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Monday, April 13, 2015

PVR LTD : LIGHT CAMERA & ACTION !!!

Scrip Code: 532689PVR
CMP:  Rs. 668.85; Market Cap: Rs. 2,768.83 Cr; 52 Week High/Low: Rs. 750.00 / Rs. 490.0o; Total Shares: 4,13,96,888 shares; Promoters : 1,22,55,260 shares –29.60 %; Total Public holding : 2,91,41,628 shares – 70.40 %; Book Value: Rs. 94.32; Face Value: Rs. 10.00; EPS: Rs. 13.39; Dividend: 25.00% ; P/E: 49.98 times; Ind P/E: 36.93; EV/EBITDA: 15.34. Total Debt: 502.12 Cr; Enterprise Value: Rs. 3,258.38 Cr.

Priya Village Roadshow (PVR) Cinemas: PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. PVR Ltd came with an IPO on December 08, 2005 with an issue price of Rs. 225 per share and raise about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. The Company also generates revenue from in-cinema advertisements and product displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centres. PVR, Currently controls 398 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. Company’s subsidiaries include CR Retail Malls (India) Limited (CRR), PVR Pictures Limited (PVR Pictures) and PVR bluO Entertainment Limited (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. PVR Ltd announced the opening of a multiplex on August 15, 2012, at Empress Mall, in Nagpur in the state of Maharashtra. The multiplex consists of five screens. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69 % followed by the open offer for another 26% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family. PVR Ltd is locally compared with Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd, Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California, Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states, Geo Dinos Company Ltd of Japan, Nakanihon Kogyo Company Ltd of Japan.

