CMP: Rs. 100.00; Buy at
current levels and at every Dips.
Short term Target: Rs. 110.00; Medium to Long term Target: Rs. 120; STOP LOSS – Rs. 92.00; Market Cap: Rs. 2,476.80 Cr; 52 Week
High/Low: Rs. 106.00 / Rs. 47.70
Total Shares: 24,76,80,897 shares;
Promoters : 18,56,53,725 shares – 74.96 %; Total Public holding : 6,20,27,172 shares
– 25.04 %; Book Value: Rs. 20.19; Face Value:
Rs. 1.00; EPS: Rs. 2.51; Dividend: 37.50 %; P/E: 39.84 times; Ind. P/E: 40.04;
EV/EBITDA: 15.16.
Total Debt: 186.26; Enterprise Value: Rs. 2,456.54 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, United Kingdom. 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 133 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 (Meetings, Incentives, Conferences and Events), leisure travel, insurance,
visa & passport services and E – business. It is one of the largest corporate travel agents having more than 700 clients. Thomas Cook India is being in operation for the last 133 years with robust business model. Since it went public 31 years ago, Thomas Cook has never suffered a loss, never skipped a dividend, but have only experienced a revenue decline in past 3 years. 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 hug synergies which enables Thomas Cook India Ltd to deliver Free Cash Flow/Tangible Networth of more than 24 % a year. In, May 2012, Thomas Cook India Limited
was acquired by Fairbridge Capital (Mauritius), a wholly owned subsidiary of Toronto
based listed 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 invested worldwide and a company, founded by
Prem Watsa. Fairbridge Capital acquired 77.10 % stake amounting to Rs. 817.4 Cr stake
in Thomas Cook India Ltd which then amounted to around Rs. 50 per share.
Thereafter it increased the stake to 87.1 % through open offer at Rs. 65 per share.
This subsequently reduced the stake to 75 % post QIP placement in May 2013 to comply with
minimum public shareholding norm. Fairbridge paid 10 times to free cash flow of Thomas Cook after adjusting for its undervalue real estate assets. Fairbridge is responsible for execution of acquisition
and investment opportunities in the Indian sub-continent on behalf of Fairfax
family of companies. Fairfax has made its intention clear to use Thomas Cook India Ltd as Fairfax's investment vehicle in India for acquiring other great businesses. This acquisition by Fairfax is the third change in
promoter ownership at Thomas Cook India Ltd in the past seven years. In 2005,
Dubai Financial Services acquired 77 % stake in Thomas Cook India Ltd, which
was later acquired by Thomas Cook UK (75 %) back from Dubai Financial Services
in 2008 and then finally acquired by Fairfax in 2012. The management will be the same
and the brand name “THOMAS COOK” would be retained for 12.5 years. Under the
leadership of Fairbridge, on February 2014, Thomas Cook India took over Chennai
based Sterling Holiday
Resorts India Ltd and merged its operations with it. The merger with Sterling
Holiday Resorts India Ltd in a deal valued at Rs. 870 Cr in part cash part
equity. This merger has created India’s largest holiday company. The deal is structured in a multi-stage process in which 100
shares of Sterling was swapped for 120 shares of Thomas Cook (India). Thomas
Cook, in a statement, said it will first make a preferential allotment for
23.24 % of Sterling Holiday at Rs. 90.49 a share amounting to about Rs. 187 Cr
and will then purchase another 23.63 % of Sterling Holidays for Rs. 176 Cr from
Sterling’s existing
shareholders- Bay Capital which holds 13.67 %, ex-CEO of Alchemy Amit Goela
owns 2.35 %, Ramanathan owns 2.86 %, Siddharth Shankar, Dhanalaxmi S holds 1.00 %, Rakesh
Jhunjhunwala holds 3.67 % & Radhakrishna Damani via Birght Star Investments Pvt Ltd holds 6.47 % at Rs. 98 a
share. This will be followed by a third stage of mandatory open offer for
buying up to 26 % stake for Rs. 230 Cr. The merger is expected to close by the
fourth quarter of 2014, will give Thomas Cook access to Sterling Resorts' 19
properties in 16 holiday destinations across India. The total value of the
merged entity will be equivalent to Rs. 3,000 Cr with 9,000 employees. The Sterling Holiday
Resorts India Ltd has member base of 70,000 and the overall room nights for Sterling Holiday Resorts India Ltd have increased
from 1,58,000 in 2010-11 to 2,01,000 in 2012-13 with an average occupancy of 43
% up from 19 % in the same period. For a travel services company to start
providing hotels stay is an vertical integration and Thomas Cook would be
benefited by channelizing the traffic of customers it helps to plan holidays. It
should also be noted here that these two businesses are quite different, as one
is asset light model and other is an asset heavy one, further, the aspect of
utilisation of rooms will now become the prime concern. Thomas Cook is a free cash flow business. As the cash flow comes and people will invest it in and some more money from abroad will come to India.
