BackSterling aims to top timeshare market, but multiple hurdles loom
Sterling aims to top timeshare market, but multiple hurdles loom
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Chennai: It’s been 12 months since Ramesh Ramanathan picked up the reins at India’s struggling timeshare pioneer Sterling Holiday Resorts India Ltd and the 56-year-old managing director is already looking at unseating his former employer and market leader Mahindra Holidays and Resorts India Ltd even as he strives to log the Chennai company’s first profitable year in more than 16 years.
“Typically, high interest rates and high inflation make this offering difficult to sell," brokerage Trust Financial Consultancy’s Mohit Jain, who has a “buy" recommendation on both Mahindra Holidays and Sterling Holiday, wrote in a February report.
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“There will be some delays but we will live through the downtrend," Jhunjhunwala said over the phone. “The company has no debt and has an excellent management. Moreover, the industry is still underpenetrated and has high entry barriers for new players."
Jhunjhunwala’s investment was significant for Sterling Holiday that has faced customers’ wrath and lawsuits for failing to deliver on its promises after a buoyant debut in 1986. In the mid-1990s, the company ran into severe financial trouble as it tried to develop a 220-acre golf course in Greater Noida, the outcome of which continued to weigh on the business for many years.
“The business was on maintenance mode for more than a decade until investor Siddharth Mehta of Bay Capital came in," said Sterling Holiday’s Ramanathan. He was on a sabbatical after his February 2011 resignation as managing director of Mahindra Holidays, India’s largest vacation ownership company and 10th in the world, when he got a call from Mehta luring him to complete an unfinished job.
In 2009, Mehta’s private equity firm Bay Capital Partners Ltd invested $13.8 million in Sterling Holiday after a year-long discussion with founder R. Subramanian’s son Sidharth Shankar Subramanian. This was two years after the younger Subramanian decided to take a break from his US-based technology venture at the insistence of his father who had bought out his partners in Sterling Holiday.
Subramanian, 39, and Mehta worked to pay off debt worth ₹ 240 crore by selling so-called non-core real estate and settled 90% of the cases against Sterling Holiday before pleasantly finding out that Ramanathan had just quit his job with their rival.
“I wanted somebody who could say, ‘I know what I am doing and you listen to me’," said Subramanian, who is currently vice-chairman of Sterling Holiday. “And so Ramanathan’s entry was the icing on the cake."
For now, Ramanathan is aggressively redoing rooms at the cost of ₹ 14 lakh each, which he says is still cheaper than the ₹ 50 lakh per room cost of building a new one. After he joined the company in July 2011, he launched five new resorts and improved the interiors of 300 rooms. This year, too, five-six new properties will be inaugurated and 450 rooms upgraded.
After turning Ebitda (earnings before interest, tax, depreciation and amortization) positive in the three months ended March, Ramanathan is betting on fiscal 2012-13 being the first profitable year for the company since 1997. And for that he’s counting his pennies. Despite being an ardent sales guy, Sterling Holiday’s MD flinches at the thought of even a ₹ 3-4 crore spend on advertising at this point and is happier spending ₹ 42 crore on renovating the company’s fixed assets that he says will sustain and draw customers besides providing word-of-mouth publicity.
As far as competition goes, Ramanathan hopes to surpass his bigger rival by being a value player with membership fees starting at ₹ 1.5 lakh, half of Mahindra Holidays’ base rates.
“All I can say is that we are not sleeping," said Rajiv Sawhney, chief executive of Mahindra Holidays, which was begun in 1996 and currently operates 40 resorts housing 2,049 room in total across the country catering to 130,000 active members, double that of Sterling Holiday.
Ramanathan doesn’t find the task of surpassing Mahindra Holidays daunting given that with 1,450 rooms across 19 resorts it has just 500 fewer rooms than Mahindra Holidays. And the gap is only about to shrink amid Sterling’s ramp up through leased property with the added option of building resorts on 150 acres of land at 15 locations.
That may be easier said than done, said an analyst. “Unfortunately the economy is sluggish and travel expenses are discretionary spends that aren’t a top priority for consumers," said a Chennai-based analyst who tracks the sector but didn’t want to be named. “Sterling Holiday now has the management bandwidth. Still, it will be very tough for the company to go past Mahindra Holidays. Moreover, it’s not just a numbers game. The key element here is to garner quality, credit-worthy members who have the ability to keep up their membership commitments."
anupama.c@livemint.com
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