Profitable holidays

Launched in the mid-1980s Sterling Holiday Resorts was the pioneer in the time share industry which registered red hot growth in the period 1986 to 1995. Mahindra Holidays took a cue from them in this nascent industry and surely but firmly established themselves as the timeshare company in the country. Meanwhile Sterling Holidays sank deeper, not least because of its own doings. So much so that its image for the past many years has been one that of dissatisfied customers coupled with run-down resorts.

The company expanded too fast in the mid-1990s, buying many pieces of land during that time and landing in a lot of debt. Then the crash of 2000 happened and Sterling found that they couldn’t dispose of the excess land that they had bought as property prices had come down. They compounded their problems by overselling their timeshares. Even in the most advanced economies, overselling of time shares has been a problem.

But Sterling Holiday Resorts, which has 19 resorts offering 1523 rooms, has been turning things around. In June ’11, they appointed Ramesh Ramanathan, their President in the nineties (1991-95), and then MD of their arch rival Mahindra Holidays as their MD. And he has started the revival earnestly. The company turned cash positive in the last quarter of the last financial year – the first time in 60 quarters and the trend should continue, if developments over the last year or so are any indication. But things may not happen in a hurry. Sterling wound up the March ’12 quarter with a net loss of Rs 5.91 crore. The comforting factor -- this was lower than the loss of Rs 17.97 crore the immediate previous quarter. Being EBIDTA positive is the start of a turnaround. The tougher task is to do so in the minds of their customers as well and bring back the credibility which they enjoyed once upon a time.

The turning point came when Bay Capital Partners Ltd invested Rs 15.97 crore in early 2009. The accumulated losses at the end of FY 2009 were Rs 203 crore. Bay Capital continued to invest in the company - altogether Rs 78.24 crore - and today has a 32.72 per cent stake. Bay’s Siddharth Mehta took over as Chairman in July 2011. Once Mehta put in the money, Sterling could negotiate with the banks and settle debts. And now, for the first time since 1995, Sterling is a debt-free company.

Then about a year ago the Mumbai-based investor duo – Rakesh Jhunjhunwala and Radhakrishna Damani – invested Rs 120 crore in the company (in a combination of equity and warrants; with warrants issued to them to be converted soon each will have a 7.71% stake).

It is pertinent to read the thoughts of RJ, the astute investor. He says “Any buyer of a Rs 5 lakh car is a potential customer. The entry barriers for this business are high because you need at least 10-12 resorts to offer. There are only two players in the market. And, now Sterling has a good management so long term potential is good.” This logic is obviously unquestionable.

Two things have stood Sterling in good stead: keeping the resorts going and not selling the land. That land is going to come in mighty handy now. It has 150 acres of land across 15 destinations, from Mahabaleshwar to Munnar, which will allow it to construct 2,000-plus rooms. More importantly, they have kept all their permissions to build in green areas alive all these years.

Now, Sterling’s resorts are being renovated at a cost of over Rs 100 crore. This also includes the cost of leasing new properties. At Kodaikanal, its first resort has been renovated and rebranded as Kodai by the Lake. Its Munnar resort has been renovated as well. Around 350 rooms of the company's resorts have been refurbished and another 400 will be done by March 2013.

Sterling is reconnecting with its existing member base of 65,000, many of whom are a disgruntled lot. With renovated and new resorts, it expects its members to take it seriously again. Last year, it enrolled 2,500 members. Greenfield resorts are at least 18 months away.  Mahindra Holidays, a company where Ramanathan was earlier the MD, and the leader in this business has more than twice Sterling’s members at 145,000. It operates over 2,000 rooms across 40 resorts.

Sterling’s time share is 30 per cent cheaper than Mahindra’s but the latter’s resorts are superior. They were the pioneers in the business and even when they started nose-diving, they continued to service their members. Sterling’s turnaround has already begun but the real impact will be felt only next year.

Debts wiped out, new investors and a new management. The results are showing. It should only be a matter of time when they will regain their lost glory.