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Cox & Kings (india) Ltd.
Summary
We believe Cox & Kings (C&K) is best bet in the growing T&T industry with a 9.2% CAGR in
India’s travel and tourism demand over the next decade (CY11-21E), the second fastest in the
world. The a) Pan-India presence with strong brand recall, b) integrated business model with a
diversified product offering (price and destinations), and c) strong overseas network with
presence in key outbound destinations offer it an edge over competitors to gain market share
and capture a higher pie of the industry growth.
Emerging global tour operator with a strong set of synergies from acquisitions
In a short span of four years, C&K has completed seven acquisitions (in the UK, Japan, Australia,
India and the US) to emerge as a global tour operator. With a strong management bandwidth,
synergies from acquisitions led improvement in the consolidated EBIDTA margins. We believe
there is scope for further margin expansion following synergies emanating from: a) consolidated
product sourcing coupled with scale benefits, b) improved product mix (leveraging the global
platform to cross-sell existing products), and c) expansion of captive destination management
services for its various overseas subsidiaries.
HolidayBreak: an acquisition worth the wait
The recent acquisition of HolidayBreak Plc offers a host of benefits to C&K which include a)
potential to double revenues in the next two years with margin improvement, b) entry into the
education and camping markets increasing the volume and value for C&K, and c) utilization of
cash on books which were earlier resulting in a net outflow of 3% for the company
Strong future growth avenues
C&K has also branched out into a) visa processing, where C&K has signed up with six embassies
to process visa applications and expects more than a six-fold increase in volumes in the next two
years, and b) a foray into rail tourism through the Maharajas’ Express, a luxury train in JV with
IRCTC. Though these segments contribute less than 8% to the company’s revenues, we expect
the revenue contribution to increase and with higher margins the company should benefit on the
profit level as well.
Valuation
C&K is currently trading at 14.3x FY12E EPS and 8.9x FY13E EPS, a significant discount to its
historical one-year forward P/E band. In view of a) the acquisition of HolidayBreak which should
double revenues, b) the strong demand visibility, and c) the improvement in return on capital in
view of successful track record of past acquisitions, we believe there is good potential upside in
the stock. We recommend a Buy rating on the stock with a target price of `259 per share (11x
FY13E EPS).
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