country club financials

8/8/2019 Country Club Financials

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Recommendation : BuyCMP : Rs 883Target Price : Rs 1482Expected Appreciation : 68%

Bloomberg code : AMI INReuters Code : COUN.BOBSE Code : 526550Equity (FY07) : Rs 87.3 mnEquity (Post Dilution) : Rs160.8 mnFace Value (INR) : 10Market Capitalization (INR mn) : Rs 8095.4 mn

52 Week High / Low : 1110 / 208.70

(Returns %) 1M 3M 6M 1YrAbsolute 0.47 -1.00 62.72 151.32Rel. to Sensex -2.72 -13.19 36.15 112.76

Shareholding Pattern as on September 30, 2007

31%

63%

6%

0%

Promoter Group MF FII Others

Country Club (India) LtdKey Beneficiary of Increased Urbanization and ConsumerBoom in India

Rati Pandit (+91 30286406)[email protected]


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2 StockStance18thJan,2008

About the Company

Country Club (India) Ltd (CCIL) is one of Indias largest leisure infrastructure companiesoperating a chain of clubs under the brand Country Club at around 186 locations spreadacross India. 27 of these clubs are owned and leased by the company and 151 clubs areoperated as licensed franchisees of the company.

CCIL has pioneered the concept of family clubbing in India thereby creating a newindustry The Family Clubbing and Leisure Infrastructure Industry.

CCIL has been recognized for having the largest chain of social clubs in India by theLimca Book of World Records.

The company operates 295 guest rooms and food and beverage services at its clubs andHotel Amrutha Castle and the revenue from these operations constitutes 11% of the totalrevenues.

The memberships at the companys various clubs and Country Vacations its timesharedivision have grown at a CAGR of 24% from 76398 members in FY05 to 117645 members

by end FY07, representing an addition of on an avg. 1719 members every month. The avg. membership fees also grew from Rs 35,172 in FY06 to Rs 59,000 in FY07, as

the company quickly diversified itself into key metros and urban areas with a largerpopulation base with higher disposable incomes.

The total revenues grew at a CAGR of 114% during FY05-FY07, mainly driven by therevenues from member subscriptions which constitute around 89% of the total revenues.


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Investment Rationale

An Industry Creator Presence across retail, leisure infrastructure and hospitalityindustry- Economic downturns may adversely affect the spending habits and trip frequencyof travelers, but the leisure segment has always held up comparatively well. The company

has a presence in both the retail as well as hospitality verticals by way of its 186 clubs(owned, leased & franchise) spread across India.

Growing urban middle class and rising income levels - Greater growth in the numbers ofthe middle class which is growing by 20 mn every year and strong growth in income levels at14-15% annually augurs well for the growth of the leisure industry.

Aggressive Growth plans ahead Recognizing the demand coming in from the middle andupper middle class population in different parts of the country, CCIL plans to take the count ofits clubs and resort properties from 27 to 100 by FY10.

It plans to concentrate on the Tier-I cities having a larger population and income base andplans to have 42 properties in Tier-I cities alone over the next 3 yrs with 6 properties inChennai, 5 in Kolkatta, 5 in Mumbai and 6 in Delhi. It has around 13 clubs in metro cities

currently.


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Investment Rationale (Contd)

The capex for these expansion plans is estimated to be around Rs 7.5 bn out of which Rs 4.5bn has already been raised by way of its recent FCCB/GDR/QIB placement. The rest Rs 3 bnwill be financed by way of internal accruals.

Entry into the lucrative service apartment space with Country Condos The companyhas firmed up a Rs 250 bn project for entry into the lucrative condominium (serviceapartment) space. The first service apartment under this project named Nest has commencedoperations in FY07. It plans to set up 1000 units/apartments in the next 2-3 yrs. Out of these,Bangalore and Hyderabad will be having 250 units each. Opportunities are also beingexplored in over seas market and New Jersey, US is a possible location.


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Factors Driving the Clubbing Industry

Greater Growth in the numbers of the urban middle class and strong growth in income levelsaugurs well for the growth of leisure industry

Average remuneration increase of the Indian in 2006 grew by 14%, the highest in SE Asiaand in 2007 the p.c increase is estimated to be 14.5% by Hewitt Associates.

The middle class population in the country is also growing at 20 mn annually.

It is estimated that by 2020 Indias urban population as a percentage of total population willrise to 40%, with 400 mn people living in 60-70 large cities, each with a population of onemillion or more.

Over the last decade the average Indian spending has rocketed from Rs 5745 in 1992-93 toRs 16,457 in 2003-2004 and is expected to grow at 12% hereafter.

Under the major heads of consumption the fastest growth came from leisure andentertainment with a growth of 28.3% in 2006.


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Timeshare Opportunity lies in Destination India!

Globally there are about 5,800 timeshare resorts in 95 countries with 8 mn families holdingaround 11 mn timeshare weeks.

The industry size is estimated at $ 11 bn, of which 65% comes from American andEuropean markets and Asia accounting for just 16%. However the trend is fast changing inAsia and the region is expected to be the biggest growth driver for timeshare business overthe next 10 yrs, which will be mainly lead by two fastest emerging economies like India andChina.

