THOMAS COOK INDIA LTD: IT's MUCH MORE THAN A TRAVEL COMPANY !!!

Scrip Code: 500413 / THOMASCOOK

CMP:  Rs. 211.65; Market Cap: Rs. 5,385.46 Cr; 52 Week High/Low: Rs. 220.50 / Rs. 82.05

Total Shares: 25,44,51,587 shares; Promoters : 18,56,53,725 shares – 72.96 %; Total Public holding : 6,87,97,862 shares – 27.04 %; Book Value: Rs. 20.19; Face Value: Rs. 1.00; EPS: Rs. 3.58; Dividend: 37.50 %; P/E: 59.12 times; Ind. P/E: 62.30; EV/EBITDA: 21.97.

Total Debt: Rs. 180.25; Enterprise Value: Rs. 5,417.82 Cr.

THOMAS COOK (INDIA) LIMITED: The Company was founded in 1881 and was incorporated in 1978, based in Mumbai, India. Thomas Cook (India) Limited is a former subsidiary of TCIM Limited, UK. Thomas Cook (India) Limited provides foreign exchange services, and travel and travel related services in India and internationally. The company came with an IPO in Dec 1982 offering 2,80,000 Shares of Rs. 10 each issued at par. The company’s foreign exchange services include retail purchase of foreign currencies and travellers’ cheques; bulk purchase-sale of foreign currencies from-to authorized dealers, money changers, and franchisees; release-remittance of foreign exchange; and encashment of mail-telegraphic transfers, demand drafts, and other forex instruments. The company’s foreign exchange services also consist of collection of foreign currency instruments drawn on banks; provision of Indian rupee-foreign currency advances against credit cards; and provision of travel related foreign exchange and payment solutions. It offers foreign exchange and payment solutions for leisure and business travellers, students going abroad for higher studies, people travelling for employment, medical treatment, emigration, etc. The company also offers travel related services comprising outbound, inbound, corporate, and domestic travel services; and meetings, incentives, conferences, and events. In addition, it provides travel insurance services, and visa and passport services. Further, the company operates its online portal thomascook.in that offers a range of travel and travel related solutions to its customers; and provides post graduate diploma in management in international business focusing on tourism. Thomas Cook’s Subsidiaries include: Travel Corporation (India) Ltd, TC Visa Services (India) Ltd, Thomas Cook Insurance Services (India) Ltd, Indian Horizon Travel & Tours Ltd, Thomas Cook Lanka (Private) Ltd, Thomas Cook Tours Ltd, Thomas Cook (Mauritius) Holding Company Ltd, Thomas Cook (Mauritius) Holidays Ltd, Thomas Cook (Mauritius) Travel Ltd, Thomas Cook (Mauritius) Operation Co Ltd. Currently, it has presence over 245 locations including 23 airport counters in 100 cities across India, Mauritius and Sri Lanka and is supported by strong partner network of 133 Gold Circle partners and 165 preferred sales agents in over 150 cities across India. On pan India level, the company has office located at Mumbai, Pune, New Delhi, Gurgaon, Chandigarh, Agra, Ahmedabad, Bangalore, Baroda, Bhubhaneshwar, Chennai, Cochin, Goa, Hyderabad, Jaipur, Jalandhar, Kolkata, Trivandrum and Vishakapatnam. With over 125 years of presence in India TCIL is focused on providing a broad spectrum of travel-related services that include foreign exchange, corporate travel, leisure travel, and insurance. The company’s overseas subsidiaries offices are located at Sri Lanka, Mauritius, Germany, France, Spain, Canada, UK, USA, Australia, Japan, Korea and China. The company has employee strength of over 3000 people. Thomas Cook India Ltd is locally compared with Cox & Kings Ltd, International travel Ltd, Trade Wings Ltd, Sharyans Resources Ltd, Ace Tours Worldwide Ltd and Globally compared with Star Travel Corporation of Taiwan, Reliance Pacific Berhad of Malaysia, Eurasia Travel Company Ltd of Japan, Phoenix Tours International Inc of Taiwan, Zhanqjiajie Tourism Co of China, Xi’an Toursim Co. Ltd of China, Nikko Travel Co., Ltd of Japan, Karambunai Corporation Berhad of Malaysia, E-2 Capital Holding Ltd of Hong Kong, Travel Expert (Asia) Enterprises Ltd of Hong Kong, Sanbumi Holdings Berhad of Malaysian, South China Holdings Ltd of Hong Kong. 

