Cox and Kings

Investors with a long-term perspective can take exposure to the stock of Cox and Kings (C&K), a leading travel and tours operator in the country. Improving trends in inbound and outbound travel, besides C&K's entrenched presence in domestic as well as major global markets, suggest growth potential.



At current market price of Rs 575, the stock trades at about 26 times its likely FY11 per share earnings. While this may seem somewhat pricey, the strong growth potential, high operating margins and the likely scarcity premium for the business justify the high valuation. Investors however may do well to moderate return expectations.

travel, tourism

Foremost among its growth drivers is the encouraging trend seen in travel and tourism, both inbound and outbound. For one, the number of foreign tourist arrivals in India has been increasing. For instance, between January and August this year, the number of foreign tourists visiting India has grown by about 9.7 per cent year-on-year.

According to World Travel and Tourism Council, India will be a tourism hotspot from 2009 to 2018, with the highest ten-year growth potential. With 255 points of presence covering 164 locations in India, C&K stands to benefit considerably.

Also, C&K's global presence in over 90 countries and strong brand equity put it in a better position to attract such travellers.

C&K also stands to benefit considerably from significant growth in outbound tourism, with Indians increasingly opting to holiday abroad. Its vacation packages cater to the different budgets and needs ; for instance its packaged tour plans such as Duniya Dekho, Bharat Dekho and FlexiHol offer services for both group as well as individual travellers and have options based on the travellers' budget within that.

Recently, it launched a high-end pan-India luxury train in joint venture with IRCTC. The company has about 14 branch sales offices and 80 franchised sales shops, besides a mix of 185 general sales agents and preferred sales agents.

Helped by the strengthening trends in tourist arrivals, the company now plans to expand its presence using the franchise model, by adding 20 more franchisees to its network this year and increasing its focus on Tier II and Tier III cities; it plans to increase the total count of its franchisees to 150 in two years.

Pick up in corporate travel trends too augur well for the company, as it provides corporate travel services to more than 200 Indian and multinational companies. It also provides visa processing services to diplomatic missions in various countries, including Germany, Greece, Hong Kong, the UK and Singapore, for inbound travellers to India.

Growth by acquisitions

C&K has over the years built its edifice through sizeable overseas acquisitions in the US, the UK and Australia. For instance, in April last year, it acquired East India Travel Company, which is in the business of selling upmarket tour and travel packages in the US, while later in December it acquired My Planet Australia Pty Ltd and Bentours International Pty Ltd through its Australian subsidiary.

To its credit, C&K has managed to complement the business offerings of its various acquisitions and generate synergies. To that extent, that the company is on the look out for suitable acquisitions lends confidence. It recently issued global depository receipts to raise $65 million (about Rs 290 crore) largely to fund future acquisitions; the GDR will result in about 8 per cent dilution. It also has cash and equivalents amounting to Rs 350 crore (at the end of FY10).

Financial performance

C&K has reported a compounded growth over 59 per cent and 73 per cent in its income and profits over the past four years. Bulk buying advantage, higher volumes, and tie-ups with airlines and hotels have helped the company expand its operating margins by over 14 percentage points during this period to 46 per cent in FY10.

For the quarter ended June, the company reported 24 per cent increase in topline, while operating margins expanded to 48 per cent. Profits however dipped by 38 per cent led by a one-off forex loss (due to restatement of foreign currency); profit before tax before forex loss however grew by over 32 per cent.

C&K expects to clock about 25-30 per cent growth in income this year, accompanied with better margins as well as 25 per cent growth in business from subsidiaries. With firm trends seen in both inbound and outbound travel, the company looks well-positioned to deliver on its guidance.

via BL