Cox and Kings

Investors with a long-term perspective can buy the stock of Cox and Kings (C&K), a leading travel and tours operator in the country.

The company's entrenched presence in domestic and major international markets puts it at a distinct advantage in the highly-fragmented tourism industry. Rising disposable income, favourable demographics of Indians, with many increasingly seen opting to holiday abroad, in addition to improving trends in inbound and outbound tourism underscore our recommendation. Valuations, given these growth drivers, appear fairly reasonable. At current market price of Rs 543, the stock trades at about 20 times its likely FY12 per share earnings.



With a network spread across 90 countries, C&K appears to be in a good position to benefit from the improvement in travel and tourism spends across the globe. What also strengthens its position is the good product mix, both global and domestic, with vacation packages largely tailor-made to suit travel as well as budgetary requirements.

The company is now on the prowl for suitable international acquisitions. Having done sizeable overseas acquisitions in the past – US, UK and Australia – it is notable that the company has managed to offer a more complete package across regions and extract synergies. This lends confidence on its ability to integrate future acquisitions too. Funding wouldn't be a problem as it has cash and equivalents of about Rs 1,200 crore (consolidated debt of Rs 920 crore). Only recently, it issued global depository receipts to raise $65 million largely to fund future acquisitions.

The global network of operations also helps it attract bulk buying benefits through tie-ups with airlines and hotels, thus helping C&K score over competition in pricing its products and services.

These have contributed to the company's high operating margins, which have in the last four years expanded by about 14 percentage points to 46 per cent (in FY10). Income and profits, during the same period, reported a compounded growth of 59 per cent and 73 per cent respectively.

In the just-ended September quarter, the company reported revenue growth of about 28 per cent while margins were pegged at about 45 per cent. Higher interest outgo, however, limited the net profit growth to 19 per cent. The management expects to grow about 30 per cent this year and expects the margins to improve and stay at around 50 per cent.

via BL