Cox and Kings: Strong Brand Equity; Buy for a target of Rs360 - Motilal Oswal

Travel King

Cox & Kings

Initiating Coverage | 11 August 2014Sector: Travel & Tourism

Niket Shah ([email protected]); +91 22 3982 5426

Sagar Shah ([email protected])+91 22 3312 4958

Cox and Kings

11 August 2014 2

Cox and Kings: Travel King

Page No.

Summary ........................................................................................................ 3-4

Company description ..................................................................................... 5-6

Indian operations go from strength to strength ......................................... 7-9

PGL+NST (Education) - Touching lives of students .................................. 10-16

Meininger - tapping twin opportunities .................................................. 16-18

International leisure operations ..................................................................... 19

Financial outlook ....................................................................................... 20-21

Key risks ............................................................................................................ 22

Key management team ................................................................................... 23

Annexure: Industry overview ................................................................... 24-28

Financials and valuations .......................................................................... 29-30

Investors are advised to refer through disclosures made at the end of the Research Report.

Cox & KingsCMP: INR260 TP:INR360 Buy

11 August 2014

Initiating Coverage | Sector: Travel & Tourism

BSE SENSEX S&P CNX

25,519 7,626

3

Stock performance (1 year)

Shareholding pattern (%)As on Jun-14 Mar-14 Jun-13

Promoters 59.5 59.5 59.4

FI I 19.9 19.3 15.4

DI I 4.9 5.3 7.6

Others 15.7 16.0 17.7

FII Includes depository receipts

Bloomberg COXK IN

Equity Shares (m) 136.5

M.Cap. (INR b)/(USD b) 35.5/0.6

52-Week Range (INR) 282/65

1,6,12 Rel. Perf. (%) 8/64/126

Financial summary (INR b)

Y/E March 2015E 2016E 2017E

Sa les 21.3 24.0 27.1

EBITDA 8.2 9.3 10.6

NP 2.6 3.5 4.3

EPS (INR) 19.1 25.7 31.7

EPS Gr. (%) 2.0 34.9 23.4

BV/Sh. (INR) 146.4 171.0 201.5

RoE (%) 13.9 16.2 17.0

RoCE (%) 10.6 12.9 14.5

Valuations

P/E (x) 13.6 10.1 8.2

P/BV (x) 1.8 1.5 1.3

EV/EBITDA (x) 8.6 7.2 5.9

EV/Sales (x) 3.3 2.8 2.3

Travel KingIncrease capacity utilization and improved penetration to drive growth

Cox enjoys 30% market share in outbound travel market with 20-22% gross margins

which is best in the industry.

Education segment is expected to grow at ~14% over FY15-17E driven by opening of

new centre in Australia and improved capacity utilization in PGL (Peter Gordan

Lawrence) and improvement in UK economy to drive growth in NST (Northern School

Travel).

We expect Meininger to grow at 15% over FY15-17E driven by new properties opening

in Paris, London, Amsterdam and other parts of European cities.

Sale of camping business and FCF generation over the next two years to reduce debt-

equity from 2.4x in FY14 to 1x in FY17E. This complemented by healthy return ratios

warrant a re-rating, in our view.

The stock trades at 13.6x FY15E and 10.1x FY16E earnings. We value COXK at 14x

FY16E earnings of INR25.7 with a target price of INR360. Initiate coverage with a Buy

rating.

Strong brand equity , tier2 and 3 cities to drive growthCox and Kings Ltd (COXK) is a 250-year-old brand in the global travel and tourism

industry and enjoys 30% market share in outbound travel market, which stands

at USD5b. Due to its size and brand, company enjoys a gross margin of ~20-22% in

outbound segment, compared to competitors like Thomas Cook of 12% and

smaller players of ~8-9%. COXK has 12 owned centers and also operates through

156 franchisees across 110 cities in the country, which contribute 50% of the total

retail business. Currently, company derives ~40% of the revenue from Tier 2 and

3 cities, which was 20-25% in FY08. Management plans to add 10-15 franchisees

every year, which will further drive growth from Tier 2 and 3 cities.

Improve capacity utilization in Education business to drive growthPGL provides residential outdoor tours for students in the age group of 8-12

years across schools in the UK, while NST is an education group tour for students

in secondary school and targeted at the age group of 11-16 having 60 courses

covering history, Science, Maths, arts, music etc. We expect education segment

(PGL+NST) to grow at ~14% CAGR over FY15-17 driven by 1) Shift from LEA (Local

Education Authorities) customers to PGL due to its world class infrastructure

coupled with high safety standards. 2) Current capacity utilization of ~60% is set

to improve as PGL has started to offer its centers to families, English speaking

classes, national citizenship program etc during weekends and lean holiday

season which should drive growth and profitability 3) PGL made its first-ever

expansion in Australia (which it saw in the UK 15 years ago) by investing AUD4.5m

to open an 200-acre center with a capacity of 350 beds 4) Improvement in UK

geography to lead to higher share of long hauls which will drive growth in NST.

