holidays with the kids without me!

 And so I signed up for Club Mahindra (CM) after great reviews from common friends who were having enjoyable family holidays, from the smallest of extended weekends to the sacrosanct annual family vacation without fail at new exotic locations each year

 My first vacation at Varca beach Goa was an eye-opener. To me, the most enjoyable part was that I didn’t have to chaperone my kids around, and I too could have a proper holiday. Each member of my family found many others of common interest to occupy themselves with. And thus my investing mind did what it does best – hovered over the premises. I discovered one by Tea leaf picking at Munnar one, the exceptional moats that surround the CM business model:  Each day of my ‚do nothing‛ vacation involved a bunch of activities for people of different ages and backgrounds, it has something for everyone! – From treks to dancing classes for the hyperactive, and of course board games and the massage spa for the mentally hyperactive like some people I know  I experienced first hand the exceptional ‚service‛ ethos where the staff was geared to adjusting and dealing with a motley crowd with an omni-smile  Locations were usually in the bosoms of nature, saving costs and yet, allowing for massive expanses of manicured landscapes and facilities. They were beautifully maintained, partly because CM has inflation-linked annual payment. The absence of this was the main reason competitors’ locales were maintained badly

Source: Company, Axis capital 2 22 JAN 2016 Company Report Mahindra Holidays & Resorts India …and the covering analyst MISCELLANEOUS

If it weren’t for the Mahindra brand name, I doubt I would pre-pay for 25 years of vacation!

So when I put pen to paper, realization drew upon me that ‚I‛ funded the capex and opex of the resorts (through initial membership fee and Annual charges), but the best (or the worst) part is that I didn’t own them. So, who owns the asset base? The shareholders!! This set me thinking on the business model:

 Operational RoCE in this business seemed uncapped, as there isn’t any perpetual equity/ debt requirement, and customers fund both the expansion and its running costs

 My dinner conversations with fellow members revealed that most memberships were less than 10 years old. Hence, over the next 10-15 years, there would be a steady stream of members completing their vacation entitlements. This implies CM can again sell these memberships (post the 25 years) on its existing infrastructure at the inflation-adjusted prices creating superior ‘terminal value’

No business analysis is complete without a properly thought out DCF. Given the convoluted (well justified though!!) accounting, run-of-the-mill valuation matrices do not hold stead (also there is no real comparable domestically or internationally). Hence we rely on the righteous DCF to guide us through the valuation arguments. We use a two-stage DCF with key variables being membership addition (bringing in the CFO) and increase in room inventory (spawning the capex).

We believe a 8% CAGR for member addition and room inventory is not unreasonable given the historical 17% CAGR and 20% CAGR for member and room addition respectively and the underpenetrated market for vacation ownership in India. Our DCF generates a fair value of Rs 520 (FY17) indicating a potential upside of 46% from CMP.

-- Kashyap Pujara The promise of delivering quality holidays for 25 years is assured by brand Mahindra

3 22 JAN 2016 Company Report Mahindra Holidays & Resorts India What is changing? MISCELLANEOUS

Getting the member/room economics working; significant FCF generation going forward

FCF (Rs mn) No of Rooms Member/ Room Ratio (RHS) (Nos) Declining member/room ratio led to 100 4,000 higher room addition per incremental customer leading to 90 3,000 lower/ inconsistent FCF generation 80 2,000 70 1,000 60 0 50

(1,000) 40

FY07 FY08 FY11 FY12 FY14 FY15 FY18 FY19 FY09 FY10 FY13 FY16 FY17 FY20

Source: Company, Axis Capital FCF generation despite the continual room addition indicating no reliance on external funding while delivering on the promise of vacations

 The member room economics entailed walking on the thin line which had valley of overcapacity on one hand and the ocean of dissatisfied customers on the other

 The company at 65 members to a room seems to have cleared out the kinks in its model

Improving member room economics leading to stable FCF generation

4 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Mahindra Holidays: It Came...It Saw... It Conquered MISCELLANEOUS

Club Mahindra (CM) business model Room revenue  Mahindra Holidays & Resorts Non- Spending India Limited (MHRIL), popularly Provides 1 week/year unique holiday at resort members experience for 25 years known as ‚Club Mahindra‛ (part of Mahindra Group), is the Unused inventory for undisputed leader in the Indian Resort non-members Spending at resort Vacation ownership (aka - time- share) industry with >70% Build resort financed market share by member payment Purchase vacation ownership  Customers are willing to pay Interest on EMI Member upfront for vacations to be Annual subscription fee delivered over 25 years due to their belief in the promise made by brand ‘Mahindra‛ Recurring Income Fixed payment Service offered

Source: Company, Axis Capital

 Club Mahindra (CM) offers customized holiday solutions to its member families drawing on its comprehensive bouquet of holiday destinations ranging from hill stations, beaches, back-waters, wildlife, deserts. CM has a base of ~190,000 members (up 7x in last 10 years) and 45 resorts (2,867 rooms). This implies the company has ~65 members to a room

 The company offers a four tier membership structure {purple (highest), red, white and blue (lowest)} with initial membership costs ranging from Rs 0.2 mn to Rs 1.7 mn. It also offers membership according to the size of the unit (Studio, 1BR, 2 BR) with the studio ownership being the most popular with the customers

Property title vests with CM. Recurring income (resort income + ASF) stream adds to income stability

5 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Contents MISCELLANEOUS

Page

 Extra-ordinary business model 07

 Why CM trumps hotels !! 12

 Prudent capital allocation 15

 Valuations and Risks 19

 Value proposition for customers 24

 Investors’ key concerns 29

 Industry still at nascent stage 34

 Appendix

 Club Mahindra 39-44

 Global peers 46-51

 Company financials 52

6 Extra-ordinary business model

 Profitability both at HO and resort level with no need for external capital

 Sustained competitive advantages in the drivers seat 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Robust business model – no reliance on external capital for growth MISCELLANEOUS

Upfront per room membership fee (one-time) Annuity Income at resorts (per room) Memb er/ Particulars Amount Total Room Particulars Amount Units Total Initial membership fee 400,000 65 26,000,000 Annual subscription fee 13,000 65 845,000 Customer acquisition cost 150,000 65 (9,750,000) Resort income (Weeks) 9,082 50 454,124 Capex per room 7,500,000 1 (7,500,000) Revenue from non member rooms (Weeks) 31,108 4 124,432 Surplus at HO 8,750,000 Resort income 1,4 23,556

Source: Company, Axis Capital Source: Company, Axis Capital

Used to fund Corporate OHs Used to fund Brand promotion activities Resort Expenses (~Rs 1.1 mn Building land banks per room per annum) Net surplus per room Net surplus per room ~Rs 2 mn ~Rs 0.4 mn pa

