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Cox & Kings – Add Leisure to Portfolio – Subscribe

November 14, 2009

Cox & Kings (India) is amongst the oldest travel brands [is also a Global Brand] in the country offering travel (both leisure & business), forex and visa processing services. The company acts as a One Stop Shop for all the travel related needs of Indian and international travelers.

In India, tourism as a % of GDP accounted for just 6% in 2008, as compared to about 9% for the world. Thus the domestic and inbound market offers a vast scope for all the operators to expand revenues.

Cox & Kings Current IPO Details:
Face value 10
Price band 316-330
Issue opens November 18, 2009
Issue closes November 20, 2009
Retail Size – 6,403,824 Shares or Rs 211 cr
Fully Diluted Equity after the IPO – 62.92 cr or 6.29 cr equity shares of FV 10

Financial Performance:
C&K reported revenue CAGR of 65.5% over FY06-09 period while OPM was in the 40%-42% range over the same period. PAT witnessed 80% CAGR over FY06-09. Excellent Performance, we should say.

Advantage Cox & Kings:
Apart from India, C&K has a presence in 19 countries through a mixture of
subsidiaries, branch and representative offices.

Higher business volumes would provide the company a better bargaining power to make bulk bookings for air travel, hotel accommodations, car rentals and ground handling

Risks:
Foreign Currency Fluctuations and some competition from other players from the un-organized sector are the key risks.

Cox & Kings Versus Thomas Cook:
Thomas Cook another listed company in the same line of business is directly comparable. Sales of both the companies are almost the same. Thomas Cook is expected to report an EPS of Rs 1.4 to 1.6 for year ending Dec-2009 and is quoting at a P/E of 40.

Cox & Kings, even if it reports a PAT of 63 cr as reported in FY09 [Conservatively], its EPS after full equity dilution will be Rs 10. At a P/E of 33, the management has definitely left something on the table for INVESTORS. However, the company in our view will definitely earn more in FY10.

Since Thomas Cook sales has been growing at a far slower pace than Cox & Kings, its is highly likely that Cox & Kings will enjoy higher discounting 3 to 6 months after the IPO when FIIs would have cornered their chunk of shares 🙂

Comments

4 Responses to “Cox & Kings – Add Leisure to Portfolio – Subscribe”

  1. Anonymous on November 17th, 2009 10:02 PM

    SMC Research said,
    With rising disposable incomes among Indians and a willingness to spend on travel, C&K seems well positioned with its proven track record to provide a customized high quality travel experience to its customers.

    Looking at post issue valuation, the company is trading at a P/E of 31.68x times on the lower side and 33.08x times on the higher side of its post issue consolidated FY09
    EPS of Rs.9.98.

  2. Anonymous on November 17th, 2009 11:49 PM

    Sharekhan in its report says,
    Our very rough estimates suggest that at the lower and at the upper end of the price band the stock would discount its FY2010E earnings by 15.5x and 16.2x respectively and its FY2011E earnings by 11.5x and 12.0x respectively. That is reasonable compared with the valuations of its international
    peers.

  3. Anonymous on November 18th, 2009 1:52 PM

    EMKAY Share recommends a subscribe with the following note,

    For Thomas Cook most of the earnings are contributed by
    Forex segment which is a low margin area. Whereas C&K has strong core business of outbound travel especially Euro region which is a high value high margin segment. The
    new initiatives of company in rail tourism have potential to add significantly to both top & bottom line going forward. Visa processing is another niche area where company can score over its peers.

    Though at the upper band the stock appears to be fairly priced we still recommend Subscribe due to strong brand equity, high operating margins & potential of earnings
    from new initiatives.

  4. Anonymous on November 18th, 2009 2:40 PM

    HSBC shares the same view as the author of the original article did,

    Considering the recent growth rates, the offering of C&K at 20XFY10E and 15XFY11E (considering 25% growth in earnings), appear
    relatively cheaper. Some marquee investors in the company include Lehman Bros., Deutsche Sec, Merrill Lynch. Together they would hold
    8.2% of the post issue paid-up capital.

    Being the leader in the industry, C&K would draw premium valuations. Investors should subscribe to the issue from a medium to long term
    investment horizon only. One should not however expect any major listing gains.

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