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Investment Rationale
Dominance in the forex business in India
Thomas Cook India Ltd (TCIL) is derives 60% of its revenues from the forex business (in CY10)
and is a market leader in forex-related services. TCIL also has the largest distribution network in
India among forex players, comprising 172 locations in 72 cities mainly driven by the acquisition
of LKP Forex in CY06. Leisure travelers, those traveling for migration, employment and medical
treatment, banks, non-bank retailers, and money-changers are its important customers.
We expect this segment to witness a 10% CAGR in CY10-13E and remain the major growth driver
for the company with a 55% share of consolidated revenues in CY13E.
Focus on outbound segment to drive travel business growth
TCIL is amongst the top five outbound-travel operators in India and has a strong presence in
Europe and USA, both of which constitute over 25% of India’s outbound travel. We thus expect it
to benefit from the growing T&T industry in India and find its outbound segment poised to
witness a 25.9% CAGR in CY10-13E. Moreover, a 12.9% CAGR in inbound travel and 8.2% CAGR in
corporate travel in the same period should help the travel segment to grow by 17.3% in CY10-
13E. Consequently, its share of travel-related business is expected to increase from 40% in CY10
to 45% in CY13E.
.Synergy potential from the parent company
TCIL is part of the UK based Thomas Cook Plc which creates a huge potential for synergies to
improve margins by increasing the cost competitiveness. a) Consolidated product sourcing, b)
Cross-selling of products leading to an improved product mix, c) Leveraging of its global
platform to reduce advertising and marketing spend, and d) Handling tours originating from its
parent company which in turn strengthens its inbound business are some of the benefits of a
strong parent company. To this end, TCIL’s management appointed an executive to the Board
from its parent company, in November 2008, whose sole responsibility is to integrate the Indian
business with the global one and derive synergy benefits in the process by using existing
resources.
Concerns over parent company debt overdone
Thomas Cook Group Plc (TCG) is currently facing a cash crunch and has an outstanding debt of
€1.6 bn. The cash crunch, slowdown in economy has impacted sales by 25% and has resulted in
the company taking serious measures like grounding part of its fleet. TCIL has performed much
better than TCG given the fact that India is the fastest growing outbound travel market in the
World. TCIL has managed to deliver strong profits despite TCG lowering its guidance thrice in
the last 18 months. Moreover, TCIL’s debt-equity ratio stood at 0.59x in CY10 and hence we
believe the parent company concerns are overdone.
Valuation
TCIL is currently trading at 15.2x CY12E EPS and 12.7x CY13E EPS, a 33% and 44% discount
respectively to its historical one-year forward P/E band of 22.7x. The stock has witnessed a 20%
drop over the last two months on concerns of the high debt position (€1.6 bn) of its parent
company, TCG. Given TCIL’s outperformance over TCG and its current debt-equity ratio of 0.59x
we believe the parent company concerns are overdone.
We initiate the coverage with a BUY rating and target price of `46.5 (15.2x CY13E EPS). We see
great value for the company even at its lowest one-year forward P/E since 2003 of 15.2x.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Dominance in the forex business in India
Thomas Cook India Ltd (TCIL) is derives 60% of its revenues from the forex business (in CY10)
and is a market leader in forex-related services. TCIL also has the largest distribution network in
India among forex players, comprising 172 locations in 72 cities mainly driven by the acquisition
of LKP Forex in CY06. Leisure travelers, those traveling for migration, employment and medical
treatment, banks, non-bank retailers, and money-changers are its important customers.
We expect this segment to witness a 10% CAGR in CY10-13E and remain the major growth driver
for the company with a 55% share of consolidated revenues in CY13E.
Focus on outbound segment to drive travel business growth
TCIL is amongst the top five outbound-travel operators in India and has a strong presence in
Europe and USA, both of which constitute over 25% of India’s outbound travel. We thus expect it
to benefit from the growing T&T industry in India and find its outbound segment poised to
witness a 25.9% CAGR in CY10-13E. Moreover, a 12.9% CAGR in inbound travel and 8.2% CAGR in
corporate travel in the same period should help the travel segment to grow by 17.3% in CY10-
13E. Consequently, its share of travel-related business is expected to increase from 40% in CY10
to 45% in CY13E.
.Synergy potential from the parent company
TCIL is part of the UK based Thomas Cook Plc which creates a huge potential for synergies to
improve margins by increasing the cost competitiveness. a) Consolidated product sourcing, b)
Cross-selling of products leading to an improved product mix, c) Leveraging of its global
platform to reduce advertising and marketing spend, and d) Handling tours originating from its
parent company which in turn strengthens its inbound business are some of the benefits of a
strong parent company. To this end, TCIL’s management appointed an executive to the Board
from its parent company, in November 2008, whose sole responsibility is to integrate the Indian
business with the global one and derive synergy benefits in the process by using existing
resources.
Concerns over parent company debt overdone
Thomas Cook Group Plc (TCG) is currently facing a cash crunch and has an outstanding debt of
€1.6 bn. The cash crunch, slowdown in economy has impacted sales by 25% and has resulted in
the company taking serious measures like grounding part of its fleet. TCIL has performed much
better than TCG given the fact that India is the fastest growing outbound travel market in the
World. TCIL has managed to deliver strong profits despite TCG lowering its guidance thrice in
the last 18 months. Moreover, TCIL’s debt-equity ratio stood at 0.59x in CY10 and hence we
believe the parent company concerns are overdone.
Valuation
TCIL is currently trading at 15.2x CY12E EPS and 12.7x CY13E EPS, a 33% and 44% discount
respectively to its historical one-year forward P/E band of 22.7x. The stock has witnessed a 20%
drop over the last two months on concerns of the high debt position (€1.6 bn) of its parent
company, TCG. Given TCIL’s outperformance over TCG and its current debt-equity ratio of 0.59x
we believe the parent company concerns are overdone.
We initiate the coverage with a BUY rating and target price of `46.5 (15.2x CY13E EPS). We see
great value for the company even at its lowest one-year forward P/E since 2003 of 15.2x.
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