Luxury is a elusive description?




I like the definition of luxury pertaining to hotels in Mauritius as reported by an analyst of a fund manager of Anglo Mauritius financial services (AMFS).


We were invited to the NMHL analyst meeting at Dinarobin hotel in Le Morne. So have you ever wondered what two finance maniacs discuss from Port-Louis to Le Morne? After our usual rant of the length of the journey we started to wonder why they organized this meeting at Le Morne. Obviously the aim was for us to visit the revamped luxury hotel at a cost of Mur 200 m. A series of questions barged into our mind. Why such a massive amount? What is Luxury?How is it determined? How is the demand created?

We are sure that the many stockbrokers present have already forwarded you the outcome of the meeting in terms of financial and outlook as prescribed by NMHL’s management but we aim to provide you something different including some sometimes under-rated aspect of the hospitality business by financiers.

Here is a synthesis of our thoughts and visit:

There are no precise definitions of luxury. In fact, the least that we can say is that Luxury definitions are blurring. Luxury comes in many guises and defining a luxury hotel is challenging. As in the past, luxury is constantly evolving and means different things to different people. For some it may be a hotel offering simplicity, privacy and spiritual well being whereas for others it may be 24-hour butler service or a personal shopper. Needs may differ according to the nature and purpose of the trip, the origin of the guest and the location of the hotel.To add to the confusion, some operators have taken to calling themselves ‘7 star’ to imply an Uber luxury product. Even at the high end though there are varying degrees of luxury. This means that Luxury is a moving target. There are only a few who really have the “Midas” touch to spot these trends and exploit them. NMHL has a demonstrable past success in this endeavour. Overall, luxury is generally regarded as a combination of facilities and style and something you don’t normally experience at home.

Demand drivers- Motivation for buying luxury goods in general

Clearly the demand drivers for luxury hotels varies with the type of property and is influenced by factors such as location and whether the hotel is an urban, resort or destination property, on the size, style, on-site facilities and so on. But why do consumers buy luxury goods and services? Five main reasons are:

1.         ‘Treat factor’
2.         Perceptions of luxury delivering better quality
3.         Brand image (especially important for younger consumers)
4.         Self indulgence
5.         ‘Showing off’ – this typically lead to marketing via word of mouth

In Dinarobin….

We were tour guided in the hotel where we saw a stunning hotel that really made a good use of a breath-taking site, in particular the Le Morne peninsula. During our tour visit, we saw the famous Clarins brand. Here we realize one important reality of the hospitality businesses in Mauritius: Consumers value spas. Many luxury hotel companies are pursuing out-of-room revenue growth opportunities, including potential food and beverage outlets and spa growth opportunities in specific properties. Increased awareness of spa experiences as rejuvenation exercises, diversification of spa products to include hiking, yoga, dance classes and other multi-generational products, increasing level of branding within the spa industry in hotels and increasing disposable incomes, are some of the factors that will drive the spa component growth in hotels in future years. Those we spoke to agreed that a spa is an essential facility and revenue generator, not just added as a differentiator. Dinarobin has annexed sauna as well as hammam to complete the pleiade of services offered. We also saw the joint golf course between Dinarobin and Paradis as a massive differentiator.

At the end of the tour, we realized that the main aspect of NMHL is that it owns trophy assets located in prime spots. This explains the ability of NMHL to preserve its pricing power even at the time of crisis. NMHL has not barged into cutthroat competition. This we believe showed into the financials.

But in view of the recent world economic plague, is this stock undervalued? Are there better opportunities ahead? How will the forex environment develop? What is the state of barriers to entry? Should you invest your total savings in the name? At what time should you buy it if yes?

At AMFS we have a team of committed and experienced professionals with their minds constantly directed towards finding solutions to these dilemmas. Our expertise range from strong fundamental and technical analysis with the aim to add value to the portfolio we manage. We study business in-depth. It is something that we are passionate about.

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An NLP practiotioner would ask you: “what do you mean by a luxury hotel? Please specify the term luxury?”


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