Investment Rationale: 
Priya Village Roadshow (PVR) Cinemas is a leading cinema chains in India. The company began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow limited in 1995 with 60:40 ratios. PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. The opening of the first multiplex opened up a new era in the Indian cinema viewing experience, which also set a role model for others to follow suit. PVR has set new benchmarks in the cinema exhibition business including establishment of the first largest 11 screen multiplex in the country, Gold Class Cinema, luxury cinema, IMAX theatres and ECX (Enhanced Cinema Experience). PVR, Currently controls 398 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. It also plans to open another 500 screens by 2015. PVR has an impressive market share of around 25 % including Cinemax of the total 1600 multiplex screens in the country. The Indian Media and Entertainment (M&E) industry is around Rs. 83,000 crore (US$ 13.23 billion) and is on high growth trajectory. Proving its resilience when the global economy was going through tough times, the Indian M&E sector was on the cusp of a strong phase of growth, backed by rising consumer payments and advertising revenues across all sectors. The industry has been largely driven by increasing digitisation and higher internet usage over the last decade. In today’s times, the Indian entertainment segment is largely driven by digitisation and internet penetration. More than 22.7 Cr Indians use their mobiles, computers, tablets or other devices to access internet to listen to music, watch a film, a TV show or a cricket match. India ranks third in the world in watching videos online through a PC/laptop and fourth in the world when it comes to watching videos on the phone, according to the statistics. The CII-PwC report named 'India Entertainment & Media Outlook 2013' estimates that the Indian M&E industry would exceed Rs. 224,500 crore (US$ 35.8 billion) by 2017, growing at a CAGR of 17 per cent from 2013. The growth would be majorly driven by increasing penetration of digital platforms across the industry segments. While the print sector is expected to register a CAGR of 9 % and touch Rs 33,100 crore (US$ 5.28 billion) of revenues by 2017, sectors such as internet access, internet advertising, gaming and music are expected to continue on their high growth trajectory, said the report. The report highlighted that immense use of the internet, high penetration of smart phones; digital advertising, wireless broadband, digital content consumption and supportive regulatory eco-system have had and will continue to have a significant impact on the E&M sector. PVR has an impressive market share of 25 % including share of Cinemax and has the total of 1,600 multiplex screens in the country. After the Cinemax acquisition, PVR now has a combined revenue share of 20-22 % from Bollywood films and 30-35 % from Hollywood films as in multiplex revenues. The company has about 462 screens as on date and plans to raise its market share by rolling out 70-80 screens each year. This leadership position gives PVR the leverage to negotiate better deals with movie producers. It is expected that in FY16E the total screens of PVR can reach 525 in 114 properties and in FY17E the total number of screens could be 575 in 123 properties. The Annual maintenance capex comes at 1-2 % of revenue. Every screen requires refurbishment after 6-8 years to keep the cinema maintained and fresh. This amounts to 20-30 % of original capex. Capex required is on an average of Rs. 2.5 Cr per screen. PVR also plans to use this immense bargaining power to negotiate with the government so that there can be some minimum window before movie releases are available on other platforms. Owing to its strong competitive position after the Cinemax acquisition the company has been able to effectively pass on price hikes. The average ticket prices (ATPs) have been on an upward trajectory since FY13. As the demand for the movies are increasing so do the investments in movies are increasing. Hence, there would be an increase in ATPs. Moreover, the consolidation in the multiplex industry and with PVR being a market leader it would be in best position and be able to pass on price hikes effectively. Also, there are some major releases in the pipeline and several Hollywood releases would help PVR to take price hikes as per the heavy demands for star-studded movies. It is expected that Average Ticket Prices to grow at a CAGR of 4.2 % to Rs. 186.4 by FY17E. PVR also benefits from its strategy of following differentiation pricing based on the regions, target audience and the movie to be released. PVR has always remained quite consistent with its property roll-out guidance. The company has the first mover advantage in various smaller towns and cities where it has already cornered the best location. In Q4FY13, as the Cinemax numbers were consolidated the tally of the properties increased from 47 to 86. As on date, the company has 104 properties with 462 screens in total. The company has rolled out about 73 screens at the end of FY14. The company guided at maintaining the run rate of 70-80 screens for the coming two years. PVR has 60 million footfalls, which makes advertisers comfortable to advertise with PVR as the audience is also easily traceable. PVR is strategising to augment its advertising revenues by about 25-30 % on a YoY basis by providing advertisers various deals such as pay per eyeballs and other innovative deals. The company has earned about Rs. 141.9 crore in FY14. There is also an uptrend seen in the Spends per head in the food and beverage (F&B) segment. This gives PVR an ability to take price hikes and higher operating leverage in the coming future and this will in turn help in the margin expansion to the tune of about 17.2 % in FY16E and 18.1 % for FY17E from 16.0 % in FY14. PVR has entered into a share purchase agreement with L Capital for purchase of their entire investment in equity shares and preference shares of PVR Leisure. L Capital had bought the stake at Rs. 50 Cr in 2012. L Capital will be exiting its investment at a loss and PVR will be buying its stake at Rs. 37 Cr. Since PVR Leisure has Rs. 15 Cr to Rs. 16 Cr cash, net outflow for PVR will be Rs. 22 Cr. Apart from one property scheduled to be opened in Ludhiana in the next 23 months, PVR will not be expanding further in the bowling business. L Capital will continue to be a significant shareholder in the main company. Also, PVR Cinemas has entered into a 5 year strategic partnership with BookMyshow.com to be its online ticketing partner across India. The multiplex targets to sell tickets worth of Rs. 1000 crores over these five years exclusively on BookMyshow.com besides its existing sale of tickets from its Box Office and other channels. Also with the GST coming into force by 2016 and the GST rate being fixed at 16 %, it could potentially lead to a 4.50 % to 5.50 % improvement in EBITDA margin for PVR. Given the fact that movie watching is a discretionary spend and the category has pricing power, so PVR will be in good position to absorb all benefits of GST rather than passing it on to consumers. PVR’s has good prospects with improvement in RoCE and RoE with free cash flow visibility and with the timely execution of the given aggressive roll-out plan it will maintain its leadership position.

