s p ca id

India Midcaps
VISIT NOTE
COX & KINGS
Check in for growth
India Equity Research| Hotels
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). Maintain ’BUY’.
EDELWEISS RATINGS
Absolute Rating
BUY
Investment Characteristics
None
MARKET DATA (R: COKI.BO, B: COXK IN)
CMP
: INR 311
Target Price
: INR 381
52-week range (INR)
: 368 / 85
Share in issue (mn)
: 136.5
M cap (INR bn/USD mn)
: 42 / 691
Avg. Daily Vol. BSE/NSE (‘000) : 891.4
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.
SHARE HOLDING PATTERN (%)
Current Q4FY14
Promoters *
Q3FY14
MF's, FI's & BKs
59.5
4.9
59.5
5.3
59.9
5.7
FII's
19.9
19.2
14.9
Others
15.7
16.0
19.5
:
NIL
BSE Midcap
Stock
Index
Stock over
Index
* Promoters pledged shares
(% of share in issue)
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.
PRICE PERFORMANCE (%)
1 month
(0.9)
26.9
27.8
3 months
23.1
78.7
55.5
12 months
59.9
159.8
99.9
Outlook and valuations: Favourable business mix; maintain ‘BUY’
In our view, post sale of the low-growing camping division, C&K’s business profile has
improved dramatically—high growing leisure business and recession-free education
business. Repayment of debt in FY16 (as guided) has potential to re-rate the stock
further. We increase our FY16 earnings to account for lower interest expenses and
depreciation. We maintain ’BUY’ with revised TP of INR381 (INR335 earlier).
Financials
(INR mn)
Year to March
FY13
FY14
FY15E
FY16E
Net revenues (INR mn)
18,087
23,076
21,751
24,377
EBITDA (INR mn)
7,180
11,106
8,368
9,460
Net profit (INR mn)
2,068
4,947
2,935
4,056
Diluted EPS (INR)
18.2
28.1
15.9
23.8
Diluted P/E (x)
17.1
11.1
19.5
13.1
EV/EBITDA (x)
10.0
7.6
9.0
7.7
ROAE (%)
16.4
32.1
15.8
19.2
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Niraj Mansingka, CFA
+91 22 6623 3315
[email protected]
October 7, 2014
Edelweiss Securities Limited
Hotels
Key takeaways of our interaction
Debt
•
C&K has already received sale proceeds of the camping division. It utilised the same to
repay INR8.0-8.5bn loans.
•
Further, restructuring of HBR debt led to reduction in yearly interest outgo by INR200300mn. (Refer charts below for debt break up).
•
C&K will have to continue to maintain high cash of USD200mn to meet its working
capital needs. Cash required for normal business operations look optically large as the
company reports net revenues (FY14 net revenue ~USD400mn). However, if we
compare with the gross revenues of ~USD2bn, it implies cash need of only a month.
India leisure
•
CnK market share in outbound travel among organised players has increased from 20%
to 30% plus over the past 5 years. Only Kuoni and Thomas Cook are large players in the
segment with lower market shares.
•
The company expects India outbound leisure (~65% revenue share) to post CAGR of
25% from FY16E.
•
Most of the growth in outbound will come from surge in existing franchisees. Number
of franchisee has increased from NIL in FY09 to 158 now. Correspondingly, revenue
share from franchisee sales has increased from NIL to 40% now. Ergo, revenue
contribution of tier 2/3 cities has surged to 40% now.
•
Inbound travel may grow at a slower pace due to high prices and low supply of five star
properties in India. CnK has been marketing differentiated products like camps
(www.theultimatetravellingcamp.com) and trains (Deccan Odyssey) to attract attention
of leisure clientele.
•
C&K will be focusing more on the call centre route and enhancing revenue from existing
franchisees. It is unlikely to add franchisees at the earlier pace.
•
There have also been indications of demand uptick in MICE and corporate
travel/training.
International leisure
•
Overall, C&K expects to grow at 10-12%. Growth in Europe and US will offset lower
demand in Japan and Australia.
Education (ex-Meininger)
2
•
Order book for FY15 stands at 97% and FY16 at 32%.
•
The company estimates long-term growth of 15%.
•
Australian business has broken even. C&K is planning on increasing capacity at the
Australian sites.
•
India remains a difficult place to do business due to high cost of real estate.
•
Revenue growth to come from
Edelweiss Securities Limited
Cox & Kings
•
Increased utilization from language courses during the lean season. One of C&K’s
key competitors, Kingswood, has been focusing on increasing utilization by offering
language classes.