In US around 3% of the population i.e 4.4 mn households own timeshare. As opposed to

this in India the total number of households are 210 mn and timeshare families are just250,000 with penetration level of 0.12% of the population.

Going forward with the rising disposable incomes of the population and increasedawareness and preference for timeshare products, if the timeshare segment continues togrow at a CAGR of 20%+ (CAGR over past 5 yrs) for the next five yrs then the no of timeshare families will double to over 5 mn families by CY11-12.

The World Travel and Tourism Council (WTTC) has forecasted India to be one of the fastestgrowing tourist economy projected to grow at a CAGR of 8.6% between 2006-2015(Montenegro 10.3% and China 8.7%). This boom in tourist activity will provide a boost to thetimeshare industry which has been growing at double the growth rate of tourist arrivalsglobally.


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Indian Timeshare Industry Vs. U.S

1. Timeshare Members - 4,400,0002. % of households holding timeshare -3%

3. Industry Growth CAGR 4%

4. Annual Sales (CY06) - $ 10 bn

5. Resorts providing timeshare facility 1615

6. Timeshare units available- 176,232(CY06) +47,000 units estimated to havebeen added by end of CY07 (Source:ARDA).

7. Avg. price of timeshare - $18,502

8. Key players - Wyndham Worldwide,Marriott, Hilton, Hyatt, Starwood,Sunterra, Blue Green Corporation,Disney.

1. Timeshare Members -250,0002. % of households holding timeshare

0.12%

3. Industry Growth CAGR 20%+

4. Annual Sales (FY07) - $ 107.5 mn(Rs 4.3 bn)

5. Resorts providing timeshare facility 80(expected to double in 2-3 yrs)

6. Timeshare units available 9000

7. Avg. price range of timeshare Rs 1.5-5lakhs (25-30 yrs).

8. Key Players Mahindra Holidays, SterlingHoliday, Country Vacations, Le Meridian,Holiday Inn, Best Western, Radisson,Orchid, Lotus Suites, Avalon, Orphic andOrange County.

USIndia


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Overview of Existing Operations of CCIL

CCIL operates 27 properties (owned and leased) spread across 15 Locations in India &Overseas. It provides state of the art health club, multi cuisine restaurants, business centre,swimming pool and other facilities in all its properties. The company offers different kinds of

membership to different age groups for its clubs and timeshares for period ranging from 5 yrs tolife time membership.

Source : Company

Sr Location Year of Size

No Operation

1 Hyderabad 1989 3.5 Acres

2 AmruthaCastle, Hyderabad 1995 87 rooms3 Medchal 1997 5 Acres

4 Bannarghatta 1997 3 Acres

5 R A Puram, Chennai 2000 0.5 Acre

6 Sarjapur 2001 3 Acres

7 Mumbai 2001 2 Acres

8 Guindy, Chennai 2001 1 Acre

9 Vizag 2001 1 Acre

10 MysoreRoad 2002 5 Acres11 Yellhanka 2004 4 Acres

12 Sun Valley 2004 5 Acres

13 Mysore 2004 1 Acre

14 Lakeside 2005 2 Acres

Sr Location Year of Size

No Operation

15 Bushbetta 2005 20 Acres

16 Coconut Groove 2005 12 Acres17 Babylon, Srilanka 2005 1 Acre

18 Mangalore 2005 1 Acre

19 Country Kuteeram 2005 4705 Sq Yards

20 Goa 2005 5143 Sq Meters

21 Kovalam 2005 2.16 Acres

22 Mango Grove 2006 4.5 Acres

23 Rock Springs 2007 142.47 Cents24 Pune 2007 2.5 Acres

25 Delhi 2007 1.27 Guntas

26 Ahmedabad 2007 34658.7 Sq Meters

27 Kolkatta 2007 4.5 Acres


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Future Plans

CCIL plans to take the count of its clubs and resort properties from 27 to 100 by FY10. Itplans to concentrate on the Tier-I cities having a larger population and income base andplans to have 42 properties in Tier-I cities alone over the next 3 yrs with 6 properties in

Chennai, 5 in Kolkatta, 5 in Mumbai and 6 in Delhi. It has around 13 clubs in metro citiescurrently

The company has entered into an MOU to acquire developed property in Pune comprisingclub house, service apartment and open spaces on a piece of land extending to 14 acres.

Acquisition of 47 room Bright resorts in Kovalam, Kerala by agreeing to acquire 100%paid up capital of Bright Resorts Pvt. Ltd for a consideration of Rs 45 mn.

Entered into MOU for development of 8 more clubs in the following locations:

- Bamboo Grove resort Lonavala- Country Kuteeram Lepakshi- Country Club Golf Village (land of 118 acres) Kolad, near Mumbai- Country Club Hyderabad Golf Village

- Floating Pagoda Tirutanni Road near Chennai- Country Club, Lucknow- Banyan Tree Vedic Spa, Penugonda, near Bangalore- Country Club Kool Bangalore

The company has recently acquired clubs in Chanakyapuri Kolkatta, Faridabad inHaryana, Ahmedabad and a resort named rock spring resort in Cochin all of which havecommenced operations


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Investment Concerns

As the clubbing industry is directly related to the economic health of a nation, any slowdown in the economy can impact the company and its growth plans.