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 (2.7% of GDP) and is estimated to be at USD 646 billion in
2013. India and China are expected to emerge as two of the leading tourism markets
in next 10 years. (Source: World Travel & Tourism Council). 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 eager to
travel and experience life in other countries or just optimize time off work to
unwind by taking holidays. Currently, only one million Indians annually travel outside India for holidays. This compares to some 40 million outbound tourists in China and hundreds of millions of outbound tourists in western world. Industry analysts believe that an increase in vacation
ownership will also depend upon the prevailing economic climate. Membership
growth has been sluggish and that is because of the current financial climate.
A person will 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. Thomas Cook owns 15 properties and 124 are leased/licensed. Thomas Cook is monetizing its valuable real
estate assets, it owns a
number of valuable real estate assets having a combined value of more than Rs.
200 Cr which includes: The Thomas Cook Building at Fort, Mumbai of about 50,000
sq. ft.; The Travel Corporation of India office at Nariman Point, Mumbai of
about 15,000 sq. ft.; The Thomas Cook office in Chembur of 10,000 sq. ft.; The
Gurgaon office at Udyog Vihar of 40,000 sq. ft.; and company owned 30 other
branch offices. Built in early 1900s, it is a ground plus four storey structure
in the heritage precinct of Fort area. TCIL might have to secure approval of
the Municipal Corporation of Greater Mumbai for selling the building as it is a
lessee of the civic body. TCIL is also looking to divest its 15,000-sq-ft
property in Nariman Point and a 10,000-sq-ft property in Chembur, where it is looking
at values of Rs. 25,000-30,000 and Rs. 15,000 per sq. ft. respectively, for
outright sale. Realty consultant JLL (Jones Lang LaSalle) has been appointed to
monetise the properties. TCIL is looking to shift its offices to one of the places
such as Lower Parel, Dadar, Bandra Kurla Complex or Andheri and is likely to
take a decision in the next few months. Though the timing of the monetisation
of these real estate properties is uncertain, whenever it materializes, it could
result in value unlocking for the shareholders. This could be in the form of
higher dividend pay-outs. Thomas Cook’s average dividend pay-out over
the last five years stands at 19.1 %, which is on a lower side. However, it is to
be noted, that the growth of the company’s business is purely dependent upon
the global & domestic economic growth. Even during times of a sharp
slowdown in the global economy, Thomas Cook continued to pay dividends, despite
its business getting impacted. Over the last five years from 2008 to 2013, the
dividend paid as a % to FV has remained constant at 37.5 %. Going forward, it
is expect that the company will continue to reward its shareholders with consistent
dividend payments. There is a possibility of a sharp increase in dividend pay-outs
(though it could be one time), if the sale of real estate assets materializes. Thomas Cook is a cash rich company
with low debt equity, which provides margin of safety especially during high
interest rate scenario. It is expected that its IKYA to contibute around 35 % to its revenues. Even if we value IKYA at cost at Rs. 256 Cr but its still worth more, management is implementing cost rationalisaton plans and taking the conservative value of Rs. 200 Cr of its surplus real estates, Thomas Cook is an attrative buy. At the
current market price of Rs. 100.00, the stock is trading at a PE of 28.57 x FY14E.
The company can post Earnings per share (EPS) of Rs. 3.50 in FY14E, which
is at a significant premium to its nearest competitor Cox & Kings. However,
this is justified, considering huge debt burden in Cox & Kings books. Thomas
Cook’s strong balance sheet position and its future growth prospects makes stock
to continue to trade at a premium to its peers. One can buy THOMAS COOK INDIA LTD with a target price of Rs. 120.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 110.00. And I believe its 2 year long target could be Rs. 220.00.
| KEY FINANCIALS | FY11 | FY12 | FY13 | FY14E |
|---|---|---|---|---|
| SALES (₹ Crs) | 381.30 | 415.40 | 1,277.53 | 1,466.33 |
| NET PROFIT (₹ Cr) | 56.24 | 50.44 | 62.22 | 87.40 |
| EPS (₹) | 2.71 | 2.40 | 2.64 | 3.50 |
| PE (x) | 23.70 | 26.50 | 22.70 | 17.80 |
| P/BV (x) | 3.40 | 3.10 | 2.30 | 2.10 |
| EV/EBITDA (x) | 9.90 | 9.90 | 9.30 | 7.40 |
| ROE (%) | 14.33 | 11.50 | 10.10 | 11.60 |
| ROCE (%) | 18.10 | 17.30 | 15.70 | 17.90 |
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