•
Other important driver is reduction in drop-out rates
•
Increase in class sizes due to impact of ongoing baby boom in the UK
Meininger
•
CnK estimates EBTIDA CAGR of 20% over the next 5 years due to doubling of capacity
•
Currently, the company has ~7,400 beds at 17 sites. It is planning to add 2,500 beds in
phases. Management has already signed agreements for the same
•
The company’s strategy of selling 50% capacity upfront to student groups (6-8 months
prior) has led to higher yields
Working capital
•
During FY14, slowdown in business environment led to increase in working capital
•
Management expects to recover working capital in FY15. Already a few companies have
moved to credit cards
•
By March 2015, management expects to release INR500mn from working capital
•
Since franchisee business is negative working capital, rising growth in this will reduce
working capital needs
Other income
•
Forex income of INR2.2bn in FY14 was non-cash flow based, more due to accounting
norms. Net of forex income, FY14 operating EBITDA was INR8.9bn.
Capex
•
INR1.2-1.3bn working capital including PGL and Australia.
•
Australia’s PGL will need capex of USD5-6mn.
•
Generally, maintenance capex is INR1.0bn/year.
Fig. 1: HBR structure before C&K bought out the same
HBR UK
Gross debt of ~$290mn
Source: Edelweiss research
3
Edelweiss Securities Limited
Hotels
Fig. 2: HBR and C&K structure a year after C&K bought out HBR equity for GBP330mn or USD540mn. C&K bought out HBR in
Nov 2011
equity
of
$10mn
Cox & Kings
100%
stake
equity
of
$210m
Promethean
Holdings
Promethean
Enterprises
gross debt of
~$290mn
HBR UK
100%
stake
debt of
$200mn
Equity from IPO
+ GDR
100%
stake
gross debt of
$330mn
Fig. 3: 34% post completion of sale of 34% stake in HBR to CVCI Private Equity for USD142mn on Aug 2012
CVCI
Private
Equity
34% stake
100%
stake
Cox & Kings
100%
stake
Promethean
Holdings
Promethean
Enterprises
gross debt of
~$290mn
HBR UK
66%
stake
gross debt of
$200mn
debt of
$200mn
Fig. 4: Financial structure just before completion of sale of HBR’s camping division
CVCI Private
Equity 34% stake
SG gross
debt of
$97mn
100%
stake
Cox & Kings
India gross debt
of ~$125mn
Promethean
Enterprises
debt of
$190mn
66%
stake
Promethean
Holdings
100%
stake
HBR UK
Gross debt of
~$285mn
gross debt of
$180mn
Source: Edelweiss research
4
Edelweiss Securities Limited
Cox & Kings
Fig. 5: Sale completion of HBR’s Camping division for USD148mn (gross) in Sep 2104
CVCI Private
Equity 34% stake
SG gross
debt of
$97mn
100%
stake
Cox & Kings
Promethean
Enterprises
66%
stake
Promethean
Holdings
100%
stake
HBR UK
gross debt of
~$345mn
debt of
$190mn
India gross
debt of
~$125mn
Source: Edelweiss research
Change in Estimates
Net Revenue
EBITDA
EBITDA Margin
Core profit
New
21,751
FY15E
Old
22,057
% change
(1.4)
New
24,377
FY16E
Old
25,014
8,368
8,461
(1.1)
9,460
9,397
38.5
38.4
38.8
37.6
2,374
2,199
3,451
3,052
7.9
% change Comments
(2.5)
0.7
13.1 Reduction in depreciation and
interest
PAT Margin
Capex
13.5
12.5
(6,887)
(6,639)
5
3.7
16.6
14.7
2,000
2,000
0.0
Edelweiss Securities Limited
Hotels
Company Description
C&K is one of the largest and widely recognised holiday brands in India and has evolved over
250 years. The company caters to overall travel needs of Indian and International travelers
and is a one stop solution for all their requirements. It owns 66% in Holidaybreak Plc, UK
(HBR), which is Europe focused adventure and education touring company.
It has presence in 19 countries excluding India and has 255 touch points covering 164
locations. It has significant operations in the UK, Dubai, Japan and the US. In India, the
company caters to outbound (offers tour packages both group and customized), inbound
(offers hotel bookings, airport transfer, ticketing services etc.), and domestic travelers
(offers tour packages) through its wide distribution network and global reach. In its
international presence, CNK is primarily an outbound tour operator and has grown through
both organic and inorganic route. Its business can be broadly categorized as leisure travel,
corporate travel, forex and visa processing.
HBR provides education tours under PGL, NST, and Meininger brands. PGL offers residential
education tours for over 5,000 schools in UK. Meininger provides hostel accommodation for
young urban travelers offering superior amenities and services at affordable prices.
Investment Theme
Well diversified revenue – both across geographies and business lines. High growth in
leisure business as economic growth picks up. India leisure revenues grew at CAGR of 30%
during last decade. Reduction in debt to reduce balance sheet risk, and hence lead to higher
valuations.
