I have looked at this small cap company on 3 parameters i.e, Right business, Right promoters, Niche/Scale of business.

Business:-

• Sterling Holiday Resorts (India) is available at Rs70 (Mcap = 200Cr).
  
• They have 14 resorts across the country.
  
• The Mountains ->» Kodaikanal» Lonavala» Manali» Munnar» Mussoorie» Ooty» Darjeeling» Yelagiri» Yercaud
  The Beaches-> » Goa» Mahabalipuram» Puri
  Pilgrimage Centers ->» Puri» Swamimalai

Management:-

• 32 lakhs (12% of total equity share of 2.7Cr) warrants issued to promoters at a price of Rs 73.16/-

Scale:-

• Time sharing resorts are new business in India, as of now only Country Club and Club Mahendra plays in this niche area. So scope of expension is much more since middle class consumption and life style is changing.

Trigger:-

• Mahindra Holidays & Resorts India Ltd., (MHRIL) a part of the Infrastructure Sector of the Mahindra Group, the company’s flagship brand ‘Club Mahindra Holidays’, today has a fast growing customer base of over 60,000 members and 15 beautiful Resorts at some of the most exotic spots in India and abroad.
  
• The pre-IPO placement deal values the leisure hospitality provider at around Rs 4,000 crore ($1 billion).
  
• MHRIL has filed for its IPO, which will see a sale of 10 million equity shares of Rs 10 each at a premium. This would constitute about 13 per cent stake of the fully diluted post-issue paid-up capital of the company.
  
• Country Club (India) Ltd another player in same business has Mcap of 821Cr. Sales 240Cr/Profit 60Cr FY08, PE=15.
  
• Sterling Holiday Resorts (India), Mcap = 200Cr, Sales 30Cr/Profit 12Cr approx FY08.
  
• Mahindra Holidays & Resorts India Ltd = Mcap:4000Cr; Country Club (India) Ltd = Mcap: 821Cr but Sterling Holiday Resorts (India) Mcap is just 200Cr.
  
• There is valuation gap, so Country Club and Sterling Holidays will catchup the.

I am expecting Sterling Holidays currently at Rs70 to move up and reach min 200+ by the time IPO of Mahendra Holidays comes (it is expected to come in Jan-Feb'08). So we can look at this stock as multibagger in couple of months.

The most important thing is Management Issues. It seems to be very poor. They are struggling for so many years to bring back the business even though they are the first in time share concept in India.

 

I mean Is Sterling resort should get 20 times less valuations than Club Mahendra!!!

 

Yes the valuation comparison makes a case to look at sterling however we should also remember the fact that market in terms of stock valuation would reflect the future earning potential and will not consider past performance or for that matter the valuation of peers, at this stage Mahindra has projected a bright future in terms of earnings growth and that could help them quote at a rich premium, sterling may have the same number of properties but without any future plan or for that matter any visibility in earnings would not really enthuse the market.

 

A case in example would be the rerating of essar oil one rel petro went thorugh the roof here we have a company which will start production only in dec 08 whereas essaroil has already got an existing set up and refinery.

 

The case for investment in sterling had some in BS a few months back when it was around 55 rs and the same logic using MM was used , but I suppose market in its wisdom couldnt really buy this srguement to give such a big rerating for sterling.

 

Now at the end of the day in such market conditions sterling may outperform in the but without any future visibility market would get it back to where it was is my guess unless some major corporate action like stake sale or additional properties or sale of existing properties take place.

 

PL had also given a buy on country club and also as their pick for 2008. The concept of country club is different from say Mahindra resorts, while country club is positioned as a club for the upper middle class where you can also buy a property in some of the resorts but Mahindra is positioned as a high end holiday resort with time sharing options and also the entry fees is much more than CC.

 

 

Absolutley there should be no compromise in any case on management integrity .

 

This is what I got from their 06 ending annual report '

Rs.3,75,87,820/- (Rs.1,93,89,978/-) worth teak unit certificates of Sterling Tree Magnum India Ltd. in view of the potential interests shown by the customers of

Sterling Tree Magnum to exchange their teak units into Time Share Units, the Company (SHRIL) has floated a special scheme of sales for them. Under this, a part

of the sale consideration is received in the form of surrender / transfer of teak unit certificates to the Company. The accumulated net value of such teak units is

Rs.3,75,87,820/-'

As I recall it is the same team ...this was during the 90s when there was this big NBFC boom along with lot of teak plantation companies coming into the market....now most of these NBFCs and teak companies are closed and out of business.

 

It is true that if driver of the bus is not good then irrespective of condition/model/make of bus, it is going to break down!!!

 

This company's mgmt doesn't seems to me as smart/loyal guys so better avoid this company.