Focus on de-leveraging…
• Q1FY15 revenues grew 26% YoY to | 738.7 crore (vs. I-direct
estimate: | 657.7 crore) on account of consolidation of Meininger’s
financials and higher sales from the leisure domestic segment (up
14% YoY). The camping division also contributed to topline in this
quarter as sale of camping division is likely to conclude by Q2FY15
• EBITDA margins improved 24 bps YoY to 47.6% led by an all-round
better performance of all segments, excluding the camping division
• The sale of the camping business for | 890 crore is likely to help Cox
& Kings to de-leverage its balance sheet significantly, going forward
Well diversified global integrated player…
Cox & Kings (C&K) has done seven acquisitions in the past seven years
(including HBR), which made C&K an integrated player globally with
quality products and services. This series of acquisitions brought huge
business volume on the book of C&K on a consolidated basis. This, in
turn, increased the bargaining power with vendors due to its large
customer base and global presence. The overseas acquisition created
value for C&K with healthy growth in revenue (CAGR of 57% in FY07-14)
and average operating margins (i.e. at ~39.3%) during the same period.
HolidayBreak: Long-term strategic fit
C&K acquired a 100% stake in UK based HolidayBreak Plc (HBR). The
acquisition was done under an all-cash deal of ~£312 million (at a
valuation of 7.8x FY11 EV/EBITDA, enterprise value of £444 million and
EBITDA of ~£58 million) in September 2011 through wholly owned
subsidiary Prometheon Holdings (UK). We foresee HBR as a good long
term strategic fit for C&K as it has provided synergistic opportunities in
terms of geographic diversification, widening its product portfolio and
offering cross-selling opportunities.
Improved outlook to aid overall topline growth, going forward
The outlook for the domestic business is looking positive on an expected
improved consumer sentiment and pick-up in corporate travel. Further,
C&K should be a key beneficiary of any positive policy announcements
(visa on arrival) given the new government’s thrust on tourism. We
expect leisure tourism growth to return to over 15% in the next two years
vs. 12% growth seen in FY14.
Expect free cash flow to improve, going forward
During FY14, the company’s debt increased by | 798 crore, primarily due
to adverse forex movements. Further, strong operating cash flows were
offset by the Meininger acquisition during Q4FY14 (| 257 crore), higher
capex (including | 120 crore capex for camping) and higher working
capital in the domestic business. C&K guided at FCF generation of | 250-
300 crore in FY15 and over | 400 crore in FY16, driven by operational
cash flows and the release of working capital.
Debt reduction – Key focus area, going forward; maintain BUY
Given the company’s healthy operating cash flow, we expect its debt
servicing ability to improve. The sale of the camping business for | 890
crore is likely to help C&K to de-leverage its balance sheet significantly,
going forward. Hence, we remain positive and maintain our BUY rating
with a revised target price of | 329/share (i.e. at 9.5x FY16E EPS)
��
• Q1FY15 revenues grew 26% YoY to | 738.7 crore (vs. I-direct
estimate: | 657.7 crore) on account of consolidation of Meininger’s
financials and higher sales from the leisure domestic segment (up
14% YoY). The camping division also contributed to topline in this
quarter as sale of camping division is likely to conclude by Q2FY15
• EBITDA margins improved 24 bps YoY to 47.6% led by an all-round
better performance of all segments, excluding the camping division
• The sale of the camping business for | 890 crore is likely to help Cox
& Kings to de-leverage its balance sheet significantly, going forward
Well diversified global integrated player…
Cox & Kings (C&K) has done seven acquisitions in the past seven years
(including HBR), which made C&K an integrated player globally with
quality products and services. This series of acquisitions brought huge
business volume on the book of C&K on a consolidated basis. This, in
turn, increased the bargaining power with vendors due to its large
customer base and global presence. The overseas acquisition created
value for C&K with healthy growth in revenue (CAGR of 57% in FY07-14)
and average operating margins (i.e. at ~39.3%) during the same period.
HolidayBreak: Long-term strategic fit
C&K acquired a 100% stake in UK based HolidayBreak Plc (HBR). The
acquisition was done under an all-cash deal of ~£312 million (at a
valuation of 7.8x FY11 EV/EBITDA, enterprise value of £444 million and
EBITDA of ~£58 million) in September 2011 through wholly owned
subsidiary Prometheon Holdings (UK). We foresee HBR as a good long
term strategic fit for C&K as it has provided synergistic opportunities in
terms of geographic diversification, widening its product portfolio and
offering cross-selling opportunities.
Improved outlook to aid overall topline growth, going forward
The outlook for the domestic business is looking positive on an expected
improved consumer sentiment and pick-up in corporate travel. Further,
C&K should be a key beneficiary of any positive policy announcements
(visa on arrival) given the new government’s thrust on tourism. We
expect leisure tourism growth to return to over 15% in the next two years
vs. 12% growth seen in FY14.
Expect free cash flow to improve, going forward
During FY14, the company’s debt increased by | 798 crore, primarily due
to adverse forex movements. Further, strong operating cash flows were
offset by the Meininger acquisition during Q4FY14 (| 257 crore), higher
capex (including | 120 crore capex for camping) and higher working
capital in the domestic business. C&K guided at FCF generation of | 250-
300 crore in FY15 and over | 400 crore in FY16, driven by operational
cash flows and the release of working capital.
Debt reduction – Key focus area, going forward; maintain BUY
Given the company’s healthy operating cash flow, we expect its debt
servicing ability to improve. The sale of the camping business for | 890
crore is likely to help C&K to de-leverage its balance sheet significantly,
going forward. Hence, we remain positive and maintain our BUY rating
with a revised target price of | 329/share (i.e. at 9.5x FY16E EPS)
Link: http://content.icicidirect.com/mailimages/IDirect_CoxKings_Q1FY15.pdf
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