mahindra hotels and resorts

Their business concept is wonderful. It sells the concept of family vacation for the next 25 years whenever you want, wherever you want. However if you have ever tried booking a holiday with them, you would realize that it’s all a myth. For some resorts you need to book at least 3-5 months in advance and yet you will not get the requested dates esp. if you are trying to book for Saturday evening/for the long weekend. Also since they don’t have a friendly booking cancellation policy, I doubt if it is possible for us to plan that much in advance.
Just out of curiosity, today I downloaded its quarterly results in order to dig into where all the subscription money is going.
http://www.mahindra.com/resources/Investor-uploads/2-Quarterly-Results/5-MHRIL/MHRIL%20Q4%202010-11.zip
Typically hotels and resorts are capital intensive business in which most of the firm’s net worth is invested into properties. Also like any real estate firm, I also expected to see a lot of debt on the books.
However what I saw was nothing like what I had expected. (All figures are taken from Mar 2011 results)
1. The company’s balance sheet had only 957 Cr of advances from members. Considering that the annual sales revenue is 536 Cr (1 Cr = 10 Million INR) this is like less than 2 years of revenue. Now I know for fact that most of its members joined less than 3 years ago. So how can the company promise 25 years of vacation if it has not made enough provisions for the future. (As per my calculations, this value should be about 5X of the revenue, because the company charges for F&B, annual maintenance charges etc. from the rooms it rents)
2. Hospitality is a capital intensive process, but surprisingly Mahindra has made a capital expenditure of just 583Cr. This is little more than 1 years of revenue. No wonder one can never book this god dam place. There are simply not enough rooms.
3. So where is the money going? Take a small guess: Sundry Debtors owe the company 810Cr. (551 days of credit) and this amount is growing quarter over quarter. Add to that the company has given loans and advances to the tune of 80cr. Now if anyone of you has ever stayed in a hotel/resort, then you would know that a guest is expected to pay a booking amount at the time of booking (which is 3-6 months of advance for Mahindra), another huge amount at the time of checking in (i.e. before the use of services) and the remainder at the time of check out. No matter how big a client you are, I doubt if any functioning resort can ever give you a line of credit of more than 15 years. So how is this company able to generate such a huge Sundry Debt? What services did it provide and to which clients that even after 500 days it is unable to collect money from them?
My gut feeling is that this is a ponzi scheme where the company has enrolled many more members than their capacity. Bulk of the membership subscription money was recognized as revenue and squandered away as commissions/advertizing leaving nothing to develop properties. Hence the company neither has enough rooms to rent to its members, nor enough money to develop them and provide them in the future. I won’t be surprised if the quality of service deteriorates after a couple of years or the company simply shuts shops.
The only way this company can sustain its operations is if it is able to find copious numbers of gullible people who would pay huge upfront subscription fees and never book a room. By the way, just like a pyramid scheme, this firm offers a huge referral bonus and joining gift for the new members.
PS: One of my closest friends is planning to open a resort in Gujarat. So this analysis was part of the market survey I was doing in the hospitality industry for him. If you know of any location/niche, your views would be more than welcome.