 Upfront payment for membership – initial cash flow used for building more resorts. As a result, the company does not have to rely on external capital for funding room inventory

 Spends at resort and Annual Subscription Fee (ASF) = recurring income for Mahindra Holidays

 Other sources: Interest on EMI + sale of excess room inventory to non-members

 Ownership of property stays with the company. If regularly maintained, capex requirement when the renewals start kicking in (post 25 years) would not be significant

Property title vests with CM; recurring income stream adds to income stability

8 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Net cash company/ equity dilution only for regulatory purposes MISCELLANEOUS

Gross block funded predominantly through internal accruals

FY10 FY15 FY20 Share Share Capital + Share Capital + Securities Capital + Securities Premium Securities Premium Premium

84% 55% 76%

Built Built through Built through internal through internal accruals internal accruals accruals

Source: Company, Axis Capital

 IPO: In 2010 – the promoters reduced holding to 83% from 93%

 Promoters further issued equity in 2013 only to reduce ownership to below the regulatory minimum of 75%

 In FY15, the company raised debt of ~1.3 bn for acquisition of the Finnish subsidiary. However, this is transient and is likely to be repaid in 3-4 years. Acquisition is funded through an ECB at interest rates lower than the dividend yield of the Finnish subsidiary

9 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Reducing Member: Room ratio was key objective for IPO MISCELLANEOUS

IPO funds were primarily used to SUSTAINABLY reduce the member to room ratio

Rooms Members Member: Room ratio (RHS) 450 100 (units) (units) 400 Corrective action taken – 95 Raised debt ~Rs 1 bn 350 (paid off in same year) IPO of 90 (~Rs 1.75 bn) 85 300 80 250 94 members to a room, requiring 75 200 immediate capex 70 150 65 100 60 50 55 0 50 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 2007 Members & Rooms Rebased = 100

Source: Company, Axis Capital, NOTE: Member and room inventory rebased to 2007 Steady decline in member to room ratio – incremental capex internally funded  Till 2010, CM added more members per room

 2010 onwards, the company fixed the kinks in the member room economics with more rooms added incrementally per member addition resulting in a declining member/ room ratio

10 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Why is Club Mahindra the most successful VO player in India MISCELLANEOUS

Club Mahindra’s competitive advantages through 7Cs

Credible parentage: The ‘Mahindra’ name inspires trust allowing the customers to ‘prepay’ for 25 years of vacations

Consistent cash generation: Upfront payment by customers enables capex to be internally funded and with stable member to room ratio, the company is expected to generate significant free cash going forward

Customer centricity: An integrated value chain revolving around customer satisfaction. 80% of customers have rated their vacation experience as Above Average. The Club Mahindra mantra goes ‘We put a lifetime of experience into delivering an experience of a lifetime’. A testament to the same is the reducing member to room ratio which has enabled higher customer satisfaction

Creative marketing/ digital innovation/ brand appreciation: generating leads through referral program ensures lower ‘bad-mouthing’ and higher hit rates for the sales staff. Creation of a SAP-backed digital platform enables transparency for the customer

Capital conservatism: Management maintains a cautious approach towards capital allocation. ~70% of the capital is deployed towards core capex (ie building of rooms)

Core RoCE: Excluding the prepaid income (which essentially is revenue received but not accrued), the company generates18-20% RoCE which is expected to increase to 28%+ by 2018. Average RoCE of 45%+ over FY05-15

Customer acquisition potential: Vacation ownership market is currently highly underpenetrated with ~3.5 lakh customers against 3 mn eligible households. With strong competitive advantages, the Mahindra Holidays (~70% market share) is the likely beneficiary of the increasing penetration levels

11 Why CM trumps hotels !! 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Internal, upfront cash generation key differentiator from hotels MISCELLANEOUS

Net cash company with member-funded room expansion Low debt burden and high payout ratios ensure superior profitability

Debt/ room Occupancy (RHS) EBITDA margin RoCE (RHS) 4 100% (Rs mn) 35% 35% 3 90% 25% 25% 2 80% 15% 15% 1 70% 5% 5% 0 60% -5% -5%

(1) 50%

Mar-12 Mar-13 Mar-14 Mar-12 Mar-13 Mar-15 Mar-12 Mar-13 Mar-15 Mar-15 Mar-14 Mar-14

Mar-12 Mar-13 Mar-15 Mar-12 Mar-13 Mar-14 Mar-12 Mar-13 Mar-14 Mar-15 Mar-15 Mar-14 EIH Hotels Indian Hotels Mahindra Holidays EIH Hotels Indian Hotels Mahindra Holidays Source: Company, Axis Capital Source: Company, Axis Capital

Customer stickiness ensures high occupancy levels While EBITDA margin is somewhat comparable to hotel Net cash company. players, the lower cost capex Capex completely leads to a magnified RoCE funded through internal accruals

13 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Why the business model is better than the traditional hotels model MISCELLANEOUS

 ARR’s and RevPar’s of traditional hotel businesses has not increased over the last 5 years

 Low occupancy and mounting debt are the key issues plaguing the hotel industry

 Investors better off choosing the Club Mahindra model

Club Mahindra trumps the traditional hotel business

Particulars Club Mahindra Hotels

Holiday experience High quality - focus on every member of the family Family experience generally lacking

Occupancy Higher and stable all year round Lower occupancy; subject to uncertainty and fluctuations

Nature of revenue Multiple revenue streams. Upfront and Annuity Limited revenue streams

Affiliations Provide multiple options through tie-ups with RCI Not Applicable

Capital investment Done from upfront membership fees Done through debt or equity fund raisings

Debt structure Almost debt free High debt levels

Cash flows Strong upfront cash flow model Low on cash flow

Receivables Receivables can be securitized No securitization opportunity

Source: Company, Axis Capital

14 Prudent capital allocation

 Conscious capital conservatism

 Consistent FCF generation going forward

 Income and expenditure streams getting more granular 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Capital allocation over the last decade MISCELLANEOUS

Cumulative sources of funds (FY05-15) Cumulative allocation of funds (FY05-15)

Investment Interest Paid Income 2% 3% Dividends Paid 12% 68% Debt Proceeds 69% / (Payments) Operating Capex 7% Cash flow 69% Purchase of (core) Share Capital Investments 73% / Premium 17% 16%

Source: Company, Axis Capital Source: Company, Axis Capital

 Operating cash flow has been the major source of income contributing ~70% of allocable funds

 Capital expenditure includes investments in resort properties (ownership resides with the company)