Key Risks
Inability of the company to drive volumes could lower its bargaining power with business
partners and affect overall business growth, requirement of further working capital
investment in subsidiaries and other group companies might affect cash flows, unforeseen
events like war or calamities could affect consumer interest in travelling.
6
Edelweiss Securities Limited
Cox & Kings
Financial Statements
Key Assumptions
Income statement
Year to March
FY13 FY14 FY15E FY16E
Macro
Year to March
(INR mn)
FY13
FY14
FY15E
FY16E
Net revenue
Employee costs
18,087
6,958
23,076
8,748
21,751
8,265
24,377
9,263
Other Expenses
2,698
2,165
4,030
4,313
Advertisement expenses
1,251
1,057
1,088
1,341
10,907
11,970
13,383
14,917
EBITDA
7,180
11,106
8,368
9,460
Depreciation & Amortization
1,474
1,711
1,828
1,782
5,707
9,395
6,541
7,678
588
431
461
364
GDP(Y-o-Y %)
Inflation (Avg)
5.0
7.4
4.8
6.2
5.4
5.5
6.3
6.0
Repo rate (exit rate)
7.5
8.0
7.8
7.3
54.4 60.5
60.0
59.0
Growth - Leisure Sector (RoW) (%)
11.9
7.0
10.0
9.0
Growth - Leisure Sector (Standalone) (%)
25.9 12.4
16.5
21.0
EBIT
Increase in No of Beds (Meininger) (y/y % Increase)
21.9
2.9
-
14.3
Other income
HBR - Leisure EBITDA Margins (%)
32.0 31.1
31.0
31.0
Interest expenses
3,705
3,236
3,088
2,633
HBR - Camping EBITDA Margins (%)
48.6 41.9
-
-
Profit before tax
2,589
6,590
3,913
5,408
Tax rate (%)
20.1 24.9
25.0
25.0
Provision for tax
521
1,643
978
1,352
2,068
4,947
2,935
4,056
USD/INR (Avg)
Company
Operating expenses
Dividend payout ratio (%)
5.5
3.6
6.3
4.2
Profit before share of associates
Depreciation as % of gross block
5.8
5.9
5.8
5.8
Associate
960
(659)
(561)
(605)
Net profit
3,028
4,288
2,374
3,451
Extraordinary income/ (loss)
(544)
(456)
(200)
(200)
Profit After Tax
2,484
3,832
2,174
3,251
Basic EPS (INR)
18.2
28.1
15.9
23.8
Shares outstanding (mn)
137
137
137
137
Diluted EPS (INR)
18.2
28.1
15.9
23.8
CEPS (INR)
25.7
48.4
35.2
43.2
Dividend per share (INR)
1.0
1.0
1.0
1.0
Dividend payout (%)
5.5
3.6
6.3
4.2
Year to March
FY13
FY14
FY15E
FY16E
Gross margin
EBITDA margins
39.7
39.7
48.1
48.1
38.5
38.5
38.8
38.8
EBIT margins
31.6
40.7
30.1
31.5
Net profit margins
11.4
21.4
13.5
16.6
Year to March
FY13
FY14
FY15E
FY16E
Revenues
EBITDA
115.9
329.2
27.6
54.7
(5.7)
(24.7)
12.1
13.0
Net profit
255.6
139.2
(40.7)
38.2
EPS
497.2
54.2
(43.3)
49.5
Common size metrics
Growth ratios (%)
7
Edelweiss Securities Limited
Hotels
Balance sheet
As on 31st March
(INR mn)
Cash flow metrics
FY13
FY14
FY15E
FY16E
FY13
FY14
FY15E
FY16E
Equity capital
Reserves & surplus
683
12,577
683
16,867
683
18,881
683
21,972
Year to March
Operating cash flow
Investing cash flow
1,745
(1,812)
11,296
(15,920)
4,695
7,169
6,973
(1,636)
Shareholders funds
(5,993)
13,260
17,549
19,564
22,655
Financing cash flow
2,568
5,718
(14,484)
Minority interest (BS)
5,422
8,205
8,726
9,291
Net cash flow
2,501
1,094
(2,619)
(657)
Short term debt
7,737
8,442
9,600
9,400
Capex
(1,695)
(19,982)
6,887
(2,000)
Long term debt
39,182
47,395
35,000
32,000
(159)
(159)
(160)
(160)
Borrowings
46,919
55,836
44,600
41,400
680
699
738
792
Sources of funds
66,280
82,289
73,628
74,138
Year to March
FY13
FY14
FY15E
FY16E
Total net fixed assets
Non current investments
48,383
4,383
66,654
321
57,939
500
58,157
500
ROAE (%)
ROACE (%)
9.6
16.4
13.1
32.1
8.4
15.8
10.5
19.2
4.7
Deferred tax liability
Dividends paid
Profitability & efficiency ratios
Current Investments
281
281
281
281
4.8
5.8
3.0
Cash and equivalents
12,693
13,786
11,167
10,510
Inventory day
4
3
4
4
186
199
235
266
Debtors days
164
161
191
184
Sundry debtors
9,054
11,356
11,463
