Mahindra Holidays & Resorts India Limited (MHRIL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Mahindra Holidays and Resorts India Limited Q2 FY27 Earnings Conference Call. As a reminder, all participant clients will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note, this conference is being recorded. I now hand the conference over to Mr. Manoj Bhatt, MDN CEO. Thank you. And over to Yosha.

Good evening, everyone, and joining me is our CFO Rajiv Vimal. I'll quickly outline our progress against the strategy and our priorities before Rajiv takes you through the financial results. Our strategy to recap was to scale our core business while building a new luxury leisure hospitality offering. For the core business, I think what we were focused on was strengthening and building our advanced about widening and premium resorts over a period of time. In line with the same, we saw progress on all fronts. So, we saw that there was higher resort utilization. We saw premiumization in our product portfolio while we continue to invest. Our new product, Keystone, offers greater simplicity, flexibility, and enhanced privileges. If I look at the quarter, the total sales value, 60% year-on-year to 100%, while the upgrade value grew at 26% to 83 crores. Upgrades are really a reflection of the confidence our members have in the product, and that's a strong growth which we have seen continuously over many, many quarters. Unit realization, including upgrades, grew up by 43% to 13.4 lakh. So, if I look at from this perspective, we saw growth overall, we saw growth in upgrades, and we saw growth in AUR. So, it's been a good quarter on many fronts from that perspective. Upgrade opportunity is supported by our base of about 3,000,000 members. If I look at the breakup of how we have added members, organic and digital have contributed 66% of member additions in the quarter. So, clearly, we are seeing that we are sustaining the momentum from referrals, which is, again, an indication of the strength and satisfaction of the members. And, of course, digital is something which is a new channel which we have been investing in some time. The premier organization which we have seen is supported by really the holiday experience which has become better for most of our members as we look at the overall, from that perspective, this has been a satisfactory quarter. The other area which we have talked about in the past is our resort transformation or the portfolio transformation journey. In Q2, we transformed two existing properties, and I think they are both open. I think there are about five transformations underway as we speak. If I look at from a continued focus on exiting parts of the portfolio based on guest feedback and ratings, we continue on that journey. So, overall, during the quarter, we exited six resorts, taking the network to 5762 keys across 106 resorts in September. So, overall, there was a net reduction of 103 keys in the quarter. While these exits and ongoing transformation limit near-term visibility, I think, overall, we are on track to add about 1,000 gross keys in the next six months. That is the current plan. And as they come on stream, they will broaden holiday choice and improve availability for members. During the quarter, occupancy also grew by two wedding basis points to 75.6%. And our resort revenue grew by 15%, which is, I think, the highest it has been in the last eight quarters. The journey of focusing on premiumization, focusing on getting the right portfolio, and also focusing on expanding guest experience, I think that's something which is showing results. The new metric which we have started tracking is TREV power across our portfolio. As of September end, it is up 6% YOY to Rs.8,777 per room. And to me, this is indicative of the basic yield going up across our properties. Beyond the near-term additions, our objective to reach 10,000 keys by F30 is very much on track. Currently, we have eight ongoing greenfield and brownfield projects. And in terms of our funnel, we have 85% visibility on the F30 target. This larger, better quality network with resort-led revenue growth. On the capital side, we are allocating capital to both scale up the network as well as improve the quality. H1 capex was about 312 crores. This is supporting some of the resort transformation and the new inventory projects. This is sharply up from 166 crores a year ago. To summarize what this investment will support is both from a VO and income as well as income from states, food and beverage and experiences of various kinds including spa and wellness. And to me, this is the journey which will start bearing results as we go into the technology and AI journey. I think there are multiple areas where we are using AI capabilities with one focus, which is about how do we improve guest engagement across both service and operations. If I look at the various things around paperless check-ins, around WhatsApp billing, around various tools where we are using it to anticipate guest needs and serve them better, I think that's also going very well. Quickly coming to our international operations, HCRO delivered a stable performance compared to the same quarter next year, although it continued to report a net loss amid a challenging Finnish economic environment. Overall, the Finnish economy is doing better than where it was a year back, and I think as the quarter's progress, some of that will translate possibly into better results in terms of growth in the HCRO business, but that is something which we will monitor as we go along. Consolidated PAT grew 17% year-on-year, reflecting the financial performance. H2, I think our focus is on execution. The first thing is about adding capacity, which I spoke about, housing keys. Second is actually accelerating keystones sales and upgrades. That is one element where there are some interesting developments. And lastly, I think working on operating efficiency, because even today, for example, we have 442 innovation, which are not contributing anything to revenue. So overall, I think this is where the next two quarters are focused on. Looking ahead, I think we will continue to progress on our core business while developing our luxury offering.