Investment Rationale:

Thomas Cook India Limited is the leading integrated travel & travel related financial services company in the country offering a broad spectrum of services that include foreign exchange, corporate travel MICE, leisure travel, insurance, visa & passport services and E – business. In, May 2012, 73 % stake of Thomas Cook India Limited was acquired by Fairbridge Capital (Mauritius), a wholly owned subsidiary of Toronto based Fairfax Financial Holdings Ltd which is a financial services holding company with a global presence in insurance and reinsurance and has a portfolio of assets in excess of $30 billion which are invested worldwide and is owned by the legendary value investor Prem Watsa. Thomas Cook India has strengthened its presence in the leisure segment by acquiring Sterling Holiday Resorts (Sterling), which is one of the leading timeshare and vacation ownership players owning 19 resorts with over 1,500 rooms in India. Thomas Cook India has a dominant position of share of more than 50 % in India's foreign currency bank notes exchange business which witness an volume of $1.8 billion from 2012. Both the forex and travel businesses have enduring competitve advantages and huge synergies which enables Thomas Cook India Ltd to deliver Free Cash Flow/Tangible Networth of more than 24 % a year. Fairfax has made its intention clear to use Thomas Cook India Ltd as Fairfax's investment vehicle in India for acquiring other great businesses. The brand name “THOMAS COOK” would be retained for 12.5 years starting from 2012. The management plans to consolidate all the leisure & travel related businesses under Thomas Cook India Ltd, this is with a view to effectively exploit the huge potential in the domestic tourism industry. The acquisition of a 74.85 % stake in Quess Corporation (formerly known as IKYA) in early May 2013 at Rs. 256 crore reflects Mr Watsa’s acumen as an astute investor. Quess Corp was established in 2007 with the key aim to provide business services with interests in human resources (recruitment & general staffing), information technology staffing & services, facilities management, food & hospitality services and training & skill development through a combination of organic and inorganic methods. The company also provides training services at entry levels leading to employment. Quess Corp operates around 34 offices across 22 cities along with a presence in the Middle-East and South East Asia, and employs 80,000 personnel with a client base of more than 850 clients. Quess Corp has exponentially grown its consolidated revenues to Rs. 1,401 crore in FY2014 from merely Rs. 49 crore in FY2009 and now has emerged as a leader in multiple segments like human resources (HR), office management and technology solutions. Quess Corp’s focus is on annuity and recurring income business, which constitutes about 85 % of its earnings before interest, depreciation, tax and amortisation (EBIDTA) margin. Quess Corp had a compounded annual growth rate of about 85 % across last five years in Revenues, last year it did about Rs. 1,400 Cr in revenue with an EBITDA of Rs. 67 Cr. The headcount of the company has increased to 86,000 employees from 25,000 employees in FY2011. Quess Corp has received board approval relating to its long term funding needs and option that could also include coming out with an Initial Public Offering and if Quess is raising funds then it would be issuing new shares and this will not be an divestment for Thomas Cook. Given its exponential growth, strong cash flows and healthy return ratios, it can be expected that it can be a huge value accretion for the shareholders of Thomas Cook India Ltd. Sterling Holiday Resorts (Sterling) is a pioneer in vacation ownership and leading leisure Hospitality Company in India. Thomas Cook announced its merger with Sterling in February 2014. Sterling’s network includes 1,512 rooms across 19 resorts in 16 scenic holiday destinations across India. The company also has 15 additional sites where it plans to add new resorts in the coming years. Sterling Holiday Resorts has improved its operating performance significantly after being acquired by Thomas Cook in early 2014 and its revenues has grown by 32 % and operating loss declined by almost 40 % in the first six months of FY2015. With a well redefined turn-around strategy, the management has guided that the company would turn profitable this year and significantly improve its margins in the coming years. It can be expects the Sterling could post in revenue CAGR of 30 % and an OPM of 28 % for Sterling by FY2017. Thomas Cook India has adopted for assets light model and sterling has an asset heavy one, further, the aspect of utilisation of rooms will now become the prime concern. Thomas Cook being one of the largest integrated travel service companies in India with a strong positioning in the organised tour operator segment and has strong footings in foreign exchange (forex) and financial service business. It also has strong recognition in the domestic market and enjoys an OPM of over 50 %. Thomas Cook’s travel business focuses on outbound tourism and domestic corporate travel, which is expected to improve on the back of an overall improvement in the domestic macro environment. The company would also benefit from a shift from small unorganised tour operators to organised tour operators due to better and unique travel services provided by the latter. Hence, it can be expected that Thomas Cook India Ltd.’s forex and travel service business to grow at about 20 % each in the coming years. 

