Analysts has been puzzling over and breaking their head, why Mahindra Holidays’ room inventory does not match membership weeks sold. If we look following numbers, Mahindra Holidays added 2,07,301 member and 2972 rooms (or 154544 room weeks) between April 2005 and March 2018. In a timeshare model this room count should be membership sold divided by 52, (207301/52 = 3986), a deficit of 25% compared to number of membership weeks required.
Deepak Shenoy earlier in his article “Mahindra Holidays: Too many members, Too few rooms” tried to work out these number according to management’ explanation, but their explanation did not seems to fill the gap.
This article tries to work out a different calculation based on information available to us in public domain, it also brings out an important view on business which Mahindra Holidays management has not been saying directly.
Let' examine some important concepts of Mahindra Holidays, along with do some math.
Concept A) #Inventory #Season #weeks
Mahindra Holidays membership is available in 4 seasons. Purple, Red White and Blue, mentioned in order from higher to lower season. They sale it in three accommodation types Studio, 1 BR, and 2 BR. Fifty two weeks of a year are divided into these four seasons. A typical resort has 3 Purple, 16 Red, 20 White and 13 Blue weeks. (see week classification chart here: Link)
Let’ calculate what should be their average realisation per room (or membership) when they sale membership in exact proportion as the different season weeks in their inventory.
By selling 52 different weeks to 52 new members for one studio unit inventory, it should fetch them 224.72 Lakh Rs. Dividing it by 52 members, average realisation per member should come to 4.32 lakh per member. You should note that I have excluded 1BR and 2BR units, inclusion of those should lead to a higher average.
Now compare it with what management have been mentioning in different earnings calls, Average Unit Realisation (AUR) stands at 3.3-3.4 Lakh.
Q1 -2019
Q2-2019
Q2 2016Q2 2016
Why there is a difference of 1 Lakh per membership between reported AUR and theoretical calculation?
Concept B) #conversion
A member can book holidays in his membership season or any other lower season, but he can book in only one season up, that' also only 15 days before vacation days starts (subject to availability). When a member books holidays in different season or different accommodation type than the membership he has bought, a conversion ratio applies. Club Mahindra has a conversion table which it uses to convert days from one season to another or from one accommodation type to another.
Let’ see what happens when a Red season member takes a holiday in Purple or Blue season.
We will use a trimmed down version of conversion chart. (Conversion ratio may vary for members enrolled in different years. I have observed that this deviation is very insignificant to affect our conclusion).
Conversion chart :
Row one: A White-Studio member can avail 9.28 days in lower Blue-Studio in exchange of his 7 days in his season. Or if he avail it in the higher Red season, he can avail only 4.96 days of holidays. He is not entitled to avail holidays in Purple season.
Row two: A Red-Studio member can avail 13.1 days in lower Blue-Studio in exchange of 7 days in his season. Or if he avail it in the higher Purple season, he can avail only 5.58 days of holidays.
What all these indicate is that they are selling more number of Blue (lower season) membership than the inventory in the season. Let me give you an example calculation which should represent their sales pattern.
 * 2017 price |
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I can say with confidence that they sell more than 50% of new membership in Blue season vs they have only ~25% weeks in Blue season.
Another fact to note that they had stopped the sale of their Purple membership for long time in past. Now they have made it disproportionately expensive compared to other seasons.
Does it solve the long standing puzzle?
More questions to think over :
1. Why management hide more than they reveal?
2. Why their AUR declined from 3.5-3.6L in 2016 to 3.3-3.4L in 2018 while they took multiple increase in the membership fee.
Blue - Studio - April 2015 price - 2.22 Lakh //
Blue - Studio - April 2018 price- 2.89 Lakh.
30% increase in three years.
3. Quality of their new members still quite poor, 50% membership in Blue season that also on EMI? In last earnings call, they mentioned that they have increased down payment and have stopped selling 4 year EMI scheme for Blue membership. Let’ see how that works out.
4. When most of the members are in Blue season who are not eligible to book holidays in Red or Purple season, why members still struggle to book holidays in these seasons?
5. As they sell days to non members also, 85% occupancy does not equal to 85% members utilising their full entitlement of holidays.
5a. Also who looses in this 15% under utilisation?