 Holiday Club Finland (88% Subsidiary) contributes ~84% of the investment purchased (~20% of capital deployed)

 Debt acquired in FY15 (0.1x Debt: Equity) to fund the international acquisition with interest burden less than the dividend from the subsidiary

 Debt free over the last decade

 Equity dilution (only on regulatory requirement) Majority of the OCF generated, deployed towards core capex

16 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Consistent FCF generation going forward MISCELLANEOUS

Sustained revenue momentum, strong cash conversion, capital conservatism ensure sustained FCF generation

2,500 FCF Cum.CFO: Cum.EBITDA (RHS) Dividend Payout (RHS) 120% (Rs mn) 2,000 90% 1,500

1,000 60% 500

0 30%

(500) 0% (1,000)

(1,500) -30% FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

 The company has previously not generated meaningful FCF due to a declining member to room ratio and a international acquisition in FY14/15  As discussed on slide #4, we believe the company is on track to generate sustained free cash over the next 5 years  With upfront payments, the company has maintained a strong cash conversion of ~90% (CFO: EBITDA) despite timing mismatch-led high receivables  Apart from the Finnish acquisition, the company has not deployed resources beyond building luxury resorts in India  The company has maintained a steady dividend policy with an average payout of 30%

Source: Company, Axis Capital 17 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Income and expenditure streams getting granular MISCELLANEOUS Revenue mix Others Others Others 9.6% Walk in Walk in 11.5% Walk in 10.7% sales sales sales 5.3% 2.9% 8.7%

F&B F&B VO sales F&B 4.6% 11.5% VO sales 50.5% 15.5% ASF 54.9% 3.8% ASF ASF VO sales 19.2% 15.7% 75.7% FY2008 FY2015 FY2025 Dependency on ‘chunky’ income (sale of VO) reduced meaningfully; annuity streams gaining prominence

Cost mix Others Others 10% Others Op.exp 16% Op.exp 15% 21% 7% Sales and Promotion Op.exp 43% Employee 16% 20% Sales and Employee Sales and Promotion Promotion Employee 26% 63% 37% 26% FY2008 FY2015 FY2025

Expenses getting granular (high thrust on employee and operating costs) enabling enhanced customer experience

Source: Company, Axis Capital 18 Valuations and Risks

 Two-stage DCF valuation of Rs 520 (1-yr forward); 46% upside

 Mahindra Holidays trumps domestic and international peers given the profitability and growth potential

 Key risks 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Valuation on DCF : TP of Rs 520, 46% upside MISCELLANEOUS

Ability to replenish member base at low/ negligible cost generates high terminal value PV of FCF 15,631 9,000

(Units) ) Terminal value 31,383

mn Value of the company 47,014

6,000 Rs Debt 1,238 Equity value 45,776 3,000 CMP (Rs) 356

Per share value 520 Valuations ( Valuations Up side 4 6% 0 Riskfree rate 8%

(3,000) Market risk premium 5%

units Beta 1.0

FY15 FY17 FY19 FY21 FY23 FY26 FY18 FY20 FY22 FY24 FY25 FY16 Discounting rate 13%

Key assumptionsKey Terminal growth 5% Assumed only a moderate growth in member addition Room inventory to grow in line with member addition

5,000 300,000 (Nos) (Nos) 250,000 4,000

200,000 3,000 150,000 2,000 100,000 1,000 50,000 0

0

FY07 FY08 FY09 FY10 FY13 FY14 FY15 FY16 FY17 FY18 FY11 FY12 FY19 FY20

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY18 FY19 FY20 FY07 FY08 FY16 FY17

Source: Company, Axis Capital 20 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Profitable at the resort level MISCELLANEOUS

A perspective

Resort income (ASF+ F&B+ Room Rentals) Expenses at resort (excluding rentals) Resort margins (RHS)

5,000 50% (Rs mn)

40% 4,000

30% 3,000 20%

2,000 10%

1,000 0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Source: Company, Axis Capital

 Management has often reiterated that the most of the resort business model is such that the expenses at resorts are paid for through a combination of resort revenue and ASF

 While details regarding the resort-level profitability are unavailable, our back-of-the-envelope calculations suggest the company is able to generate margin between 20-40% of the resort revenue

 We assume  50% of employee costs, 50% of operational overheads and F&B costs allocated to resort P&L  Depreciation & leasing expenses not included

21 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Peer valuation MISCELLANEOUS

Profitability and valuations comparable to international peer, underpenetrated market offers higher growth potential

Mahindra Holidays Wyndham Particulars Mar-12 Mar-13 Mar-14 Mar-15 Mar-12 Mar-13 Mar-14 Mar-15 Mahindra Holidays trades at a Revenue ($ mn) 89 114 126 125 1,036 1,133 1,193 1,262 similar EBITDA multiple compared Net Profit ($ mn) 16 14 13 12 32 27 90 122 to Wyndham which we believe is EBITDA Margin (%) 17 23 20 22 22 21 19 22 unjustified given the longevity of Debt:Equity (%) 0.0 0.0 0.0 0.2 2.0 2.8 3.2 4.8 growth outlook for Club Mahindra RoCE (%) 26.4 23.7 18.6 16.3 8.8 8.5 9.0 10.8 (visa vie Wyndham) and the stellar RoE (%) 18.2 14.8 11.4 11.2 15.6 20.4 30.4 43.2 track record of the management in P/E Ratio (x) 24.7 23.7 23.6 27.9 15.6 19.3 19.2 18.3 delivering ‘family holidays’ EV/EBITDA (x) 24.1 12.6 12.5 13.1 11.1 12.9 12.5 13.0

Source: Bloomberg, Axis Capital

Trumping domestic hotel industry on profitability and valuations

Mahindra Holidays Indian Hotels EIH Hotels Particulars Mar-12 Mar-13 Mar-14 Mar-15 Mar-12 Mar-13 Mar-14 Mar-15 Mar-12 Mar-13 Mar-14 Mar-15 Revenue (Rs mn) 5,781 7,386 8,164 8,119 34,435 37,434 40,662 41,886 14,072 14,685 15,466 16,683 Net Profit (Rs mn) 1,023 909 870 812 31 (4,302) (5,539) (3,781) 1,223 418 1,071 631 EBITDA Margin (%) 17 23 20 22 16 15 14 12 23 20 22 23 Debt:Equity (x) 0.0 0.0 0.0 0.2 1.0 1.0 1.3 1.7 0.2 0.3 0.2 0.2 RoCE (%) 26.4 23.7 18.6 16.3 1.4 0.4 (0.5) 0.2 4.9 3.6 4.5 3.2 RoE (%) 18.2 14.8 11.4 11.2 0.1 (14.2) (19.7) (15.5) 4.8 1.6 4.1 2.4 P/E Ratio (x) 24.7 23.7 23.6 27.9 NA NA NA NA 40.0 75.5 36.7 97.6 EV/EBITDA (x) 24.1 12.6 12.5 13.1 16.5 15.8 18.8 28.7 16.5 12.8 13.6 17.1