Thank you, Manoj, and good evening, everyone. Let me briefly take you through the financial performance for quarter 2 FY27. At a standalone level, total income grew by 4% year-on-year to 395 crores, supported by a double-digit growth in resort revenues and broadly stable membership. 124 crores versus 141 crores last year and paired at 43 crores versus 52 crores last year, down by 12% and 16% respectively, reflecting the impact of growth-linked costs. Today Club Resorts recorded 8% revenue growth to 36.5 million euros. The net loss remained at 0.3 million euros amid continued challenges in Finland. The HCRO loss in the Indian books, including interest and forex, is at 18 crores vis-a-vis 27 crores last year in quarter 2. At a consolidated level, total income grew by 9% to 819 crores, and EBITDA increased 5% to 194.8 crores by 17% to 19.7 crores. Our standalone balance sheet continues to provide financial flexibility for expansion and transformation. As of September end, the deferred revenue stood at 5,828 crores, and the cash balance stood at 1,329 crores. Our focus remains on funding planned growth and improving operating efficiency. And with that, we would be happy to open the floor.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The question is from the line of Yash Mehta from JKP Capital. Please go ahead.

Yeah, so good afternoon, sir. So, I have got a few set of questions. So firstly, like, how is the keystone portfolio performing across Ebony, Ivory, and Jade membership categories? And, like, which offering is attracting the strongest customer interest? And, like, what are the management expectations for membership sales and realizations for FY27?

Thank you. Good evening, Yash. So your question was about the mix, which we are seeing. So I think it's about three or four quarters data. But if I look at what is emerging as data is that our 10-year ivory product is where the maximum membership is. And overall, the 10-year is the most preferred kind of mix by preferred kind of product, followed by the 5-year product. And both of these put together is about 80% of the portfolio. To me, the journey of Keystone was something which I think we are seeing two things. One is, from a sales perspective, I think initially there was a phase of familiarization and people understanding what the product was, and that includes internal and external teams, followed by a period of something to see now in sales growth. The second thing is really upgrades. So, it is a product which is well-liked by existing members and we are seeing good upgrade momentum in that product. So, if I look at upgrades, they have grown almost roughly about 25 to 30. So, I think that's where we are. As we look at the current, I do expect that over the next one or two quarters, we should see that number increasing because I think we are seeing traction. We don't give guidance on exactly where.

Yes, yes, yes, perfect. And also, like, can you share the extent of, like, room inventory that remained non-operational during the Q2 or 527 due to the refurbishment? And how did this affect occupancy and result revenue? And lately, when are these rooms expected to return to operations?

So, currently, there are about 442 keys which are in renovation. I think we expect that some of them will start coming in as early as Q3. That's the majority of them should come back in Q3 and Q4. I don't have an off-the-cuff revenue impact, because our revenue model is a combination of membership income and some other elements of resort revenue. But overall, I think we see that coming up as being beneficial in Q3 and Q4.

Understood, understood. And also, due to the given geopolitical uncertainty in West Asia and running inflation across, so are you guys anticipating any moderation in travels during the quarter three of the year, and like considering the importance of the December holiday season? So could these factors affect in near-term performance or expansion plans?

So, yes, I think there are two parts to the question. So, because of the West Asia crisis, I think airfares have gone up. So, what we are seeing is some destinations where people would typically fly in. I think we are already seeing some limited impact. I think what has helped us is having holidays, and so that's really compensating for it. In our model, we are not very much dependent on that perspective. We don't see a major impact of the West Asia crisis on occupancy even into it. I think where we have seen some impact is on some of the projects, because the projects, so that is something which, and there have been delays on, those are the impact. One thing we are focusing on as we go into Q3 and Q4, how do we execute on those projects, but we are not pulling back on any of our plans.

Got it, got it. And like lastly, so with investments being directed towards both the new developments and the existing resort upgrades, so like how are you prioritizing capital allocations? Is the newly focused currently more on capacity expansion or improving returns from operational properties?