Cox and Kings

11 August 2014 4

Meininger's plans aggressive property additions, entry into newer marketsMeininger has 16 properties, 7,340 beds spread across 2,092 rooms, with beds per

room varying from 2-8 rooms depending on the category. Meininger has ~70% bed

capacity utilization and ~90% room capacity utilization by providing clean, affordable

bed and breakfast accommodation. Around 50% of the revenue is derived by selling

it to schools including PGL and NST and balance 50% by selling it to outsiders like

families etc. Management is planning to open new properties in Paris, London and

Amsterdam where it does not have any presence which will improve penetration

and drive growth.

Improved penetration by Superbreak to drive international leisure growthSuperbreak provides integrated solution and complete holiday packages

contributing 30% of international leisure business. Prior to HBR (Holidaybreak)

acquisition, Superbreak concentrated only in the UK which it has enhanced by

providing packaged holidays to other European destinations (by adding rail & flight

connectivity and European hotels), supplemented with a refreshed IT platform,

leveraging on existing C&K group operations. B2C Direct business (Online+Phone)

booking now forms 30% of Superbreak revenue which is expected to improve further

driving profitability.

Valuation and viewWith the recent sale of camping business, we believe COXK is on the path of de-

leveraging its balance sheet with the net debt/equity expected to reduce from

2.4x in FY14 to 1x in FY17E. We believe that COXK has a balanced portfolio now both

in India and International business across categories, which is synergetic to post

~30% PAT CAGR over FY15E-17E. The stock trades at 13.6x FY15E and 10.1x FY16E

earnings. We value COXK at 14x FY16E earnings of INR25.7, with a Buy rating and

target price of INR360.

Cox & Kings

11 August 2014 5

Company description Cox & Kings is the longest established travel company in the world. Its distinguished history began in 1758 when it was appointed as general agents to the regiment of Foot Guards in India under the command of Lord Ligonier. Today, Cox & Kings is a premium brand in all travel related services in the Indian subcontinent, employing over 5000 trained professionals.

Its India operations are headquartered in Mumbai and have the status of a limited company. It has over 12 fully owned offices in India across key cities such as New Delhi, Chennai, Bangalore, Kolkata, Ahmedabad, Kochi, Hyderabad, Pune, Goa, Nagpur and Jaipur. The worldwide offices are located in UK, USA, Japan, Russia, Singapore and Dubai. It has associate offices in Germany, Italy, Spain, South Africa, Sweden and Australia. In September 2011, COXK acquired Holidaybreak (HBR) as a part of its international operations. HBR is a leading tour operator in Europe focusing on niche categories like education, adventure and camping. The deal was closed at an equity consideration of GBP312m (~INR23.4b), valuing the total HBR enterprise at GBP442m (~INR33.1b). The transaction implied a valuation of 7x FY11 EV/EBITDA for HBR.

Snapshot of Cox and Kings corporate structure

Source: Company, MOSL

Cox & Kings Limited

QuoprroGlobal

Ltd, U.KCox & Kings

Gmbh, Germany

QuoprroGlobal

Services(P) Ltd,India

Cox & Kings ( Australia) Pty

Ltd,Australia

Clearmine Ltd U.K

Cox & Kings Tours LLC,

Dubai

Cox & Kings Singapore Pvt

LtdSignapore

Cox & Kings (UK ) Ltd

UK

Cox &Kings Asia Pacific Pvt

Ltd, Hongkong

PrometheonHoldings Pvt

Ltd, Mauritius

Tempo Holidays Pty Ltd,

Australia

MyPlanetAustralia Pty Ltd/

Bentours,Australia

TempoHolidays NZ Ltd,New

Zealand

Cox & Kings Destinations Management Services Ltd

UK

QuoprroGlobal

Services Pte.Ltd,

Singapore

East India Travel

Company Inc, USA

QuoprroGlobal

Services Hongkong

Cox and Kings ( Japan)

Ltd Japan

PrometheonHoldings Ltd, UK

Cox & KingsGlobal

Services Pvt. Ltd, India

Cox & Kings Global

Services LLC ,Dubai

QuporroGlobal Hellas, Greece

Cox and Kings Global

Services (Singapore)

Pte.Ltd,Singapore

Prometheon Holdings (UK)

LimitedCox and Kings Global

Services Mgmt

(Singapore) Pte.Ltd,

SingaporeHolidaybreak Limited , UK

Cox & Kings Travel Ltd

UK

PrometheonEnterprise Limited UK

Cox & Kings destination

management , Singapore

Cox & Kings

11 August 2014 6

Summary of leisure business

Country Business Description

India

COXK sell holidays under “Cox & Kings” brand and its various sub brands - “Duniya Dekho”, “Bharat Dekho”, “Luxury