Source: Bloomberg, Axis Capital

22 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Key risks MISCELLANEOUS

 Balancing member additions along with room inventory So far the management’s approach towards capital allocation appears sanguine, as evidenced by (a) balance of room inventory and member additions , (b) modest capex through optimal room additions with a blend of leased/owned properties, and (c) measured international acquisitions. As long as CM is able to add inventory in line with member additions, it would be able to deliver on holiday promise and build more members through referrals from satisfied customers

 Do online aggregators Yatra/ Make My Trip/ Air B&B pose significant threat to the VO business? While the aggregators provide flexibility and more spontaneous vacation options, these attributes are not typical to the target Mahindra customer. Club Mahindra holidays are typically planned and provide ‚family vacations‛ at a value for money proposition. The business model of these aggregators is built on discounted prices and at locations where the family needs may not be catered to

 Can strong competitive intensity affect the member addition rates in the near/ medium term? While the VO industry is nascent, it has historically been a duopoly business. Peers in this industry have faltered due to overambitious expansions (stemming from cash generating ability of the business) and have not been able to deliver on the promised holiday experience. The salience of brand ‘Mahindra’ and the ability to consistently deliver on the promise of quality ‚family‛ holidays is the key strength of the business along with the premium resorts it has built. Unless CM consistently fails to deliver on the above, we believe that the threats to its pole position are miniscule

23 Value proposition for customers

 Creating unique FAMILY experiences – core value proposition

 Cost of vacation – inflation proof

 World class resort experience 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Creating unique FAMILY experiences – core value proposition MISCELLANEOUS

Mission: Good living. Happy families

Integrated dining & fun: Tea leaf picking Themed designs, restaurants at Munnar combined with entertainment shows (Food Drama)

Creating moments to cherish….. Nature trails and holiday activities: Fun-filled activity to escape the city lethargy

25 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Economic value proposition for the customer MISCELLANEOUS

Avg cost for 1 week vacation = ~Rs 60,000 (protects against inflation)

Cost of a 7 day vacation per Year 62,000 (Rs) 61,000 60,000 59,000 58,000 57,000 56,000 55,000 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Source: Axis Capital

Holidays are inflation protected (Rs)  Under the time share model, a customer Particulars Year 1 Year 2 Year 3 Year25 virtually locks in the costs for his family holiday for 25 years. Timeshare’s appeal lies Initial membership fee 400,000 383,000 366,000 - in its lower than hotel cost (hedge against Interest @ 8% 32,000 30,640 29,280 1,280 inflation) and superior experience through Write Off of initial costs 17,000 17,000 17,000 17,000 family activities Annual Maintenance 13,000 13,650 13,650 41,926 Cost of a 7 Day vacation 62,000 61,290 59,930 60,206  Biggest positive for timeshare – seasonality is waived off by offering multiple products + Source: Axis Capital unlike hotels, capital for timeshare is from member additions

26 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Putting destinations on the map…Taking the road less travelled MISCELLANEOUS

 Resorts locations off the well-treaded tracks

 Destinations of tomorrow

 Pristine environment

Kandaghat, near Shimla Kanha, Madhya Pradesh

NearestNearest Airport // RailwayRaiway stationstation Chandigarh100100 kms Kms Nearest Airport // RailwayRaiway station JabalpurJab al p ur143143 kms km

Binsar Villa, near Nainital Kumbhalgarh, near Udaipur

Nearest Airport Pantnagar 167 kms NearestNearest Airport // RailwayRaiway stationstation UdaipurUdaip ur9595 kms Km Nearest Railway station Kathgodam 135 kms

Naukuchiatal, near Nainital Ashtamudi,Ashtamudi, KeralaKerala

Nearest Airport Pantnagar 167 kms NearestNearest AirportAirport TrivandrumTrivandrumTrivandrum 9090 90kms KmsKms Nearest Railway station Kathgodam 135 kms NearestNearest RailwayRailway stationstation KollamKolKol l l am am 151515 kms KmKm

Thekkady, Kerala Kumarakom, Kerela

Nearest Airport Kochi 170170 kmsKm Nearest Airport CochinCochin 7878 kms Kms Nearest Railway station Kottayam120120 kms Km Nearest Railway station KottayamKottayam1414 kms Kms

Gir,Gir, Gujarat Gujarat Dharamshala

NearestNearest Airport Airport DiuDiu 100100 kmskm km Nearest Airport GaggalGaggal1717 kms kms NearestNearest Railway Railway station station VeravalVeraval4545 kmskm km Nearest Railway station PathankotPathankot9595 kms kms

27 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Rating of the resorts MISCELLANEOUS

Average rating of 4 (out of 5) for all resorts on Trip Advisor % of Average/Poor/ Trip Advisor % of Average/Poor/ Resort Trip Advisor rating Terrible reviews Resort rating Terrible reviews Puducherry 4.0 22% Gangtok 4.0 18% Danish Villa, Ooty 4.0 17% Baiguney, Sikkim 4.0 9% Yercaud, Tamil Nadu 4.0 31% Mussoorie 3.5 32% Derby Green, Ooty 4.0 19% Naukuchiatal, near Nainital 4.0 22% Kodaikanal 4.0 16% Binsar Valley, near Nainital 4.0 15% Le Poshe, Kodaikanal 4.5 6% Corbett, near Nainital 4.0 17% Masinagudi, near Ooty 4.0 30% Kanatal, near Dehradun 4.0 20% Madikeri, Coorg 4.5 11% Mashobra, near Shimla 4.0 26% Virajpet, Coorg 4.0 17% Manali 4.0 20% Jaisalmer 4.0 19% White Meadows, Manali 4.0 20% Kumbhalgarh, near Udaipur 4.5 12% Kandaghat, near Shimla 4.0 17% Udaipur 4.0 24% Dharamshala 4.0 32% Emerald Palms, Goa 4.0 21% Kumarakom 3.5 47% Acacia Palms, Goa 4.0 18% Cherai, Kerala 4.0 15% Varca Beach, Goa 4.0 21% Munnar 4.0 14% Sherwood, Mahabaleshwar 4.0 29% Mount Serene, Munnar 4.5 0% Gir, Gujarat 4.0 16% Ashtamudi, Kerala 4.5 11% Bon Alpina, Austria 4.0 24% Thekkady, Kerala 4.5 39% Arabian Dreams, Dubai 3.5 31% Poovar, Kerala 4.0 25% Mac Boutique Suites, Bangkok 3.5 42%

 Over 80% of the customers visiting the resorts have rated their experience as Above Average or Excellent

 27 resorts awarded the prestigious ‚Gold Crown‛ property certificate by RCI and 1 property awarded the ‚Silver Crown‛

Source: TripAdvisor, Axis Capital 28 Investors’ key concerns

 Accounting too aggressive?

