COX & KINGS (INDIA) LTD : Accumulate at every Dips !!!

Scrip Code: 533144 / COX&KINGS

CMP:  Rs. 137.20; Buy at current levels.
Short term Target - Rs. 150; Medium to Long term Target – Rs. 170; STOP LOSS – Rs. 126.25; Market Cap: Rs. 1,873.16 Cr; 52 Week High/Low: Rs. 207.30 / Rs. 119.05

Total Shares: 13,65,27,890 shares; Promoters : 8,03,46,760 shares – 58.85 %; Total Public holding : 5,61,81,130 shares – 41.15 %; Book Value: Rs. 80.67; Face Value: Rs. 5.00; EPS: Rs. 4.40; Div: 20.00 % ; P/E: 31.12 times; Ind. P/E: 21.50; EV/EBITDA: 16.84.

Total Debt: 1,158.26 Cr; Enterprise Value: Rs. 3,031.42 Cr.

COX & KINGS INDIA LTD:  Cox & Kings Ltd was incorporated in 1758 and is based in Mumbai, India. The company was formerly known as Cox and Kings (India) Limited and changed its name to Cox & Kings Limited in July 2010. The company was listed on the bourses in December, 2009 and raised Rs. 600 crore through an IPO at a price of Rs. 330/share of face value Rs. 10 (17 x FY10 EPS), in June 2011 the company announced split of shares from Face value of Rs. 10.00 to Rs. 5.00. Cox & Kings Limited operates as a travel and tours company primarily in India, Europe, Australia, the United States, Dubai, Japan, and Singapore. The company offers destination management services; outbound tourism services; leisure and business travel services; education travel services; hotel bookings; car, coach, railway bookings; visas, passport, medical insurance assistance services; camping holidays services; and meetings, conferences, and events services, as well as NRI, trade fairs, and foreign exchange services. The company has presence in over 19 countries with 13 branch offices, 177 agents and 150 franchises. It also offers various leisure holiday packages primarily under the Cox & King, Explore, Edge, Superbreak, CKDMS, Tempo, BenTours, online Bookit, and Djoser brand names; education travel services principally under the PGL, NST, Meininger, EST, and Travelplus brand names; and camping holidays primarily under the Eurocamp, Keycamp, Ecamp, Eurocamp Independent, and Own a Holiday Home brand names. 

Investment Rationale:

Cox & Kings (C&K) is one of the leading and oldest players in the travel & tourism industry that caters to the overall travel needs of Indian and International travelers. C&K has a presence in more than 19 countries besides India through subsidiaries and JVs. This places the company in a unique position among all regional players to offer multiple travel choices and value for products. C&K further plans to expand its network of franchise outlets to 250 by FY13 in India mainly in Tier II and Tier III cities to gain market share. The company provides training, site development, advertisement and marketing support with minimal investment. Higher number of franchises provides C&K an edge over competitors to gain market share and brand recognition. In addition, this also gives it better bargaining power to make bulk bookings, which finally helps company to provide a competitive package to customers, thus attracting more traffic in the long run. Captive destination management services assures C&K of savings in cost in terms of commission and capture the maximum pie of expenditure accrued by customers, right from transportation to sightseeing. The wide network of overseas branches gives the company access to important geographies and markets that help it to gain a strong footing in the offline travel industry. Its global presence also helps to mitigate the seasonality impact faced by the domestic travel and tourism industry. India’s tourism is counter cyclical to the rest of the world as the outbound season is in the first half of the financial year (April-September) whereas the profitability in the second half is taken care of by the overseas subsidiaries and India outbound operations. COX & KINGS had made series of acquisition which is a key route to become leader in tourism Industry. It has done seven acquisitions in the past six years (including HBR), which made C&K an integrated player globally with quality products and services & brings huge business volume on the book on a consolidated basis. This, in turn, increases C&K’s bargaining power with vendors due to its large customer base and global presence. The overseas acquisition created value for the company with healthy growth in revenues (CAGR of 51 % during FY07-11) and operating margins (i.e. at 40 %) during the same period. Recently the company increased stake in its student accommodation brand Meininger Hotels. C&K earlier held 50 % stake & has now increased it by 24 % taking the total holding in Meininger to 74 % at a cost of Rs. 190 Cr, the company will eventually acquire the balance 26 % stake, which is also expected to cost the company around Rs. 190 Cr. 

Year	Company	Country	Amount	Type of Offerings
Mar 2006	Clearmine Ltd	UK	Rs. 15.60 Cr	Destinations management services & inbound Services in Europe.
Sep 2007	Cox & Kings	UK	Rs. 39.00 Cr	Outbound services to upmarket leisure client: Wealthy retirees, Key destination: India, Latin America etc.
Sep 2007	Cox & Kings	Japan	Rs. 2.00 Cr	Travel wholesaler of products & services to other tour operators.
Nov 2008	Tempo Holidays Pty Ltd	Australia	$ 27.00 million	Outbound European & UAE countries.
Apr 2009	East India Travel Company Ltd	USA	$22.00 million	Premium outbound travel package in US.
Jan 2010	MyPlanet, BenTours International	Australia	NA	Specialised Outbound tour operator.
Sep 2011	Holidaybreak Plc	UK	Rs. 2,300 Cr	Education tour operator.

Outlook and Valuation:

Tourism is an important sector of the economy and contributes significantly in the country’s GDP as well as foreign exchange earnings (19 % YOY to Rs. 77,580 Cr). The tourism industry in India is vibrant and is fast becoming a global destination. This is clearly evident from the rise in inbound and outbound tourists by 8.1 % and 12.6 %, respectively between 2005 and 2010. According to World Travel and Tour Council (WTTC), currently the travel and tourism industries directly contributes to about 2 % to India’s GDP which are backed by growth of 8 % CAGR in FTAs and 14 % CAGR in domestic tourism in India over the last five years. Considering the high growth potential, WTTC estimates the size of the Indian tours & travel industry to register growth at a CAGR of 10 % from US$42 billion to US$111 billion by the end of 2020. 

Cox and Kings India net sales have grown to Rs. 500 crore in FY11. Profits have grown to Rs. 129 crore at the end of FY11. The company has maintained its operating profit margin at an average of 40 % for the past five years. The company is focusing on trimming down debt through cash generated from business and minority stake sale in its wholly-owned subsidiary Prometheon Holdings (UK) Ltd, which is believed, would further improve its profitability, going forward. However, continued slowdown in the business of international division and seasonality remains a concern. At the current market price of Rs. 137.20, the stock is trading at a PE of 6.92 x FY13E and 6.26 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 19.80 for FY13E and Rs. 21.90 for FY14E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COX & KINGS (INDIA) LTD with a target price of Rs. 170.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	496.70	837.90	1,961.00	2,093.30
NET PROFIT (Rs. Crs)	129.10	41.60	270.50	298.90
EPS (Rs.)	9.50	3.00	19.80	21.90
PE (x)	14.70	45.60	7.00	6.30
P/BV (x)	1.60	1.60	1.30	1.10
EV/EBITDA (x)	7.70	27.20	5.30	5.00
ROE (%)	10.70	3.50	18.50	17.00
ROCE (%)	10.30	2.40	12.20	12.90

I would buy COX & KINGS (INDIA) LTD with a Short term price target of Rs. 150 & for the 6 month target of Rs. 170. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 126.25 on your every purchase.

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