Cox & Kings - Check in for Growth :: Edelweiss

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We recently met Cox & Kings’ (C&K) management to get an update on the company’s business. The company has received the final cash proceeds from sale of its camping division, which it utilised to repay INR8.5bn debt. C&K’s current gross debt at INR46bn is down 15% compared to INR54bn in March 2014. Management continues to guide for debt reduction of INR2.5bn and INR5.0bn in FY15 and FY16, respectively. Recent outbound booking trend in India portends significant recovery (of 25%) in FY16. We anticipate earnings of the company’s India leisure business to surge in FY16 (FY16E EPS growth of 49%). Riding lower interest/depreciation we are revising up our earnings and also our target price to INR381 (INR335 earlier).

India leisure to surge 25% in FY16E, education CAGR of 15% likely

India leisure: Management is confident of clocking 20%+ CAGR from FY16 onwards riding increased business enquiries in retail outbound and corporate. International leisure: C&K estimates 10-12% revenue CAGR due to recovery in Europe. Education (ex Meininger): Management expects long-term growth of 15%. Meininger: Management estimates EBTIDA CAGR of 20% over the next 3 years due to increase in capacity, which is expected to double in five years.

Changing mix in favour of high growing businesses

Our view: India leisure, other leisure, Meininger and Education business are expected to contribute 29%, 25%, 17% and 29%, respectively, to C&K’s FY15E consolidated EBITDA. We expect leisure EBITDA CAGR of 20% compared to FY08-14 CAGR of 26%, providing potential upsides. Meininger is also expected to clock 20% plus  CAGR driven by room capacity addition. With global economic recovery, international leisure also has potential to outperform our EBITDA growth estimate of 5% (including HBR). Overall, we estimate HBR’s EBITDA to grow at 14.6% during FY14-18.

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