 Cheap secondary sales; too many disgruntled customers?

 Low room inventory (principle cause of customer dissatisfaction)? 22 JAN 2016 Company Report Mahindra Holidays & Resorts India No accounting concerns MISCELLANEOUS

Key concern for investors has been that revenue recognition practice appears aggressive, given that CM recognizes 60% of the membership revenue upfront. This treatment is inline with Indian accounting standards and is similar to the treatment followed by VO players globally (Wyndham, Marriott etc) and locally (Sterling)

We present below the P&L and balance sheet impacts under 2 cases, (a) upfront payment of membership fee and (b) staggered EMI-based payment received over 36 months Accounting treatment Year 1 Year 2 Year 3 Year 4 Year 5 Year 25 Comments Case 1 Upfront Payment (Rs) Profit & Loss A/c Revenue (initial) 255,000 - - - - - 60% of the membership cost Revenue (Recuring) 6,400 6,400 6,400 6,400 6,400 40% of the remainder amortized Interest ------Balance Sheet - Assets Cash 400,000 - - - - - Debtors ------Balance Sheet - Liabilities Deffered Revenue 145,000 138,600 132,200 125,800 119,400 - Revenue received but not due Accounting treatment Year 1 Year 2 Year 3 Year 4 Year 5 Year 25 Comments Case 2 Deffered Revenue 24 months (Rs) Profit & Loss A/c Revenue (initial) 255,000 - - - - - 60% of the membership cost Revenue (Recuring) 6,400 6,400 6,400 6,400 6,400 40% of the remainder amortized Interest 57,600 28,800 - - - 16% pa on the outstanding amt Balance Sheet - Assets Cash (excl interest) 40,000 180,000 180,000 - - - Membership cost over 2 years Cash (Interest component) - 57,600 28,800 - - - Debtors (Short term + Long term) 360,000 180,000 - - - - Receivables on the EMI scheme Balance Sheet - Liabilities Deffered revenue 145,000 138,600 132,200 125,800 119,400 - Revenue received but not due

Source: Company, Axis Capital 30 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Secondary sales: Not too cheap/not too many MISCELLANEOUS

 Club resale is the biggest platform for members and prospective members across various vacation clubs and weekend clubs to buy/sell their memberships  There are currently ~500 CM members looking to sell their memberships which is ~0.2% of their membership base. Our DCF assumes ~3% of the members cancel their membership per annum  A cursory reading of the table alongside indicates that the membership is available at discounted prices. However, the pricing is not indicative as it excludes unpaid dues/ additional expenses.

Cost of new membership (Red Studio) 475,000 Season Ap p artment Club RGB Sterling Magic Cost per week 19,000 Mahindra Cafter (Rs) Holidays (Rs) (Rs) (Rs) Cost of Red Studio on "Club resale" per week 17,000 Purple 2 BR 37,000 NA 32,000 NA Number of weeks purchased 22 Purple 1 BR 29,000 NA 24,000 NA Membership costs 374,000 Purple Studio 25,000 NA 20,000 NA Outstanding dues: Red 2 BR 25,000 23,000 22,000 22,000 - ASF (3 years) 20,000 Red 1 BR 20,000 18,000 17,000 16,000 Red Studio 17,000 15,000 14,000 14,000 - Transfer fee 7,000 White 2 BR 16,000 14,000 13,000 13,500 Total cost 401,000 White 1 BR 12,000 11,000 10,000 10,000 Cost per week 18,227 White Studio 10,000 9,000 8,000 8,000 Net discount 4% Blue 2 BR 12,000 11,000 10,000 9,500 Blue 1 BR 9,000 8,000 7,000 6,800 Blue Studio 7,000 6,000 6,000 5,500 We analyzed a sample of the CM members looking to sell their membership and drew 3 key conclusions ♦ ~85% of the members were in the low-end category (Blue and White) who have constraints over their vacation plans ♦ More than 94% of these members had outstanding EMIs/ ASF payments ♦ Average outstanding weeks available for sale was 22 weeks indicating that most of these members have enrolled half heartedly and now possibly face a cash crunch or find the plans unsuitable

Source: Axis Capital, Club resale website (http://www.clubresale.com) 31 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Why is there a perceived room inventory issue MISCELLANEOUS

 While most customers enjoy the resort Resorts/ room availability around Mumbai experience, unavailability of rooms at their desired locations could lead to increased customer dissatisfaction

 Mumbai is the financial hub of the country and accounts for at least 20% of the CM members (~36K members). We take the case study of Mumbai to explain the room inventory issue

 There are 4 resorts around Mumbai and 3 resorts in Goa. The total room capacity in these resorts put together is ~500 rooms.

 Hence on a given weekend or during the holiday season, customers may not be able to confirm the reservation Gir 43 at these locations leading to increased dissatisfaction

 Various blogs and consumer forum websites harp on the high Pavna Lake Mumbai 65 member to room policy that CM follows Mahableshwar Ganpatipule 65  The 500 rooms in the western region are sufficient to satiate 35 Goa 25000 room weeks , with a member to room ratio of 72 300 members/ room (10% higher than avg) Resorts  Also taking cognizance of the same, the management has added inventory in the western region over the last couple of years and will continue to do so resulting in a declining member room matrix.