Outlook and Valuation:
Innovative ways to book tickets
via online and app
PVR is the largest and the most premium film entertainment Company in India and is listed as the “Most Trusted Brand” in the Category of Entertainment by the “Brand Trust Report, 2013”. PVR, a pioneer in multiplex in India and is the largest cinema exhibition player in the country today. There are about 9,000 screens in India of which multiplexes account for approximately 25 %. The screen density in India is 8 per million as in comparison with 117 per million in US. For multiplexes, it is less than 1 per million. Malls will continue to guide the future of multiplexes. Multiplexes form only tenth space at the mall. The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs. 1,45,700 Cr (US$ 25.51 billion) by 2016. The Investments inflows in the movie production space are set to multiply, several movie studios such as Virgin Produced India, Fox Star Studio plans to step up investments in Bollywood. Along with the higher investments and with higher quality content driven by heavy investments would lead to higher demand for movie related entertainment. PVR would be benefited from the increased occupancies and rising Average Ticket Price (ATPs). PVR would be benefited from the increased occupancies and rising Average Ticket Price (ATPs). PVR has offerings across the consumer segments like in Luxury Cinema Viewing it has Directors Cut with ticket prices ranging from Rs. 1,044 to Rs. 1276; in Comfortable Reclining Seats it has Gold Class with ticket prices ranging from Rs. 696 to Rs. 928; in Catering to Upper Middle Class it has PVR Premiere with ticket prices ranging from Rs. 174 to Rs. 348; in Comfortable Regular Seatings it has PVR Mainstream with ticket prices ranging from Rs. 116 to Rs. 174; in Low cost Multi-screen cinemas it has PVR Talkies with ticket prices ranging from Rs. 58 to Rs. 116. Every ticket of Rs. 100 sold is divided as Rs. 20 as entertainment tax, Rs. 36 to distributors and then Rs. 44 for the multiplexs. Multiplexes enjoys margin of around 30 % on Exhibition, margin of around 65 % on food & berverages and margin of around 80 % on advertisement - translating into revenue of around Rs. 68 for exhibition, Rs. 25 for food & berverages and Rs. 7 for advertisment. It is expected that PVR’s Average Ticket Prices can register growth of 7 % at Rs. 177 by the end of FY15E and a growth of 3 % to Rs. 182 by the end of FY16E. Currently, spends per head (SPH) as % of ATP is at 36 % and it can go as high as 4550 %. Moreover, as disposable incomes increase, Foods & Beverages (F&B) spends are also expected to rise to Rs. 60 in FY15E and to Rs. 62 by the end of FY16E, from Rs. 53 currently. In US, this ratio is much higher. In India, the potential is high due to the concept of intervals. Colas and popcorns contribute 65 % of total F&B sales, which also have high margins. PVR is strategizing to augment its advertising revenues by about 25 to 30 % YoY by providing advertisers various deals such as pay per eyeballs and other innovative deals. For multiplexes, in cinema advertising and food sales are bigger businesses. These two businesses have now grown to account for more than a third of the income for multiplex operators. And these segments have grown profitability as they offer bigger margins than its core business of selling movie tickets. Non Ticket segments contributes on an average of 35 % to the revenue of the multiplexes. For PVR revenue from in cinema advertising has been growing in the range of 35-40 % every year in last five to six years. PVR has a deal signed with HUL on ‘Pay for eyeballs’ basis. HUL contributes less than 2 % of overall ad revenues. However, HUL gives confidence to other FMCG advertisers to advertise in multiplexes. PVR has many national advertisers too. Management is maintaining its guidance of 1517 % YoY overall ad growth in FY15. The company has earned about Rs. 141.9 crore in FY14. PVR has about 59.9 million footfalls segregated on various counts, which gives advertisers unmatched opportunity to reach the target audience. It is expected that PVR can see a growth rate of 15 % and 13 % to reach or Rs. 163 and Rs. 184 crore of advertisement revenues by FY15E and FY16E, respectively and thus Advertisement revenue would be PVR’s new noticeable revenue stream. Moreover, a gradual recovery in economic activity will increase disposable incomes to keep growth buoyant. Tepid boxoffice collections impacted performance as many movies fared below expectations. However, this was an aberration. Business is driven by content to a large extent. Bang Bang and Happy New Year did well in PVR’s circuit and met management expectations. Footfalls at malls were high and Movies are still the number one format of entertainment in India. During the weekday/weekend footfalls split ratio is 50:50.  PVR thoroughly checks out the two main parameters of quality of assets and value of opportunity. Also, IRR should be upwards of 15 % for the acquired company. The Company has been trying alternate content at its screens. However, it is still too premature to comment on performance, though early signals are very positive. Interest rate for the company declined from 12.0% a couple of years ago to 11.5 % due to refinancing of debt via NCDs. While gross debt stood at Rs. 720 Cr, net debt stood at Rs. 660 Cr. Ad inventory of peers is higher than PVR and PVR is planning to add 21 screens in Q4FY15. Over FY15E/FY16E, tax rate will be in single digits. PVR has earmarked capex of INR450500mn for next 3 years (FY1416) to be utilised for renovation and rebranding of Cinemax properties. Company is expected to benefit immensely with implantation of GST. Average entertainment tax is believed to reduce from 23 % currently to 16 % post the implementation of GST. Also, company will be able to avail tax credit of tax paid on input cost if the act is implemented which will reduce its tax liability. PVR has the pricing power with regards to ATP, F&B and advertising and also the company will be a key beneficiary of possible uptick in urban consumption. PVR has earmarked overall capex of Rs. 45 Cr to Rs. 50 Cr spread over next 3 years to be utilised for renovation and rebranding of Cinemax properties. The Management has no plans for equity dilution and signals that PVR is adequately funded for the future growth. A 50-bp drop in the average occupancy ratio erodes could affect the price of the stock by 5 %. At the current market price of Rs. 668.85, the stock P/E ratio is at 51.45 x FY15E and 22.67 x FY16E respectively. PVR can post EPS of Rs. 13.00 and Rs. 29.50 respectively. The content pipeline of the company is exciting and would propel the further growth of PVR. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)1,347.501,541.201,906.302,236.10
NET PROFIT (₹ Cr)50.4051.40119.50137.80
EPS ()12.9013.0029.5034.00
PE (x)53.1052.5023.1020.10
P/BV (x)7.006.305.004.10
EV/EBITDA (x)16.3014.409.908.10
ROE (%)10.1012.6024.1022.40
ROCE (%)9.7010.9016.2018.50