Any delay in execution of the new projects can have an impact on the revenues andprofits for the particular fiscal year.

CCIL has entered into strategic alliances with ICICI Bank, CITI Bank, Standard CharteredBank, HDFC, ICICI Lombard General insurance wherein all these banks creditcardholders will be entitled to the 0% interest free installments starting from 6 months to36 months to avail Country Club membership. In the event of rescission or cancellation of

membership by members whose memberships are securitized by banks, the banks willhave to recourse to the company for providing substitute new or existing members, whichcan affect the operations of the company.


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Valuation

CCIL follows a hybrid model where in some cases it offers small accommodation facilities atsome of its clubs and large part of its timeshare members are also members of its clubs for

use of their facilities on a daily basis. So its operations span across both the retail andhospitality verticals, leaving no direct competitor for the company.

From timeshare perspective, we value the company benchmarking against peers likeMahindra Holidays and Resorts which has a similar membership driven model and isplanning to list itself in order to unlock value and support its growth plans.

At a CMP of Rs 882.5 the CCIL stock is trading at 20.7x its FY08 diluted EPS of Rs 43.1.

This appears to be at a 55.3% discount to Mahindra Holidays, which had been valued at $ 1bn (Rs 39.5 bn) in a recent stake sale to SBI, which based on our conservative earningsestimates, works out to 45.9x its FY08E EPS of Rs 10.5.

We believe that there is a case for upside in valuations of CCIL as we near IPO of MahindraResorts. Giving a 25% discount to CCIL we value it at 34.4x its FY08E earnings, thetarget price according to which works out to Rs 1482 signifying an upside potential

of 68% from current levels.


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Financials

33.527.654.623.120.5PE (x)

32.043.1Diluted EPS (Rs)

26.456.016.238.275.5Basic EPS (Rs.)87.391.787.387.3160.8Equity Capital

22.822.621.721.623.0Net Profit Margin (%)

1256.5123.3544.0136.4107.5Growth (%)

230.2514.0141.2333.8692.6PAT

35.340.016.637.339.5EBIDTA Margin (%)

165.9155.6256.2433.0106.0Growth (%)

355.7909.3108.0575.71185.7EBIDTA

188.0125.691.1137.294.8Growth (%)

1007.72273.9650.31542.53005.1Revenue

9M FY079M FY08FY06FY07FY08E

Quick Estimates (Rs mn)

Source: Networth Estimates


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Assumptions for calculating FY08 diluted Equity

1. Company alloted 1,880,322 equity shares at a price of Rs 770 to QIBs in Dec 07.2. Allotment of 600,000 convertible warrants to promoters and outsiders at the rate of Rs

600 per warrant convertible into equal number of equity shares of Rs 10 each to beexercised with 18 months from the date of allotment. We have assumed the conversionof these warrants into equity as on year ended Mar 31, 2008.

3. Allotted 4,32,912 equity shares of Rs 10 each of the company at a premium of Rs 505per share upon conversion of FCCBs to the extent of US $ 5 million to Morgan StanleyMauritius Company.

4. Company raised Capital upto US$ 86.90 Million aqainst the issue of 221,57,065 GlobalDepository Receipts (GDRs representing 44,31,413 Under beulty Shares of Rs 10/-each Issued at Rs 770/- per share. We assume the same to be converted by Mar 31,08.


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Peer Comparison

Source: Networth Estimates

*Mahindra Holiday FY07 EPS has been rebased on post diluted Equity Capital of Rs 824.5 mn

--2023P/E

105*4338EPS (Rs)

103112108136Growth %

863425693334PAT (Rs mn)

34303937EBIDTA %

665295137Growth %

2323386030051543Total Revenues (Rs mn)

366284265164Guest Accomodation, Restaurants & Banquets & other Services

3493203927401378Membership Revenues (Rs mn)

2050001970006800059000Avg. Member Realization (Rs)

6875052885157945117645Member Base

73%N.A70%65%Average Occupancy Rate (%)736675295295Total No of Guest Rooms/Cottages

FY08EFY07FY08EFY07

Mahindra HolidayCCIL


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Rajan Kumar Cement / Pharmaceuticals [email protected] 022-30286389Rati Pandit Hotels / Aviation [email protected] 022-30286389Brijesh Rajvanshi Telecom / Media [email protected] 022-30286389Vishal Sanghavi Textiles [email protected] 022-30286389SuryaN. Nayak Mid Caps [email protected] 022-30286389AshwaniSharma Power / Power Equipments [email protected] 022-30286389Deepak Kumar KS Associate [email protected] 022-30286389RabindraBasu Associate [email protected] 022-30286389Shruti Bhargava Associate [email protected] 022-30286389Smita Suryavanshi Associate [email protected] 022-30286389ShashinShah Mid Caps [email protected] More Production [email protected] 022-30286389

Networth Institutional Sales: E-mail- [email protected]

Raj Bhandari / Rameshwar Singh / D K Arora / NinieSingh 022-22633020/1/2

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