Source: Axis Capital

32 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Why room inventory is not an issue MISCELLANEOUS

 Cursory analysis indicates CM has ~65 members per room (ideal no being 50) indicating overselling

 However that is not the case as  Most of the members pay the initial membership fee through EMI mode making them ineligible to take a vacation in the first year  Existence of dormant members and member delinquency on the ASF leading to only 70% of eligible members taking a vacation in a year

 In FY15, 91% of members who demanded a holiday ended up holidaying with Club Mahindra at least once

CM has maintained adequate room inventory, marginally ahead of its member requirements

Particluars FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Total members 53,113 73,533 92,825 109,884 125,169 143,258 160,747 170,000 183,000 Eligible members 38,691 53,113 73,533 92,825 109,884 125,169 143,258 160,747 170,000 Avg tendency to take vacation 70% 70% 70% 70% 70% 70% 70% 70% 70% Members taking vacation 27,084 37,179 51,473 64,978 76,919 87,618 100,281 112,523 119,000 Rooms required 521 715 990 1250 1479 1685 1928 2164 2288 Actual rooms 675 779 1,177 1,476 1,624 2,049 2,480 2,407 2,816 Downtime 2 weeks 649 749 1,132 1,419 1,562 1,970 2,385 2,314 2,708 Excess capacity (# of rooms) 128 34 142 169 83 285 457 150 420 % of members taking vacation 70%

Source: Axis Capital

Club Mahindra has always stayed ahead of its room requirement

33 Industry still at nascent stage

 Apex of consumer discretionary spends, low penetration, high growth potential

 Improvement in income demographics to provide tailwinds for member addition 22 JAN 2016 Company Report Mahindra Holidays & Resorts India MISCELLANEOUS Price utility framework – Apex of the discretionaryLow penetration, spend highest growth potential aided by improving demographics; highly cyclical

Vacation Ownership Passenger Lower Jewellery Cars Penetration, increasing awareness and White discretionary spends to Goods Travel and drive growth Tourism Services Kitchen Appliances Branded (Brown Goods) Apparel Premium footwear (Shoes Sandals etc)

QSR PRICE

Milk and Shampoo Milk Products Tea and High penetration beverages levels, moderate growth outlook; counter cyclical Biscuits Pulses, Soaps & Foodgrains ' Detergents

UTILITY

♦ Long term growth rate a function of penetration levels and nature of discretionary spend (customers perception of the level of luxury associated with the product category)

Source: Axis Capital 35 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Vacation ownership – at early stages of growth MISCELLANEOUS

 Indian vacation ownership market is currently in nascent stage with significant potential for growth. There are ~350,000 households that own a vacation ownership unit which represents a miniscule 0.1% of the total number of households in India

 In contrast, the number of timeshare owners in the US accounts for ~5% of the total number of households in the US. (Source: AIRDA, US Census). Even at a potential 1% penetration level, there is ~7x headroom for growth in Indian vacation ownership members

 In value terms, the size of the Indian vacation ownership market is Rs 125 bn and growing between 18-20% annually

 In the US, 85% of the population goes on vacations, while in the UK the number is 65%. However, in India, a 5% of the total population go on vacations. The low penetration is despite India having almost twice the number of annual holidays

Under-penetrated Indian market

Source: Company, Axis Capital Source: Company, Axis Capital

36 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Rising middle class to fuel growth MISCELLANEOUS

Member addition growth aided by tailwinds from improving demographics

 Elite population of ~4 mn HH having annual income of > USD 37k (Rs 1.7 mn)

 By 2020, ~11mn HH’s would have income of > USD 37k

 According to CM management, the current target population for vacation ownership business is ~2.5 mn HH’s

♦ Holiday club membership typically attracts upper middle class urban individuals with an average age of 35-45 years who are married (with average household consisting of 3-4 members) and college educated

♦ Drawing comparisons with USA (a mature timeshare market), Mahindra Holidays target would be households with income greater than Rs 1.5 mn Eligible households = 4 mn, over 0.35 VO members currently; ~9% penetration levels

Source: Axis Capital 37 Appendix 1: Club Mahindra 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Management profile MISCELLANEOUS

Kavinder Singh: Managing Director & CEO  Mr. Kavinder Singh brings 28 years of experience in FMCG sector and has worked in Asian Paints, ITC Ltd & Pidilite Industries Limited. In his 17 years of career at ITC Ltd, he spent last 8 years in starting up and building the 'Sunfeast' biscuits business of ITC and was heading Biscuits and Confectionery businesses. Mr. Kavinder started the 'Strategic Initiatives Group' and led transformational Corporate Strategic Initiatives at Pidilite Industries Ltd. After a successful stint as Chief Strategy officer, Mr. Singh became the first CEO of Pidilite's 'Consumer Products (Maint)' business  Mr. Singh is a graduate in Mechanical engineering from NIT Warangal and has gone through General Management Program at Wharton School besides other programs by Harvard Business School (Advanced Manufacturing Strategy) and Wharton School (Advanced Marketing Management)

S. Krishnan: CFO & Executive Director  Mr. S Krishnan is the Chief financial Officer and Whole time Director of the company. Mr. Krishnan in a career spanning over 25 years, of which nearly 15 years has been with the Mahindra Group, he has held various leadership positions with the Group. Prior to this assignment with Mahindra Holidays, Krishnan was the CFO of the erstwhile Mahindra Satyam and was part of the top management team that turned around the Company. He held the position from 2011 till the company merged with Tech Mahindra

 He has also been the CFO of the Adani Group (Realty) and the COO of South Asian Real Estate, a private equity realty fund

 He is a member of the Institute of Chartered Accountants of India, an Associate Member of the Institute of Company Secretaries and also holds a Diploma in Business Finance from the Institute of Chartered Financial Analysts of India

39 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Story through charts MISCELLANEOUS

16% growth in the number of memberships 15% growth in room inventory

300,000 5,000 (Nos) (Nos) 250,000 4,000 200,000 3,000 150,000 2,000 100,000

50,000 1,000

0 0

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY18 FY19 FY20 FY07 FY08 FY16 FY17

FY07 FY08 FY09 FY10 FY13 FY14 FY15 FY16 FY17 FY18 FY11 FY12 FY19 FY20

Source: Company, Axis Capital Source: Company, Axis Capital

18% growth in member upgrades >50% of reservations done online Average occupancy levels >80%

60 100% (%) 90% 50

80% 40 70%

30

60%

Jun-13 Jun-14

Feb-14 Feb-15

Oct-13 Oct-14

Apr-13 Apr-14 Dec-14

FY10 FY11 FY12 FY13 FY14 FY15 Dec-13

Aug-14 Aug-13

Q114 Q115 Q216 Q113 Q213 Q313 Q413 Q214 Q314 Q414 Q215 Q315 Q415 Q116 Source: Company, Axis Capital Source: Company, Axis Capital Source: Company, Axis Capital

40 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Initial cost of membership MISCELLANEOUS

Increase in rack rates linked to inflation (7-8%); upgrades (3-4%) provide the kicker to one-time income

Cost of Red Studio Cost of White Studio Cost of Blue Studio Average cost of new membership - RHS (Calculated) 500,000 600,000 (Rs) (Rs) 500,000 400,000

400,000 300,000 300,000 200,000 200,000

100,000 100,000

0 0 FY2006 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Source: Company, Axis Capital estimates