*As the author of this blog I disclose that I do not hold PVR Ltd in my any of the portfolios.

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Disclaimer
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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Saturday, April 4, 2015

THOUGHTS ON MY BIRTHDAY !!!

My Reader Friends !! 
It's my Birthday today and yeah grown a year older again..hehehe !!

Being a year older means people starts expecting lots from you, and U try your best to fulfill that. Anyways, there are lots to say and share with you wonderful people, who have become impairable part of my life now, who have constantly encouraged me and inspired me in all aspects of my life. And what a wonderful year it was - made some wonderful friends, my recommended stocks are more than double from my last birthday, my reader's friends are more than happy as they are on a handsome bunch of profits & successfully completed few Private Equity deals... wow !! what else should I ask for !! 

Life's good, and enjoying my work, and happy to see my readers pouring in mails saying they are making good returns & enjoying the way markets are moving and they have now learned how to tackle markets on their own ... when I started this blog I was curious on how people would react to my blog, whether I would be getting readership when there are many such blogs on the float, but then this famous quote from the Bhagvad Gita kept me going-    


कर्मण्येवाधिकारस्ते मा फलेषु कदाचन।
मा कर्मफलहेतुर्भूर्मा ते सङ्गोऽस्त्वकर्मणि॥ 

कर्म करना तो तुम्हारा अधिकार है, लेकिन उसके फल पर कभी नहीं | 
कर्म को फल की इच्छा से कभी मत करो, तथा तेरा कर्म ना करने में भी कोई आसक्ति न हो |


 "Karmanyeva adhikaaraste, Maa phaleshu kadaachana", meaing You have the right to perform your actions, but you are not entitled to the fruits of the actions.

