Stock Pick From The Travel & Leisure Sector

Here is Why

• With an excellent mix of growth and stability across both products and geographies, the company is in better shape today than ever before.
• The company’s acquisition of Holidaybreak has incorporated good synergies and enabled it to mix fast growing and defensive business segments.
• The stock is trading at just 4.5x its trailing 12-month consolidated EPS of Rs 21.36, which is attractive compared to that of its peers.

The availability of attractive travel offerings throughout the year is gradually influencing Indian customers to make travel plans, whether domestic or international, even outside of the busy summer holidays season. Our recommendation this time, Cox & Kings (CKL), is a company which has a 250-year strong legacy of delivering value in travel. Despite operating in a traditionally cyclical business, it has stood the test of time, maintaining growth, profitability and sustainability.

The reasons for travel can be many including leisure, business, education, adventure, and so on. The company’s acquisition of Holidaybreak PLC (HBR), which is a leading European education activity and leisure specialist travel company, has incorporated good synergies in the form of a wider reach, expanded product portfolio and a more resilient business model. It has enabled the company to mix fast growing and defensive business segments such as leisure and education.

Also, CKL now has a great mix of fast evolving markets such as India, Australia, New Zealand and the Middle East, alongside the mature market of Europe. With HBR's leadership position in niche travel segments such as education travel and the camping business, the acquisition has had a transformational impact on CKL’s business. Additionally, CKL operates across four continents and 25 countries. It has various popular brands including Duniya Dekho, Bharat Deko, Flexihol, Gaurav Yatra, Anand Yatra and Luxury Escapades.

SHAREHOLDING PATTERN  AS OF  30/09/13
Promoters	60.17
DII	8.32
FIIs	14.52
Others	16.98
GRAND TOTAL	100

The company also offers various services to corporate organisations to cater to all aspects of conference organising, business meetings, event management, seminars, exhibitions, product launches and incentives. It is a leading Meetings, Incentives, Conferences & Events (MICE) operator in India. It also specialises in trade fairs.

On the financial front, CKL’s performance during Q2FY14 beat the market expectations on both the topline and bottomline levels due to strong growth in the education and camping division of HBR. During the recent quarter, its revenues grew by 19 per cent to Rs 819 crore and the consolidated PAT jumped 79 per cent to Rs 264 crore on a yearly basis. Despite the subdued performance of its leisure business, the reason behind CKL’s strong topline was the 51 per cent growth in its education business as it acquired 100 per cent control over Germany-based student and school tour accommodation group Meininger.

The company’s margins went down by approximately 100 basis points due to higher personnel expenses. However, it is confident of being able to maintain its margins in future. CKL has a high debt of Rs 4676 crore on its balance sheet, but has managed to repay almost Rs 250 crore during the first six months. Further, the management holds that the company will able to repay Rs 500 crore of the debt every year from its internal accruals starting from the current financial year. Hence, we do not see any concerns over this front.

As regards the valuations, the stock is trading at a Price-to-Earnings ratio of just 4.5x its trailing 12-month consolidated EPS of Rs 21.36. This is clearly attractive compared to that of its chief competitor Thomas Cook, which is trading at a Price-to-Earnings ratio of 33x its consolidated trailing 12-month EPS of Rs 2.52.

More interestingly, the shareholding pattern of the company shows increased stake of promoters in spite of the decreasing trend in FIIs’ holdings over the past few quarters. This clearly indicates the management’s confidence in its business model.

With increasing per capita income, higher workforce mobility and a rising proportion of working parents, travelling is becoming increasingly routine in the developing world too. The physical presence of CKL tremendously enhances its negotiation capabilities. Hence, we recommend buying the stock of this travel company for at least 25 per cent capital appreciation over a one-year time frame.

Last Five Quarters (Rs/Cr)
Particulars	Sep 13	Jun 13	Mar 13	Dec 12	Sep 12
Total Income	818.81	586.19	230.62	357.18	688.96
PBDIT	452.89	338.1	34.1	100.92	390.07
Interest	77.81	80.85	107.27	85.12	86.53
Tax	87.58	67.51	-101.74	8.14	99.86
PAT	263.73	134.77	-49.34	3.34	147.6
Equity Capital	68.26	68.26	68.26	68.26	68.26