 Initial membership costs for Red, White and Blue studio members have posted 7-8% CAGR (FY06-15); however, our back-of-the-envelope calculations suggest that the average cost of new membership for the company has posted 11% CAGR indicating upgrades contribute to 3-4% CAGR to the initial membership costs

 Going forward, we assume increase in average membership cost to increase by ~8% CAGR over FY16-26E; we arrive at this by assuming inflation-linked growth of 6% CAGR and 2% CAGR coming from customer upgrades

41 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Maturity profile of the customer MISCELLANEOUS

 The membership model of CM is such that the resort Membership duration of an avg customer = 10 years in 2026 property vests with the company and the members just Particulars/ Years 2010 2015 2026 have the ‘Right to Use’ Total weeks awarded (mn) 2.6 4.4 10.4 Total weeks consumed (mn) 0.3 1.0 4.1  Hence as the membership lapses after 25 years, the Balance weeks (mn) 2.3 3.4 6.4 company will be able to sell the same membership to No of members (mn) 0.1 0.2 0.4 another customer, charge a high membership cost and O/s avg weeks per customer 21 19 15 have a minimal capex (just for upkeep) Avg membership age 4 6 10 Source: Axis Capital  The legacy of the customer membership is still low at 6 years which would increase to 10 years by 2015

Sizeable number of memberships expiring 2025 onwards

5 Balance Weeks (RHS) Total Weeks awarded Total Weeks consumed 4 (mn) (mn)

4 3

3 2 2

1 1 0.6 0.5 0.7 1.1 1.5 1.8 2.1 2.5 2.9 3.1 3.5 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Source: Company, Axis Capital

42 22 JAN 2016 Company Report Mahindra Holidays & Resorts India International business MISCELLANEOUS

Acquisition of Holiday Club – Finland (the largest acquisition for the company)

 Holiday Club Resorts Oy (Holiday Club) is a leading vacation ownership company in Europe with 32 resorts, 24 of which are located in Finland, 2 in Sweden and 6 in Spain (1 in Costa del Sol and 5 in Gran Canaria). Seven of these resorts have spa hotels with indoor water parks, three have golf course and there are five indoor theme parks for children called ‘Angry Birds Activity Parks’. Holiday Club has a membership base of ~ 50,000 families and is a leading leisure brand in Europe

 According to CM management, Holiday Club has an efficient sales and marketing organization in addition to strong core competencies in the design of holiday homes and apartments, spa hotels and resort management

 The transaction was completed in two tranches with 23% Equity purchased in July 2014 and 64 % equity purchased in July FY15. The company invested ~Rs 3.3 bn as consideration for 88% stake representing valuation of 0.4x (FY14 revenue) for a profit making entity - much lower than valuation which the loss-making Sterling commanded (7.7 x revenue)

 With this acquisition, Club Mahindra becomes the world’s third largest vacation ownership company behind Wyndham and Marriott

43 22 JAN 2016 Company Report Mahindra Holidays & Resorts India A peek into the resorts Club Mahindra has built MISCELLANEOUS

Jaipur Manali Munnar

Mussoorie Varca Ashtamudi

Source: Company, Axis Capital 44 Appendix 2: Global peers 22 JAN 2016 Company Report Mahindra Holidays & Resorts India History of timeshare MISCELLANEOUS

Currently 5,500 vacation Gained popularity through Establishment of RCI, the ownership resorts/ condos Europe and United States with biggest vacation exchange globally with over 500,000 the industry recording double company, currently. Beginning units available spread over digit growth rates. Marketing in 1990, timeshares grew at an 120 countries resulting in malpractices became rampant. annual rate of 15%, landing the market size of USD 45 bn+ However, 1977 onwards, strict industry in the realm of laws governing vacation USD 6 bn by 2000 ownerships came into fore

1964 - First timeshare - a ski resort in France known as Superdevoluy First major resort chain Survival through the 2007 using the famous tag line ‚Marriott‛ started its crisis with occupancy levels "Don’t rent the room – vacation ownership remaining high and buy the hotel, it’s program. Followed by delinquency in the cheaper." Florida Keys and Disney receivable pool remaining theme park in check

1960' 1970's 1980's 1990's 2000s At Present

High-end Birth of vacation Floating week Branded Hoteliers Fixed week system fractional, Destination ownership industry system Clubs and points clubs and Condo hotels

46 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Timeshare: Owner profile (globally) MISCELLANEOUS

 Timeshare purchasers are trending younger  58% of recent purchasers under the age of 45

 Timeshare purchasers are educated  62% of timeshare owners have at least a college degree

 Timeshare purchasers have stable incomes and assets  33% earn between USD 50,000 and USD 75,000 annually  50% earn between USD 75,000 and USD 150,000 annually  92% own a primary residence

 Timeshare owners – overwhelmingly satisfied  86% of all vacation ownership owners have had a positive ownership experience overall  69% of all owners would recommend their own resort or vacation club  56% of recent purchases across the industry were upgrades by existing owners to a bigger unit or a higher season

47 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Case Study: Wyndham International...Baby of a broken marriage MISCELLANEOUS

Revenue growth 6% CAGR with stable margin between 16-21%

6,000 Revenue EBITDA margin (RHS) 21% (Rs mn) (%)  Cendant Corporation provider of business and 20% consumer services, primarily within the real estate 5,000 19%

and travel industries was formed through a 18% merger of Hospitality Franchise Systems (HFS) 4,000 17% with CUC International in 1998. Cendant broke up and spun off or sold its constituent businesses 16% by the 2006 giving birth to Wyndham 3,000 15% Worldwide (WYN) '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: Bloomberg, Axis Capital  WYN is the holding company for Wyndham Hotels & Resorts which owns nearly 7,400 hotels Steady improvement in RoCE along with free cash generation under 15 brands spanning 66 countries in 6 (now ~10% of capital employed pa) continents. It also has interests in Vacation FCF Pretax RoCE (%) (RHS) FCF as % of Capital Employeed (RHS) ownership and vacation rental business and has 1,000 16% within its purview marqee brands such as (Rs mn) RCI, Club Wyndham, The Registry Collection 12% 500 amongst others 8%

4% 0 0%

(500) -4% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: Bloomberg, Axis Capital

48 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Wyndham largest player in the vacation ownership/ renting industry MISCELLANEOUS

Revenue from sale of vacation ownership ($ mn) Number of members ('000)

Sterling Hotels Sterling Hotels Club Mahindra Club Mahindra Disney Disney Hilton Hilton Starwood Starwood Marriot Marriot Wyndham Wyndham

