Sterling posts lower losses, higher sales

Chennai: Sterling Holiday Resorts (India) Ltd—the struggling vacation rental pioneer trying to revive itself—on Monday reported lower losses and higher sales in the first quarter as renovations stoked better occupancy at its resorts, while reduced advertising spends helped keep costs in check.

The Chennai-based company’s stock closed about 1% higher at Rs87 on BSE on Monday, after having risen 2.4% earlier. The benchmark Sensex fell 1.64% to close at 16,877.35.

“The expansion of our network will increase our inventory by 247 rooms, taking the total to 1,629 rooms. The additional inventory will offer our members a wider choice of destinations to holiday in and allow us to expand our membership base,” said Ramesh Ramanathan, who has just completed a year as Sterling Holiday’s managing director.

Ramanathan recently said in an interview that in 2012-13 the Chennai company will log its first profitable year in more than 16. Room occupancies were up to 40% in FY12 from 34% in FY11 and the company is targeting 55% usage of its rooms this year, he said on 3 July.

For the quarter ended 30 June, the country’s No. 2 timeshare business, behind market leader Mahindra Holidays and Resorts India Ltd, posted a loss of Rs93 lakh on a revenue of Rs27.67 crore, compared with a loss of Rs4.8 crore on a revenue of Rs16.08 crore in the year-earlier quarter, according to regulatory filings.

Timeshare is the right to use a property, such as a vacation resort or condominium units, with multiple investors being allotted slots during which they may use it. In India, people pay between Rs1.5 lakh and Rs15 lakh to use a timeshare property for around a week in a year for 25 years.

Mahindra Holidays and Sterling dominate India’s Rs700 crore timeshare market with 59 resorts and 3,500 rooms combined, but smaller competitors are nipping at their heels for a share in the rising popularity of shared holiday homes.

Sterling Holiday’s first-quarter income from new memberships more than doubled to Rs15.8 crore and it posted the second consecutive quarter of positive Ebitda at Rs1.08 crore following its achievement in the three months ended 31 March when it ended a 15-year loss streak. Ebitda, or earnings before interest, tax, depreciation and amortization, is a key measure of profitability.

To be sure, weaknesses in the Indian economy amid global vagaries, a damp investment climate and a delayed monsoon weigh on the vacation rental sector as prospective customers curtail discretionary spending, analysts said.

“The economic slowdown may not affect the spending of existing vacation rental customers,” said Amol Rao of Mumbai-based equity research firm Antique Stock Broking Ltd. “Still, unless the timeshare companies do something significant to boost the value proposition they may find it tougher than usual to get new customers, who look for more variety and flexibility that timeshares currently don’t offer.”

It remains to be seen if stock market investor Rakesh Jhunjhunwala’s investment of Rs120 crore in the company last year with Radhakrishna Damaniand others pays off.

Jhunjhunwala’s stake purchase came two years after Siddharth Mehta of private equity firm Bay Capital Partners Ltd invested $13.8 million (Rs77 crore) in Sterling Holiday and worked to pay off debt worth Rs240 crore and settle 90% of the cases against Sterling Holiday for failing to deliver on its promises after its much-hyped 1986 launch.

Given the company’s current financial standing, the renovation of existing properties and construction of new rooms could be a good long-term strategy, said an industry consultant.

“Hotels is a cyclical business and what it is witnessing currently is a temporary correction,” said Sudeep Jain, executive vice-president at Jones Lang LaSalle Hotels. “Cash-rich companies could look at expanding today so when the economy bounces back they are not scampering to have a product in the market.”

anupama.c@livemint.com