Outlook and Valuation: 

Thomas Cook India Ltd is one of India’s top three travel service providers and the country’s largest non-banking foreign exchange dealer, with an Authorized Dealer Category II license from the RBI. The forex and travel services businesses complement each other by creating marketing and distribution synergies as well as cross-selling opportunities and scale benefits. The company has a strong backing of the promoter group the FairFax group promoted by Prem Wastsas and he has experience of over 25 years & has demonstrated a strong financial track record to achieve an annual appreciation in Book Value per Share of 24.7 % annually. He is also known as Warren Buffet of Canada. Tours & Travels industry is a major contributor to the world’s major economy’s including India. In Asia Pacific region specifically, the direct contribution of Travel and Tourism to the region’s GDP in 2012 was USD 614 billion which is 2.7 % of GDP and is estimated to be at USD 646 billion in 2014. India and China are expected to emerge as two of the leading tourism markets in next 10 years. The industry is showing signs of recovery following the last economic recession, which saw falling demand for tourism activity as consumers postponed trips to concentrate their household budgets & on more essential areas. As disposable incomes rise and a social trend towards travelling and exploring new destinations grows, the global tourism industry is attracting greater number of consumers who are eager to travel and experience life in other countries or just optimize time off work to unwind by taking holidays. Industry analysts believe that an increase in vacation ownership will also depend upon the prevailing economic climate. Membership growth has been sluggish in past quarters due to the current financial climate, as a person will only invest a few lakh rupees in time-share holidays and vacation ownership if he has surplus cash. Indian economy is witnessing auto sales falling and the property market not moving. These factors have an impact on the resort business. Sterling Holiday was passing through trying times with high debt till Bay Capital took it over in 2009. Since then, the company has been making a return of sorts by refurbishing its resorts. It has increased occupancy levels to 52 % from a lowest of 16 % a few years back. And with the two rounds of equity infusion helped the company repay debt and renovate existing properties. Post general election results, India has been a talking point across the globe and this has helped India in huge surge in foreign tourists coming to India both for business and leisure holidays. In recent past India has been a laggard to attract foreign tourism when compared to countries like Singapore or Thailand. Foreign tourism is likely to pick up in India on all counts be its rich cultural heritage, exotic locations, medical tourism or business related tourism. Government’s renewed focus on travel and tourism and Swach Bharat Abhiyan is likely to boost Thomas Cook’s travel and travel related financial services arm which contributed around 25.50 % of consolidated revenue in FY’14. Though it is a high margin business but it suffers from wide fluctuations on account of foreign exchange movements. Thomas Cook India Ltd’s acquisition of IKYA Human Capital Solutions Limited is yielding rich dividends. IKYA has recently signed an agreement to acquire Hofincons Infotech and Industrial Services Ltd. which is headquartered in Chennai. The company employs more than 6000 people providing a full spectrum of asset management services under operation and maintenance, technology and consulting and facility management. It had reported Revenue of Rs. 131.30 crores and PAT of Rs. 8.23 crores in FY’13. Thomas Cook is expected to deliver strong set of numbers in FY’15 & FY’16 across its business verticals as it leverages on its strong synergies across businesses given the fact that sentiments have turned positive and economy looks poised to return back on growth path. It can be expected from the company to rationalize and get rid of overlapping expenses while achieving better operating efficiency. Thomas Cook is a quality play on the huge growth opportunity in the Indian leisure industry along with an exposure to the fast growing HR and office management business. With an expectation of a 30 % plus growth over the next three to four years and free cash flows exceeding Rs. 1,000 crore cumulatively in the next three years, chances of Thomas Cook India getting re-rated. Any value unlocking in the Quess Corp would also act as a key trigger for Thomas Cook India Ltd’s stock price. This leaves scope for a 40 % upside in the next 9-12 months from the current levels factoring on fully diluted equity capital of Rs. 36.45 crore. It is expected that 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.

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	1,702.40	3,130.80	3,558.30	4,387.00
NET PROFIT (₹ Cr)	65.03	166.70	229.50	368.90
EPS (₹)	2.66	5.60	5.00	8.10
PE (x)	45.12	27.80	38.50	24.00
P/BV (x)	6.40	3.40	4.40	3.70
EV/EBITDA (x)	27.90	17.00	15.10	9.90
ROE (%)	12.20	13.30	16.30	22.60
ROCE (%)	18.70	19.80	22.10	29.20

*As the author of this blog I disclose that I do not hold THOMAS COOK (I) ltd in my investment portfolio.

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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