0 500 1,000 1,500 2,000 0 200 400 600 800 1,000

Source: Company, Axis Capital Source: Company, Axis Capital

Number of operational resorts Room inventory

Sterling Hotels Sterling Hotels Club Mahindra Club Mahindra Disney Disney Hilton Hilton Starwood Starwood Marriot Marriot Wyndham Wyndham

0 50 100 150 200 0 5,000 10,000 15,000 20,000 25,000

Source: Company, Axis Capital Source: Company, Axis Capital

49 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Wyndham Worldwide – Vacation ownership/ exchange MISCELLANEOUS

42,000 hotel properties in over 8,700 cities worldwide including brands like Waldorf, Holiday Inn, Marriott etc

Theme Park Tickets at Walt Disney World® Resort & Universal Orlando

Cruises including Royal Caribbean Carnival, Norwegian Cruise Finances acquisition Develops Vacation Line, Princess and Celebrity Cruises of the Vacation ownership resorts homes/ resorts Airfare discounts from over 300 air carriers

Car Rental discounts at 1,200 Avis locations

Note: Subsidiary Transaction

50 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Indian vacation ownership model MISCELLANEOUS

Pays initial membership fee and annual maintenance

Receive 1 Week stay and the opportunity to exchange weeks at RCI CM/ Sterling allows RCI members to use its resort weeks in exchange for their members using RCI affiliated resorts

Allows use of RCI-affiliated resorts, Theme parks and cruises

Note: Transaction

Source: Company, Axis Capital

51 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Company financials (Consolidated) MISCELLANEOUS

Profit & loss (Rs mn) Balance sheet (Rs mn) March FY15 FY16E FY17E FY18E March FY15 FY16E FY17E FY18E Net sales 8,119 9,839 11,514 13,4 23 Paid-up capital 880 880 880 880 Other operating income 178 186 201 217 Reserves & surplus 6,371 7,160 8,131 9,229 Total operating income 8,296 10,026 11,716 13,64 0 Net worth 7,255 8,044 9,016 10,113 Total operating expenses (6,449) (7,501) (8,675) (10,023) Borrowing 1,238 738 238 (0) EBITDA 1,84 7 2,525 3,04 1 3,617 Other non-current liabilities 16,756 18,664 20,827 23,345 EBITDA margin (%) 23 26 26 27 Total liabilities 27,684 30,375 33,4 81 37,398 Depreciation (664) (729) (734) (800) Gross fixed assets 12,949 14,059 15,301 16,690 EBIT 1,184 1,796 2,307 2,817 Less: Depreciation (2,633) (3,362) (4,096) (4,896) Net interest (111) (81) (21) 0 Net fixed assets 10,315 10,696 11,204 11,794 Other income 0 0 0 0 Add: Capital WIP 946 1,027 1,117 1,219 Profit before tax 1,073 1,715 2,285 2,817 Total fixed assets 11,261 11,723 12,322 13,013 Total taxation (270) (514) (686) (845) Total Investment 1,432 1,432 1,432 1,432 Tax rate (%) 25 30 30 30 Inventory 60 63 66 69 Profit after tax 803 1,200 1,600 1,972 Debtors 8,714 9,435 11,041 12,871 Minorities 10 14 19 24 Cash & bank 221 1,059 1,033 1,433 Profit/ Loss associate co(s) 0 0 0 0 Loans & advances 396 539 631 735 Adjusted net profit 812 1,215 1,619 1,996 Total current assets 9,391 11,096 12,771 15,109 Adj. PAT margin (%) 10 12 14 15 Current liabilities 2,436 2,929 3,401 3,940 Net non-recurring items 0 0 0 0 Net current assets 6,955 8,167 9,370 11,170 Reported net profit 812 1,215 1,619 1,996 Other non-current assets 5,601 6,125 6,957 7,844 Total assets 27,684 30,375 33,4 81 37,398

Source: Company, Axis Capital

52 22 JAN 2016 Company Report Mahindra Holidays & Resorts India Company financials (Consolidated) MISCELLANEOUS

Cash flow (Rs mn) Key ratios March FY15 FY16E FY17E FY18E March FY15 FY16E FY17E FY18E Profit before tax 1,073 1,715 2,285 2,817 OPERATIONAL Depreciation & Amortisation (664) (729) (734) (800) FDEPS (Rs) 9.2 13.8 18.4 22.7 Chg in working capital 442 1,011 101 232 CEPS (Rs) 16.8 22.1 26.7 31.8 CF from operations 2,020 2,835 2,255 2,787 DPS (Rs) 4.0 4.8 7.4 10.2 Capital expenditure (1,799) (1,191) (1,333) (1,491) Dividend payout ratio (%) 43.7 35.0 40.0 45.0 CF from investing (3,085) (990) (1,112) (1,250) GROWTH Equity raised/ (repaid) 0 0 0 0 Net sales (%) (0.5) 21.2 17.0 16.6 Debt raised/ (repaid) 0 (500) (500) (238) EBITDA (%) 2.3 36.7 20.4 19.0 Dividend paid (355) (425) (648) (898) Adj net profit (%) (6.6) 49.5 33.3 23.3 CF from financing 767 (1,006) (1,169) (1,136) FDEPS (%) (6.7) 49.5 33.3 23.3 Net chg in cash (298) 838 (27) 401 PERFORMANCE RoE (%) 10.9 15.9 19.0 20.9 RoCE (%) 14.7 20.8 25.6 29.1 Valuation ratios EFFICIENCY March FY15 FY16E FY17E FY18E Asset turnover (x) 1.1 1.2 1.4 1.6 VALUATION Sales/ total assets (x) 0.3 0.3 0.4 0.4 PE (x) 38.6 25.8 19.4 15.7 Working capital/ sales (x) 0.8 0.7 0.7 0.7 EV/ EBITDA (x) 17.5 12.3 10.0 8.3 Receivable days 392 350 350 350 EV/ Net sales (x) 4.0 3.2 2.7 2.2 Inventory days 3 3 3 3 PB (x) 4.3 3.9 3.5 3.1 Payable days 63 66 67 67 Dividend yield (%) 1.1 1.4 2.1 2.9 FINANCIAL STABILITY Free cash flow yield (%) 0.7 5.2 2.9 4.1 Total debt/ equity (x) 0.2 0.1 0.0 (0.0) Source: Company, Axis Capital Net debt/ equity (x) 0.1 (0.0) (0.1) (0.1) Current ratio (x) 3.9 3.8 3.8 3.8 Interest cover (x) 10.7 22.1 107.7 -

53 Disclosures:

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The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views expressed therein.

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Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 18002100808, Regd. off.- Axis House, 8th Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: [email protected], Tel No: 022- 42671582.