So, I think most of our capital will go to build new resorts, if I take a more longer-term view. And I think, so if I look at the split, probably 70% of our capital will probably go towards new resorts and about 30% improving existing resorts. So, that's the quick sense of how we are thinking about capital allocation.

Understood, understood. Yeah, that's it. Thank you so much and all the best for the future results.

Thank you.

Thank you. Participants, you can press star and one to ask a question. Next question is from the line of Naveen Kaushik M from iThought PMS. You can go ahead.

Yeah. Yeah. Am I audible? Hello?

Yeah, Laveen, we can hear you clearly. Go ahead.

Yeah, good afternoon, sir. Congratulations on XHS numbers. I just have a couple of questions, slightly elementary. So, if I went through the FY26 annual report, so we've reported a certain amount of deferred revenue that is to be recognized, like, you know, less than one year. So, if I kind I just take that amount which is around 580 crores and I divide by 4, I end up getting somewhere around 150 crore, right? But H1, if I see the run rate for the vacation ownership like revenue, that has fallen slightly short of this number. So, just wanted to clarify my understanding. So, is this how I am supposed to look at the numbers? So, does that mean that, you know, the second half will kind of make up for this minor shortfall Or is the recognition, like, you know, mode feels different?

So, Naveen, I don't have the exact details. Is it possible that we connect with you offline and clarify this? Rajiv or someone from his team will connect and clarify this question.

Yeah, sure. Sure. Yeah. That's what I have from my side. Thank you.

Thank you. Next question is from the line of Nishita from Sapphire Capital. Please go ahead.

Yes. Hello, Emma.

Yeah, we can hear you.

Yeah, so I just had one question. I wanted to understand generally what is our revenue split between H1 and H2?

So I think if I look at really both of them contribute about, I think the other piece, which is the last 33%, we would see 40%, depending on whatever specific, 65% in the second.

Thank you. Next question is from the line of Shriyans Gathani from SG Securities. Please go ahead.

Hi, good afternoon. I had a couple of questions. The first one was on, you know, we're going to start increasing our fees, I believe, from in the next six months and going forward from there. So, in terms of our sales force, I would believe we'll start increasing the member additions also. So, should we expect a proportional increase in the sales force or are we already geared up for that? Because, like in the past, we used to do more editions, and we just spent the same amount in sales and marketing on the ground. So, what should we expect going forward when we start adding members at a higher pace now?

So, I think there will be some spends, but those are all broadly in the brand and marketing space, and not really so much on the...

Got it. Okay. So, we are comfortable with the sales, current sales expenses for the next, at least, some time, right? Is that right on this time?

Yeah, that's true. And in fact, if I go back to what I said in quarter two, especially on area business, etc., we have invested ahead of time. And that is something which in anticipation because the Q3, Q4 is typical.

Okay, okay. So, actually, my second question was on that. So, we've, you know, historically also seen like occupancy levels, you know, around 80%. So, do we like just trying to understand how do we manage our inventory for member versus non-member and like do we try to achieve that higher occupancy whenever there's a shortfall in the number of members or is this like an optimum number now?

So, this quarter, the occupancy is obviously not representative of our usual Opulia basis will be between 80 and 81% and maybe even higher. So, the way we are thinking about is that I think clearly, which is about over-multiple year patterns, how much in advance they book ending occupancy based on whatever trends we have. So, that is what we use to optimize from an inventory allocation perspective. And so, you will see occupancy climbing as we go into Q3 and Q4.

Okay. Okay. Yeah, that's what I wanted to understand. All right. I think that's all. Thank you.

Thank you. Next question is from the line of Soumya Raghuvanshi from Midwak Security. Please go ahead. Yes.

Good evening. Thank you so much for taking my questions. With half-year CAPEX reaching approximately 312 crores, could management provide an update on the key projects under execution, and when are these investments expected to contribute to additional room inventory and earnings growth?

So, if I look at the current portfolio of products, we have a resort which we are building on our own in Ganpati Pule, which is, we are in Q3 end, so we are renovating our Kumbhal Ghat project, that was a complete renovation from our, we had shut it down. Again, that should come. Poovar has just opened, which was one of the other projects which was under renovation. Jaisalmer will open probably again in Q3, which is one more project which we are doing. And Geer will open potentially Q4 and Q1 early. I think that's a quick sense of, and in terms of the number of capex, I think we will probably spend almost an equal amount.

