TEXT-Fitch revises Mahindra Holiday's outlook to positive

(The following statement was released by the ratings agency)

Sept 1 - Fitch Ratings has today revised the rating Outlook of Mahindra Holidays and Resorts India Limited (MAHH.BO) (MHRIL) to Positive from Stable, and affirmed the National Long-term rating at 'A(ind)'. At the same time, Fitch has also affirmed the rating of MHRIL's fund-based working capital limits (cash credit) of INR600m (enhanced from INR350m) at 'A(ind)', and the rating of its non-fund based working capital limits of INR100m at 'F1(ind)'.

The Positive Outlook reflects MHRIL's ability to increase its revenues in a challenging environment while maintaining healthy profitability margins and a comfortable financial profile. MHRIL had made an initial public offering (IPO) in July 2009, from which INR2708m was raised; the share of its promoters Mahindra & Mahindra was INR984m. Post the IPO, MHRIL's liquidity is strong although the potential for a rating upgrade, in Fitch's view, depends on its ability to manage growth and the successful completion of its capex plans. The Outlook could be revised back to Stable if there are delays on account of benefits accruing from its capex plans as envisaged, or an increase in financial leverage on account of additional capex.

The ratings continue to reflect MHRIL's established operations, strong brand name, high quality assets, the quality of its customer profile and its established position in the timeshare business. Despite a challenging economic environment, MHRIL was able to post a revenue growth of 11% in FYE09, even though revenue growth for the second half of 2009 was much lower as compared to the first half. That said, MHRIL's operating performance was better compared to other players in the hospitality industry, clearly reflecting that the timeshare segment is in some ways more profitable than the lodging segment (i.e. in the form of greater revenue streams, higher occupancy rates and quicker return on capital).

MHRIL has drawn up substantial capex plans over FY10-FY12 and plans to invest around INR5.6bn on new resort openings. The capex is expected to be funded by a mix of funds generated from the IPO and internally generated cash flow. MHRIL has also recently increased its credit facility to INR600m from INR350m.

Fitch notes that MHRIL's exposure to the leisure tourism sector draws some risk to its ratings, given that the company's revenue streams are largely dependent on disposable incomes. Although there are some preliminary signs that the declining trend in travel demand may be moderating, Fitch expects the growth to remain muted. MHRIL was founded in 1996 and converted to a public limited company in 1998. Post its IPO in July 2009, the share of its promoters Mahindra & Mahindra has come down to 84% from 93.6% earlier. As an established player in the leisure hospitality segment, it provides holidays through vacation ownership memberships. The company currently offers stays at 27 resorts, which include 11 owned and 16 leased resorts. In FY09, MHRIL had revenue of INR3,930m with EBIDTAR of INR1,600m and net income of INR834m. The total adjusted debt net of cash/EBIDTAR in FY09 was 1.3x, with total adjusted debt /total adjusted capitalisation of 55%. In the first quarter of FY10, MHRIL had revenue of INR1,182m with EBIDTA of INR,648m and net income of INR337m.