"Maa Karma Phala  Hetur Bhur maa te Sangostu akarmani", meaning Do not let the fruit be the purpose of your actions, and therefore you won't be attached to not doing your duty.
 

As we grow older we realise the true meaning of KARMA, and we try to follow that, same ways I do too. As my part of Karma, I try to bring out best of the businesses listed from the 4,277 companies (eligible out of 5,630 companies listed on Bombay Stock Exchange) without expecting any Phala for my deeds, I see happiness & Smiles of my readers, when they make money, the kind of blessing they shower in on me, I see these as Phala for my Karma. People ask me why dont you charge from ur readers are u a Saint or something and my answer is No, Like most human beings, I am too motivated by self interest. I came into blogging bcoz I want to change or atleast affect the way people think about Indian Stock Markets, people 'Term' all market mens as gamblers, they dont differentiate between Day traders, Analysts, and Operators - for them these all are same, what they fail to understand that Stock Markets are the beautiful platform where by u can own a part of fantastic business. So invest in good companies, if the Karma of the business is Good (good business model along with the good management) u too will bear the fruit of it in long run. Same ways my endeavour is always to find best deep moated stocks at reasonable prices which can give best returns to its investors.. 
Once again friends, Thanks for your on going support along with ur smiles and for the the encouragment.

I take this opportunity to give Thanks to all my reader friends for being there for me...
                  God Bless You All !!!
Thanks to my parents who sculptured my thoughts and to making me who I am today !!!
And lastly, Thanks god for all of it !!!

Warm Regards,
Bhavikk Shah. 

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Friday, April 3, 2015

TRANSPORT CORPORATION OF INDIA LTD : ON WAY AHEAD !!!

Scrip Code: 532349 TCI
CMP:  Rs. 264.40; Market Cap: Rs. 1,937.35 Cr; 52 Week High/Low: Rs. 299.00 / Rs. 103.20
Total Shares: 7,32,73,500 shares; Promoters : 5,06,00,940 shares – 69.06 %; Total Public holding : 2,26,72,560 shares – 30.94 %; Book Value: Rs. 60.40; Face Value: Rs. 2.00; EPS: Rs. 9.91; Dividend: 65.00 % ; P/E: 26.68 times; Ind. P/E: 28.82; EV/EBITDA: 12.16.
Total Debt: Rs. 258.51 Cr; Enterprise Value: Rs. 2,177.99 Cr.