Okay, all right. So, HCR's profitability improves between Q1 and Q2. What were the primary drivers of this turnaround, and does management expect the improvement to sustain over the coming quarters?

So, I think it's a seasonal business. So, Q1 is the summer or early summer-spring there, which is all of that comes in, and that's where I think the occupancy levels increase.

Okay, okay. How does the company plan to position and scale signature resorts? What will differentiate these properties from the existing Club Mahindra portfolio in terms of customer profile experience and overall print?

So, it's a completely different proposition. So, first of all, it is in the luxury sector, and so clearly, I think, from a benchmark perspective, for that property is very, very different than what we mean. So, there are multiple new considered families. So, it is going to be that kind of a point. We are making it really that we mean that it will be fitting our guests to. The third one is really about how do we build a local element from a design upwards to an ARR.

Okay, sir. All right, sir. So, last question from my end. What kind of guest feedback did the company receive regarding the 350 keys exited last quarter, and how is management incorporating this feedback into its portfolio rationalization and expansion strategy?

So, we do a variety of customer surveys at various touch points, and based on that, we get attempts, and today we have an AI-based tool which can scan the verbatims and literally rank results. So, that's what we have used to look at some of these. Instantly, I think two or three things come. One is the quality of the infrastructure, the second is my explanation. Based on this, we said that there is a minimum quality which we will have for resorts in our network, and that's where we started exiting. This year, we are on, I think it will be more of a normal kind of inventory expansion, which we will see.

Okay, sir, all right. That's just from my side.

Thank you, Soumya.

Thank you. Participants, you can press star and 1 to ask a question. Next question is from the line of Dhvanit Savla from Savla Family Office. Please go ahead.

Hi, sir. I had two questions. First is, on our roadmap to reaching 10,000 keys by 2030, we already have certain projects in pipeline. So, after the execution of the said projects, at what keys will we be standing, and what is the plan for going ahead from expanding from that point to reaching 10,000 keys? Have we already had earmarked places where we are going to open resource? And my second question is with regards to HKRO. A few quarters ago, I think we had spoken with regards to reviewing the entire business proposition. Have we made any progress on that part? Thank you.

First question on 10,000 keys.

Sorry, I had mentioned it in my openings. Look at the 10,000 key journey. Based on the current identified funnel, which means there is a location, there is an initial about 8 to 5 and more.

Just a small follow-up on the HCRO business. Is there the main net loss which is there? Is there a massive foreign exchange impact due to which these numbers? Do you look adverse in our report or it is just that the business is also not performing that this quarter?

So, first of all, I think the forex impact this year is the end-alone HCRO number, and then when we translate into INDS, there is a lease accounting impact. So, we are getting the impact of all three when we look at international operations, which is largely HCRO.

Okay, sir. Thank you very much, sir. I'll get back in the queue.

Thank you. Next question is from the line of Pahal Sharma from DD Capital. Please go ahead.

Hi. Thanks for the opportunity, sir. So, I have some couple of questions with me. My first question is that with the membership base exceeding 3 lakhs, so, like, how have member retention, referrals, and engagement levels evolved compared to Q2F526? And has the expanding member base resulted in higher resort utilization?

So, I think reference is our biggest channel for new sales. In any given quarter, it is between 40 and 50% of new sales are coming through reference. And that's been a consistent trend. As I said in my opening statement, that really reflects, I think there are 2-3 elements there which also have been pretty stable. I don't think there's been any change. And last one is retirements, which is membership is ending. And so all of them put together, get you to the net number. I don't think we have seen any change in trend except overall, I think cancellations have started coming down and retention has started going up. If I look at retention over 12 months, which is one of the metrics we measure, that's up from about 11% in terms of number.

I understand. So, like, my next question is that what is management strategy for identifying emerging resort destinations and with eight resorts in the pipeline and development initiated across five locations. So, what are the expected timelines for these properties to become operational?

So, on timelines, as I said, that we expect that ideally we would prefer, in terms of destinations also, we typically have three classes. Looking at it constantly, and that is where I was talking about, if I look at the funnel, criteria are met, flight as well as from a road perspective. I think it is opening up, and that's something we continuously keep monitoring, and then there is obviously external data which we get from various sources about, for example, what are the top search names, destinations, and so on and so forth. So we layer all of that on top.

