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Cox & Kings Ltd BUY
… marginal impact of Japanese tremors
Japanʹs powerful earthquake and tsunami last week has caused wide spread damage
to the northeastern part of the country. Although it may be too early to ascertain the
economic damage, the initial estimates indicate a possible economic damage of $100‐
120 billion. The near‐term disruption to economic activity is expected to be significant,
resulting in an immediate drop in GDP. But in the longer term, recovery efforts will
lead to growth in GDP.
Tourism industry is directly driven by the growth in GDP. Discretionary spending on
leisure tourism is more during economic prosperity and drops significantly during
economic downturn. Since the near term outlook for Japan is not positive the tourism
industry of Japan is expected to take a hit for atleast first two quarters of FY12.
Impact on C&K
C&K has only outbound operations in Japan which contributed 9% of the FY10 total
revenue on consolidated basis. For FY11, a 10% y‐o‐y growth is expected in the
revenues from Japan. In FY12 a major drop in revenue from Japan is expected since it
will take atleast two quarters for the country’s economy to stabilize. Tourism in the
country will pick up only from third quarter of FY12 resulting in loss of two quarters
of revenue.
Global diversification protects business
Since C&K’s exposure to Japan is not very significant, the expected drop in revenue in
FY12 will not severely impact the total consolidated revenue.
Global diversification of business protects C&K from getting adversely impacted
when ever a calamity strikes a particular country or a region. C&K has subsidiaries in
10 countries and its business is spread across 4 continents consequently removing
dependence on any particular region.
Thus we believe the C&K’s business is intact and no significant degrowth is expected
in the business due to calamity in Japan.
Valuation
At CMP of Rs 371, the stock is available at P/E of 17.5x and 15.5x of its FY11E and
FY12E earnings of Rs 21.3 and Rs 23.9 respectively.
We maintain BUY recommendation with a marginal reduction in our target price to
Rs. 484 (from Rs. 510) which translates into 30% upside from CMP. The target price is
20x FY12E earnings of Rs. 23.9
We assume that due to the wide spread damage caused by earthquake and
tsunami, it will take at least two quarters for the economy to stabilize.
Japan’s tourism industry will pick up only from the Q3FY12 resulting in 50%
loss in revenues from Japan. We also assume that Japan revenue growth in
FY13 will be higher than initially estimated due to lower base in FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cox & Kings Ltd BUY
… marginal impact of Japanese tremors
Japanʹs powerful earthquake and tsunami last week has caused wide spread damage
to the northeastern part of the country. Although it may be too early to ascertain the
economic damage, the initial estimates indicate a possible economic damage of $100‐
120 billion. The near‐term disruption to economic activity is expected to be significant,
resulting in an immediate drop in GDP. But in the longer term, recovery efforts will
lead to growth in GDP.
Tourism industry is directly driven by the growth in GDP. Discretionary spending on
leisure tourism is more during economic prosperity and drops significantly during
economic downturn. Since the near term outlook for Japan is not positive the tourism
industry of Japan is expected to take a hit for atleast first two quarters of FY12.
Impact on C&K
C&K has only outbound operations in Japan which contributed 9% of the FY10 total
revenue on consolidated basis. For FY11, a 10% y‐o‐y growth is expected in the
revenues from Japan. In FY12 a major drop in revenue from Japan is expected since it
will take atleast two quarters for the country’s economy to stabilize. Tourism in the
country will pick up only from third quarter of FY12 resulting in loss of two quarters
of revenue.
Global diversification protects business
Since C&K’s exposure to Japan is not very significant, the expected drop in revenue in
FY12 will not severely impact the total consolidated revenue.
Global diversification of business protects C&K from getting adversely impacted
when ever a calamity strikes a particular country or a region. C&K has subsidiaries in
10 countries and its business is spread across 4 continents consequently removing
dependence on any particular region.
Thus we believe the C&K’s business is intact and no significant degrowth is expected
in the business due to calamity in Japan.
Valuation
At CMP of Rs 371, the stock is available at P/E of 17.5x and 15.5x of its FY11E and
FY12E earnings of Rs 21.3 and Rs 23.9 respectively.
We maintain BUY recommendation with a marginal reduction in our target price to
Rs. 484 (from Rs. 510) which translates into 30% upside from CMP. The target price is
20x FY12E earnings of Rs. 23.9
We assume that due to the wide spread damage caused by earthquake and
tsunami, it will take at least two quarters for the economy to stabilize.
Japan’s tourism industry will pick up only from the Q3FY12 resulting in 50%
loss in revenues from Japan. We also assume that Japan revenue growth in
FY13 will be higher than initially estimated due to lower base in FY12.
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