Mahindra Holidays and Resorts IPO Is Expensive

Mahindra Holidays and Resorts India's IPO (initial public offering) has opened for subscrption with an initial public offering of 92,65,275 equity shares of Rs 10 each, at a price band of Rs 275-325 a share.

The IPO (initial public offering) of Mahindra Holidays is quite expensive if we compare this either as a resort or a hotel company or maybe travel and tourism. I don’t think that the past track record of the resort companies has been very great, if you go by Country Club, Suman Motels etc. I agree that you cannot compare those companies with the group who owns this but ultimately the valuation matters.

In case of five star hotels also if you take their properties, even the net present value of their properties, they are estimating at about Rs 2200-2,300 crore while it is given at Rs 2,700 valuations at the upper band. I don’t think you can have really that kind of stretch valuations. You need to leave atleast 15% on the table and there has to be difference between primary and secondary market valuations to that extent.

Coming to a comparable resort or travel and tourism none of the shares are ruling at a PE multiple of 20 whether you take hotels or even a company like Thomas Cook; it is not strictly comparable. So overall, valuations are quite stretched and it shouldn’t have been more than anywhere between Rs 200-240 on the upper band and Rs 200 on the lower side.

Looking at the fact that none of the tourism and hotel companies are running at the PE Multiple of more than 20, Mahindra holidays is offering stocks at the lower end of the price band of Rs.275 where the stock quotes a PE of 29x its FY09 EPS of Rs.9.1. On the lower band also stock would quote at 29X multiple of earnings which is quite expensive and so it would not be wise to subscribe to this issue at even lower band. It is quite possible that stock might be hammered below it’s IPO price looking at current stock market trend. Wait and watch till the stock gets listed in markets would be my advice to investors.

Checkout details of Mahindra Holiday IPO