TRANSPORT CORPORATION OF INDIA LIMITED: Transport Corporation of India Ltd was founded in 1958 and is based in Gurgaon, India. It was formerly known as TCI Industries Limited and changed its name to Transport Corporation of India Ltd in October 1999. Transport Corporation of India Ltd was founded in 1958 and is based in Gurgaon, India. Transport Corporation of India Ltd provides integrated supply chain and logistics solutions primarily in India. TCI came with an IPO in May 1975 with 4,80,000 equity shares of face value of Rs. 10 each offered at a premium of Rs. 10 per share. The company’s Freight division offers surface transport solutions for full truck load, less than truck load, and small and over-dimensional cargo through road and rail. Its XPS division provides door-to-door express distribution services by air, surface, and rail. The company’s Supply Chain Solutions division offers services for Auto, Retail, Telecom, Electricals, Pharmaceuticals, FMCG, and Cold Chain sectors. Its Global division provides logistics services comprising freight forwarding, custom clearance, express and courier, warehousing, transportation, and supply chain consultancy services. The company’s Seaways division provides ship management, liner, charter, agency, project handling, multi-modal, and transportation services, including container and bulk cargos from islands and ports. TCI was the first to launch several solutions in the logistics field. Its product offering includes TCI Freight, TCI XPS, TCI Supply Chain Solutions, TCI Global, TCI Seaways and TCI Foundation. The company also has two JV’s - Transystem International Pvt Limited (TLI) a joint venture between TCI and Mitsui & Co Ltd which is the sole logistics partner for Toyota Kirloskar Motors Ltd. in India. TLI has been providing complete logistics solutions, from inbound transportation from suppliers across India and other countries to outbound transportation of complete built units (CBU) & spares. TCI’s second JV is Infinite Logistics Solutions Pvt Ltd (ILSPL) this JV is with CONCOR for bulk multi-modal logistics solutions by Rail and Road. TCI Limited is locally compared with Container Corporation of India Ltd, GATI India Ltd, Gateway Distriparks Ltd, Ruchi Infrastructure Ltd, Kesar Terminals & Infrastructure Ltd, Shreyas Shipping & Logistics Ltd, Blue Dart Express Ltd, Patel Integrated Logistics Ltd, Global Vectra Helicorp Ltd, SICAL Logistics Ltd and Globally compared with S Line Company Ltd of Japan, Keihin Co., Ltd of Japan, Okayamaken Freight Transportation Co., Ltd of Japan,  FedEx Corp of USA, Royal Mail Plc of London, Postal Services mail Plc of London, Deutsche Post AG of Germany, PostNL N.V. of Netherlands, Hanjin Transportation Co., Ltd of South Korea, Pos Malaysia Berhad of Malaysia, Singapore Post Ltd of Singapore, Yusen Logistics Co Ltd, Hyundai Glovis Co Ltd of Korea, Atlas Air Worldwide Holdings of USA, Bpost NV-SA Brussels, Belgium, Kintetsu World Express Inc of Japan, UPS – United parcel Service Inc of USA, Fedex Corp of USA, Air transport Services Group of Ohio, Hub Group Inc of Illinois, Xpo Logistics Inc of USA, Echo Global Logistics Inc of Illinois, Uti Worldwide Inc of British Virgin Islands,  Chichibu Railway Co., Ltd of Japan, Kobe Electric Railway Co., Ltd of Japan, Keifuku Electric Railroad Co., Ltd.