13,070
Payable days
150
154
147
139
Loans and advances
8,438
12,193
12,518
13,219
Cash conversion cycle (days)
17
10
48
48
Other current assets
33
17
17
17
Current ratio
1.8
1.7
1.7
1.7
30,404
37,551
35,399
37,082
Net Debt/Equity
3.5
3.2
2.3
1.8
4,700
5,428
5,363
6,011
Interest coverage
1.5
2.9
2.1
2.9
Others current liabilities
12,472
17,089
15,128
15,871
Total current liabilities &
17,171
22,517
20,491
21,881
540
1,247
3,741
4,690
66,280
82,289
73,628
74,138
97.1
128.5
143.3
165.9
Inventories
Total current assets (ex cash)
Trade payable
Net current assets (ex cash)
Uses of funds
Book value per share (INR)
Free cash flow
ROA
Operating ratios
Year to March
FY13
FY14
FY15E
FY16E
Total asset turnover
Fixed asset turnover
0.3
0.4
0.3
0.4
0.3
0.3
0.3
0.4
Equity turnover
1.4
1.5
1.2
1.2
(INR mn)
Year to March
FY13
FY14
FY15E
FY16E
Valuation parameters
Net profit
Depreciation
1,928
1,474
4,475
1,711
2,695
1,828
3,816
1,782
Year to March
FY13
FY14
FY15E
FY16E
Deferred tax
(27)
(47)
39
54
Diluted EPS (INR)
Y-o-Y growth (%)
18.2
497.2
28.1
54.2
15.9
(43.3)
23.8
49.5
Others
2,098
6,019
2,627
2,270
CEPS (INR)
25.7
48.4
35.2
43.2
Gross cash flow
5,472
12,159
7,189
7,922
Diluted PE (x)
17.1
11.1
19.5
13.1
Less: Changes in WC
3,728
863
2,494
949
Price/BV (x)
3.2
2.4
2.2
1.9
Operating cash flow
1,745
11,296
4,695
6,973
EV/Sales (x)
4.0
3.6
3.5
3.0
Less: Capex
1,695
19,982
(6,887)
2,000
50
(8,686)
11,583
4,973
EV/EBITDA (x)
Dividend yield (%)
11.4
0.3
8.3
0.3
10.1
0.3
8.7
0.3
Free cash flow
8
Edelweiss Securities Limited
Cox & Kings
Additional Data
Directors Data
A. B. M. Good
Urrshila Kerkar
S. C. Bhargava
Non-Exectuive Chairman
Executive Director
Independent Director
Peter Kerkar
Mahalinga Narayanan
Pesi Patel
Executive Director
Independent Director
Independent Director
Auditors - M/s. Chaturvedi & Shah
*as per last available data
Holding – Top10
Perc. Holding
24.2
11.1
4.42
3.4
2.01
Sneh sadan graphic s
Liz investments pvt
Good anthony b m
Kerkar urrshila
Kerkar peter
Perc. Holding
13.44
8.07
4.27
2.96
1.9
Kubber invstmnt maur
Capital group compan
Icici prudential lif
Macquarie bank limit
Life insurance corp
*as per last available data
Bulk Deals
Data
03 Jan 2014
Acquired / Seller
J P M S L A/C Copthall Mauritius Investment Ltd
B/S
Buy
Qty Traded
684216
Price
132.74
02 Jan 2014
J P M S L A/C Copthall Mauritius Investment Ltd
Buy
813172
121.99
*as per last available data
Insider Trades
Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available
*as per last available data
9
Edelweiss Securities Limited
Hotels
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: [email protected]
Vikas Khemani
Head Institutional Equities
[email protected]
+91 22 2286 4206
Nischal Maheshwari
Co-Head Institutional Equities & Head Research
[email protected]
+91 22 4063 5476
Nirav Sheth
Head Sales & Strategy
[email protected]
+91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Hotels
Cox And Kings (India), Mahindra Holidays & Resorts
Recent Research
Date
Company
Title
18-Aug-14
Cox and
Kings
28-Jul-14
Mahindra
Holidays &
Resorts
02-Jun-14
Cox and
Kings
Price (INR)
Recos
Debt re-payments increase;
Result Update
287
Buy
Sales costs remain high;
Result Update
300
Hold
Sale of camping to reduce
leverage;
Result Update
179
Buy
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 1 stocks under review
> 50bn
Market Cap (INR)
144
Buy
Hold
151
44
Reduce
Total
9
205
Between 10bn and 50 bn
< 10bn
56
5
10
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
Edelweiss Securities Limited
Cox & Kings
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