Understood. So, my last question is, like, how are non-member bookings, corporate events, and MIC activities contributing to resource revenue? And also, does management see an opportunity to increase their share in the overall revenue mix?

So as I was answering one of the previous questions around inventory and inventory allocation, I think we really, what we try and do is, what is the member booking pattern and then decide on how much allocation goes to non-members. What we are seeing is that as we are becoming growth area, but it is still a very small fraction of whatever we do today, but this is going to be potentially a big growth area in the future as we add more results.

Understood. Thank you so much.

Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Suhani Singh from ROS Capital. Please go ahead.

Hi, good evening. So, I just had two or three questions. So, following the exit of certain properties that did not meet the company's quality standards, how much portfolio rationalization is expected? And what impact could this have on the member-to-room ratio and resort-level profitability?

I think the member-to-room ratio will continue to improve because I think our, as I've said this in the past, our member edition is going to be focused, while inventory edition is going to be, as I was articulating, 10,000. So overall, I think something which...

With investments being directed towards both new developments and existing resource upstairs, how is the management prioritizing capital allocation, and is the focus currently more on capacity expansion or improving returns from operational properties?

I think I had just answered this question, and I had said that 70% is towards capacity, and then 30% is about improving the current portfolio.

And how has the company's cost structure evolved during Q-Web 527, particularly employee expenses, marketing costs, and resort operating expenses, and if there are any opportunities for further operating leverage as the business scales up?

So, Swani, that's a very broad question. I think, overall, if I look at, I think, we are investing in capabilities now, whether that is loyalty program, all of these.

Thank you. Thank you.

Next question is from the line of Varun Mishra from SK Capital. Please go ahead.

Hi, sir. Thank you for the cautionary. A couple of questions from my end. So, could you elaborate the trends in Defort Revenue and Recognition Membership, like income during the quarter? How is it?

I'll pass that question to Rajiv.

So, you know, we can connect offline for any details on deferred revenue, but just to give you an overall view, 65% of our sales is coming from the VO business, out of which majority of the portion is coming in from the deferred revenue bucket. And as of September end, we've got 5,800 crores as the deferred revenue bucket.

And, sir, what has been the trend in terms of new member acquisition, like the acquisition cost for Q2, like for this quarter, and like with the company increasing focus in the premium membership segment, are we seeing any improvement in terms of like acquisition efficiency for the overall customer base?

I think that's the journey we continue to be on, because it's a function of both cost and revenue, and that's something we are targeting that there should be a sustained reduction in cost of acquisition.

And like, sir, for resorts, like the resort income grew like in this quarter, like on the stand-on EBITDA and PAD has declined, but like the revenue has been increasing. So, like, what were the key factors, maybe, like, is this something which is causing margin pressure, or, like, could you elaborate on that?

That's what I was mentioning, that if you look at our numbers, I think there are investments we are making on future, there are investments we are making on transformation of resorts, there are investments, and then there are some changes like GST, and some solar subsidies, all of these are putting it down. I think we should, in terms of, for example, as the renovated resorts come back, we should see that disappear. As volume goes up in terms of some of the activities we are doing, I think we should see that improve. So, I think there are multiple levels to this.

Okay, so can we expect, let's say, H2 to be a bit profitable, or how is it?

H2 typically is more profitable for us in any case, and Q2 is usually our worst quarter.

All right. And like one last question from my end. So, how has the cash generation evolved like let's say from H1, particularly in relation to the increasing capital expenditure which you mentioned we're making? So, like do we expect any interim referrals to like should that be sufficient or are we planning to raise debt or something like that?

So, the cash generation for the H1 period is in line with H1 last year. And we have invested almost double the capex of what we've invested last year. Our cash balance stands at almost 1300 crores. So, we are going to rely on the internal accruals for future expansion as well as transformation.

Great. That helps. Thank you a lot, sir. All the best.

Thank you. Due to interest of time, this will be the last question. I now hand the concerns over to Mr. Manoj Bhatt for closing comments.

Thank you, everyone. I think there was a question around deferred revenue accrual, and then there was another question from the details around that. So, we will try and answer those offline. But thank you for joining the call.

Thank you. On behalf of Mahindra Holidays and Resorts India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.