Investment Rationale:
Transport Corporation of India (TCI) is India’s leading integrated logistics and supply-chain solution provider, offering single-window integrated services, backed by strong multi-mode transport operations by road, rail, sea and air. The company operates in high growth segments such as express cargo & supply chain solutions. TCI has progressed from being a One Man, One Truck, One Office set up to an extensive setup of 1000 + IT enabled offices and having a fleet of 7,000 trucks, trailers, 4 cargo ships and has reefer vehicles with a skilled workforce of 6,500 with offices in 4 countries, with an managed warehouse space of 9.75 million sq. ft., and has an ability to make deliveries in 200 countries. Today, TCI moves 2.5 % of India’s GDP by value and is also a part of World Economic Forum’s Community of Global Growth Companies. The logistics sector presents an incredible arena of opportunity because nearly 90 % of the market is still controlled by the unorganized sector. The Indian logistics industry is expected to grow at 15 % to 20 % per annum, reaching revenues of $38,500 Cr by 2015. The demand for focused supply-chain services has been fuelled by industries with a high propensity to outsource: automobiles, consumer packaged goods, hi-tech, telecom and retail amongst others. The movement of basic commodities, domestically and globally, has led to an increase in multi modal and bulk transportation and to the emergence of many new ports and port-related services providers. It has generated employment for 4.5 Cr people. India currently spends 13 % of its GDP on logistics as compared to 8.50 % in USA and 18 % in China and around 9 % in developed economies. India bears 8.20 % as Transportation Cost of its GDP as compared to 5.30 % in USA and 9 % in China. India spends 3.80 % of its GDP on Warehousing as compared to 2.80 % in USA & 6 % in China. For the sectors moving physical products this percentage is much higher because 55 % of India’s GDP is generated by the service sector. In India Auto Components, Textile, Pharmaceuticals, Cement sector are the major Industries driving logistics sector as compared to USA its F&B, E commerce and in China its Metals, Cement, Textile, Electronics sector which drives the Logistics sector there. The industry as a whole is very fragmented and disorganized. India's logistics sector continues to be attractive for global investors and Investment in logistics in India is projected to grow annually at 10 per cent. According to ASSOCHAM and PWC, the Indian e-commerce industry’s market size is less than 10 % of USA and China’s market size (US$15,000 Cr) of ecommerce. However, over 2009-13, the e-commerce sector in India has grown at a CAGR of almost 35 % to an estimated US$12,600 Cr on back of rising internet and mobile phone penetration. In the domestic e-commerce industry, nearly 70 % of the transactions are accounted by online ticketing and about 10 % by e-retailing and online market place. However, e-retail in both its forms, ie online retail and market place, has become the fastest-growing segment, increasing its share from 10 % in 2009 to an estimated 19 % in 2014. As per an industry report, going forward, the e-retail market is expected to grow to around US$10-20bn by 2017-20 on account of increase in consumer-led purchases in durables and electronics, apparels and accessories etc. This will also be helped by the impending change in the Indian tax system from the current state-level Value Added Tax (VAT) to a national and uniform Goods and Services Tax (GST) which will help to create a national market for many goods and services. However, the implementation of GST is expected only by CY2016. The logistics sector is likely to respond the GST by making more use of the hub and spoke systems, large scale warehousing and specialized services. A gradual opening up of key sectors like retail, aviation, defense etc. will also help to boost this sector. The entry of multinational companies (MNCs) in sourcing, manufacturing and distributing could be the other growth drivers. TCIL over the years has increased its presence across the country. In a scenario, where GST gets rolled-out, TCIL is expected to be one of the few pan-India based Logistics players to get benefitted from any such development. The Supply Chain Solution segment of TCIL accounted for 27 % of total revenue in FY2014. In this segment 75 % of the business comes from the automobile sector and the balance from the FMCG (customers include Maruti, GM, Tata Motors, Hero, Bajaj, Hindustan Unilever, Samsung, VW Group etc) and other segments. In the automobile OEMs segment, the company provides supply chain solutions including inbound logistics, outbound logistics, and stocking vehicles at the warehouses. Further, in this segment, the company has a JV with Mitsui, Japan which manages the entire inbound logistics operations of Toyota Kirloskar Motors India since 1999. The company owns 49 % stake in this JV. Apart from this, the company also provides services in managing fulfilment centres and back-end operations for e-commerce business nationwide. TCIL has shifted its focus towards better margin segments like express and supply chains; it is believed that these segments will propel TCIL to place itself on a higher growth orbit. Thus, giving thrust to its stock price.

Outlook and Valuation:

