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Earnings momentum growth continues; EBITDA under pressure
Cox and Kings’ (CNK) consolidated Q3FY11 sales jumped 37.3% Y-o-Y to INR 1.08
bn as Indian operations reported 37% Y-o-Y sales growth. Q-o-Q, sales were flat
due to seasonal factors. Sales growth at the subsidiaries level, at 38%, was also
robust. With Q3FY11 being a seasonally weak quarter for travel and travel-related
services, we expect a strong earnings momentum in Q4FY11. EBIDTA margins at
the consolidated level declined to 35.6% from 38.4% Y-o-Y. Due to some changes
in the advertisement strategy of shifting to public hoardings from print media, the
advertisement cost as percentage of sales increased 300bps. We maintain our
27% and 19% sales growth estimates for FY11 and FY12, respectively, as we are
not building in any further acquisitions till its announcement. We expect CNK to
maintain 45-46% EBIDTA margin on consolidated basis for FY11E and FY12E.
Debt for acquisition taking toll due to positive carry
The INR 3.5 bn raised during Q1FY11 for a potential acquisition is currently sitting
on books as cash. The company is paying a positive carrying net cost of 4.7%.
Although on net debt basis, CNK is cash positive, an additional INR 80 mn of extra
interest is hitting the P&L every quarter. The company stated that there are
certain jurisdictions where serious discussion with any potential target is not
possible without adequate cash balance on books. It also stated that it expects to
close a transaction by Q1FY12.
Outlook and valuations: Positive; maintain ‘HOLD’
We continue to like CNK’s business model and the brand’s ability to drive volumes
with margin expansion. With seamless integration of acquisitions and starting of a
luxury train along with the visa processing facility, we believe the company is in a
sweet spot to benefit from growth in inbound, outbound, and domestic travel. At
CMP of INR 407, the stock is trading at P/E of 22.1x and 18.2x FY11E and FY12E,
respectively. Due to the positive carrying cost on debt on books, we are revising
down our FY11 and FY12 EPS estimates 11.5% and 16.0%, respectively. We
continue to assign 25x and 20x P/E for FY11E and FY12E, respectively, and reduce
the target price to INR 440. We maintain ‘HOLD’ recommendation on the stock.
Company Description
CNK is one of the largest and widely recognised holiday brands in India and has evolved
over 250 years. The company caters to overall travel needs of Indian and international
travelers. It has presence in 19 countries and in India has 255 touch points covering 164
locations. In India, the company caters to outbound, inbound, and domestic travelers. In
its international presence, CNK is primarily an outbound tour operator. Its business can
be broadly categorized as leisure travel, corporate travel, forex and visa processing. It
provides end-to-end travel solutions including land, air and cruise bookings, hotel
bookings, in transit arrangements and various other travel-related services.
Investment Theme
With almost 55% of income coming from international operations, the revenues are wellspread
across geographies. Consistent innovation and the company’s inorganic growth
strategy have provided CNK with higher growth rates. Highly recognised brand helps it
drive better bargains from business partners. Better bargain helps the company offer
cheaper products to customers in comparison to competitors.
Key Risks
Inability of the company to drive volumes could lower its bargaining power with business
partners, deployment of further working capital in subsidiaries and other group
companies, unforeseen events like war or disease and future acquisitions turning sour.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings momentum growth continues; EBITDA under pressure
Cox and Kings’ (CNK) consolidated Q3FY11 sales jumped 37.3% Y-o-Y to INR 1.08
bn as Indian operations reported 37% Y-o-Y sales growth. Q-o-Q, sales were flat
due to seasonal factors. Sales growth at the subsidiaries level, at 38%, was also
robust. With Q3FY11 being a seasonally weak quarter for travel and travel-related
services, we expect a strong earnings momentum in Q4FY11. EBIDTA margins at
the consolidated level declined to 35.6% from 38.4% Y-o-Y. Due to some changes
in the advertisement strategy of shifting to public hoardings from print media, the
advertisement cost as percentage of sales increased 300bps. We maintain our
27% and 19% sales growth estimates for FY11 and FY12, respectively, as we are
not building in any further acquisitions till its announcement. We expect CNK to
maintain 45-46% EBIDTA margin on consolidated basis for FY11E and FY12E.
Debt for acquisition taking toll due to positive carry
The INR 3.5 bn raised during Q1FY11 for a potential acquisition is currently sitting
on books as cash. The company is paying a positive carrying net cost of 4.7%.
Although on net debt basis, CNK is cash positive, an additional INR 80 mn of extra
interest is hitting the P&L every quarter. The company stated that there are
certain jurisdictions where serious discussion with any potential target is not
possible without adequate cash balance on books. It also stated that it expects to
close a transaction by Q1FY12.
Outlook and valuations: Positive; maintain ‘HOLD’
We continue to like CNK’s business model and the brand’s ability to drive volumes
with margin expansion. With seamless integration of acquisitions and starting of a
luxury train along with the visa processing facility, we believe the company is in a
sweet spot to benefit from growth in inbound, outbound, and domestic travel. At
CMP of INR 407, the stock is trading at P/E of 22.1x and 18.2x FY11E and FY12E,
respectively. Due to the positive carrying cost on debt on books, we are revising
down our FY11 and FY12 EPS estimates 11.5% and 16.0%, respectively. We
continue to assign 25x and 20x P/E for FY11E and FY12E, respectively, and reduce
the target price to INR 440. We maintain ‘HOLD’ recommendation on the stock.
Company Description
CNK is one of the largest and widely recognised holiday brands in India and has evolved
over 250 years. The company caters to overall travel needs of Indian and international
travelers. It has presence in 19 countries and in India has 255 touch points covering 164
locations. In India, the company caters to outbound, inbound, and domestic travelers. In
its international presence, CNK is primarily an outbound tour operator. Its business can
be broadly categorized as leisure travel, corporate travel, forex and visa processing. It
provides end-to-end travel solutions including land, air and cruise bookings, hotel
bookings, in transit arrangements and various other travel-related services.
Investment Theme
With almost 55% of income coming from international operations, the revenues are wellspread
across geographies. Consistent innovation and the company’s inorganic growth
strategy have provided CNK with higher growth rates. Highly recognised brand helps it
drive better bargains from business partners. Better bargain helps the company offer
cheaper products to customers in comparison to competitors.
Key Risks
Inability of the company to drive volumes could lower its bargaining power with business
partners, deployment of further working capital in subsidiaries and other group
companies, unforeseen events like war or disease and future acquisitions turning sour.
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