TCIL has a global division which provides logistics services comprising freight forwarding, custom clearance, express and courier, warehousing, transportation, and supply chain consultancy services. It has a strong vertical integration and have been gaining market share because unorganised players find it difficult to operate due to high wage cost and other procedural hurdles. In the freight segment, the company is one of India’s premier organized freight services providers with a pan India presence. The company has around 7,000 trucks and trailers, both owned and leased, which provide freight movement services on a daily basis. It has a strong backing in terms of its extensive and strategically located branch network and trained work force. The Freight division contributed around 38 % to the total revenue in FY14. TCIL’s Freight division (Transport division) has been underperforming in the last few years due to slowdown in GDP growth, reflecting slowdown in overall industrial activity in the country. In 9MFY2015, the Freights division showed recovery in revenue growth, i.e. it posted a revenue growth of 5 % YOY mainly in the previous quarter, owing to an improving economic scenario. Further, the Management is also confident of posting a better performance, than in the previous few quarters, in the coming financial years. Considering momentum in policy reforms, fall in inflation, and anticipation of further rate cuts by the Reserve Bank of India (RBI), it is believed that the investment cycle and commercial activities in the country will get a boost this would lead to improvement in GDP growth in FY2016 and FY2017, which in turn will assist overall growth in the Freight division (Transport segment). Also, industry is expecting GST implementation in FY2016 which will further increase the growth prospects of this industry, and this will directly benefit the company as it being a dominant player in the industry. Considering the overall improvement in demand for the Freight division in 9MFY2015, increasing numbers of trucks in operation, and improving economy activities, it is expected that Freights division to report a healthy 9 % CAGR over FY2014-17E. TCIL’s Seaways has well equipped ships in its fleet and caters to the coastal cargo requirements for transporting container and bulk cargo from ports on the East coast of the country. Recently, the company has increased its fleet of ship from 4 ships in FY2014 to 5 ships during 9MFY2015; also, it has replaced one of its old ships. As a result the total capacity now has increased from 17,000 DWT to 27,800 DWT. Further, the company is also planning to diversify outside Port Blair sector and operate on the west coast as well. Now with the additional capacity of ships, the company can generate around Rs. 50 to 60 Cr in revenue with an EBITDA margin of 10-15 %, translating into a healthy return ratio. Going forward, it can be expected that the company to report a strong 9 % CAGR in revenue over FY2014-17E. TCIL is well positioned due to its Asset light business model where it owns 20 % of the total fleet and leases the remaining 80 %. The company has rapidly scaled its business model to 7,000 trucks, trailers, and reefer vehicles as of today. On the same lines, TCIL has been prudent in managing warehousing space, as a majority of its total 10mn sq. ft. of warehousing space is on lease basis. With its focus to invest less on building the asset base, the company has been able to generate healthy return ratios even in the worst phases of business cycles. Given the company’s unlevered business model, the long-term growth prospects of the company would not be impacted due to lack of capital availability. TCIL is one of the few companies in Surface Transportation & Logistics space, which has shown consistency & has enjoyed a healthy asset turnover ratio of 5.2 X in FY14 and ROE of 14.6 %. Given the strong matrices of the company, TCIL at any phase of the business cycle would be well positioned compared to its peers, as its peers have majorly levered business models and have lower ROEs. On Financial side, TCIL, on bottom line is expected to report 25 % CAGR over FY2014-17E on account of healthy top-line growth in the higher margin business due to change in revenue mix. An improvement in operating margin of up to 0.60 % to 0.70 % in the Freight segment can be seen due to pick up in volumes and lower fuel cost. Going ahead, it is expected that the Freight division to benefited due to improvement in industrial activities. The XPS Cargo division’s growth would be supported by growth in e- commerce. The Supply Chain Solution division is expected to grow by the support of recovery in the automobile industry and more than 75 % of the division’s revenue of TCIL comes from the automobile sector and the Seaways segment would benefit due to addition of new ships. The SCS and express segments possess massive growth potential. The SCS and express businesses are highly EPS accretive vis-à-vis the freight segment. The company can post Earnings per share (EPS) of Rs. 11.60 in FY15E and Rs. 14.40 in FY16E. 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 FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)2,228.002,468.002,830.003,350.00
NET PROFIT (₹ Cr)72.0087.00109.00138.00
EPS ()9.5011.6014.4018.30
PE (x)26.4021.6017.4013.70
P/BV (x)3.903.002.702.30
EV/EBITDA (x)12.8010.908.907.60
ROE (%)14.6014.1015.4017.10
ROCE (%)14.9014.2016.4018.00


*As the author of this blog I disclose that I do not hold Transport Corporation of India Ltd in my any of the portfolios.

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Disclaimer
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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Monday, March 23, 2015

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 yearFairfax 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 FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)1,702.403,130.803,558.304,387.00
NET PROFIT (₹ Cr)65.03166.70229.50368.90
EPS ()2.665.605.008.10
PE (x)45.1227.8038.5024.00
P/BV (x)6.403.404.403.70
EV/EBITDA (x)27.9017.0015.109.90
ROE (%)12.2013.3016.3022.60
ROCE (%)18.7019.8022.1029.20


*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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Disclaimer
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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*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..

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