Escapades”, “Anand Yatra”, “Gaurav Yatra”

Europe

COXK sell premium long haul cultural holidays under the “Cox & Kings” brand and adventure holidays around the world under “Explore” and “Edge” brands in the UK market. COXK also offer weekend breaks into UK and other European destinations

under “Superbreak” brand and ground handling into Europe under “CKDMS” brand. COXK offer Hotels & Bungalow bookings under the online brands of “Bookit” in Netherlands

Australia

COXK offering includes outbound holidays in the mid-market segment under the “Tempo” brand, premium holidays under the “Cox & Kings” brand and specialist Scandinavian holiday operations under “BenTours” brand

US COXK sell premium long haul holidays under the “Cox & Kings” brand

Dubai COXK operate under the “Cox & Kings” brand, handling both inbound and outbound traffic, catering to the mid-market

segment

Japan COXK sell package holidays under white label to various retail travel agents


Leisure International and Education business are major contributors of revenue


35%21% 18% 22% 23% 23%

33%34% 27% 32% 30% 29%

32%27%

24%29% 30% 30%

14%17% 17% 17%18% 17%

FY12 FY13 FY14 FY15E FY16E FY17E

Leisure India Leisure International Education (PGL + NST) Meininger Camping

Cox & Kings

11 August 2014 7

Indian operations go from strength to strength Tier 2, Tier 3 cities to turn the story around

COXK is a largest player in domestic outbound travel market enjoying 30% market share with industry highest gross margins of ~20-22%.

India operations are largely driven by retail customers who contribute 70% and the balance 30% is by corporate customers.

COXK has 12 owned centers and also operates through 156 franchisees across 110 cities in India which contributes 50% of total domestic retail revenues. It plans to add 10-15 franchisees every year which will drive growth.

Cox derives ~40% of the revenue from Tier 2 and 3 cities; which is likely to increase further going forward.

Strong brand equity with market leadership position Tour operator industry depends on brand awareness & recall and service it offers to generate a loyal customer base. A satisfied customer tends to repeat travel through the same operator. COXK is a 250-year-old brand in the travel and tourism industry and enjoys 30% market share in outbound travel market which stands at USD5b. The size and brand, enable it to charge a premium pricing leading to a higher gross margin (20-22%) in outbound segment compared to other small players (~8-9% margins). We believe COXK’s international presence brings significant value proposition as they understand international tourist markets and also offer lower cost to consumers, compared to peers, due to size of operations. One stop solution with varied brands for each holiday COXK is a one-stop-shop for all travel requirements such as visa, ticketing, holidays, insurance, and foreign exchange. It constantly innovated by launching customized brands namely Duniya Dekho for outbound holidays, Bharat Dekho for domestic holidays, Flexiho for tailor-made holidays, Gaurav Yatra - targeted at Gujarati community providing Jain food, Amhi Travelers - for Maharashtrian community with food specification. Corporate bookings aid in economies of scale Corporate bookings revenue contributes 30% to India revenues of which MICE contribute 2/3rd and balance 1/3rd revenues comes from forex and ticketing. MICE enjoys 15-16% margins while margins in ticketing and forex are at 1.2-1.5%. A higher growth in corporate bookings enables COXK to increase the business volumes, which in turn will give better bargaining power to make bulk bookings for air travel, hotel accommodations, car rentals and ground handling. This will also enable it to offer competitive packages to customers, thus attracting traffic in the long run. In FY14, due to poor corporate liquidity and economic conditions, corporate MICE business was subdued. COXK also witnessed increase in working capital by INR 2.4bn YoY to INR 6.5bn in FY14. While COXK introduced a corporate card with banks last year to reduce the working capital, the card acceptance has not picked up due to stressed economic conditions. Also, since last year, flight ticketing credit cycle has been reduced to a weekly payment instead of monthly, thereby accelerating the working capital requirement. However, with improvement in environment expected

Due to size and brand, it enjoys gross margin of

20-22% in outbound segment compared to other

small players which have ~8-9% margins

Cox & Kings

11 August 2014 8

going forward we believe that growth will come back complimented by reduction in working capital. Expansion of franchisees in Tier 2 and 3 cities to drive outbound and domestic growth India operations are largely driven by retail customers who contribute 70% and the balance 30% is by corporate customers. Within retail segment, 70% is group booking and 30% is individual booking. Outbound travel is the largest contributor (50%) of total Indian operations in the retail segment. Management believes growth in leisure retail business will be driven by the following:

i) Increased penetration across Tier I cities and smaller towns due to deeper distribution network.

ii) Increased market share for organized tour operators, as customers move away from the unorganized travel agency segment.

iii) Repeat business from existing customers as they travel frequently compared to the past.

Growth in the leisure business needs to be backed by a strong distribution network, which is the key strength for tourism business. COXK has 12 owned centers and also operates through 155 franchisees across 110 cities in India, with a strong presence in Tier 2 and 3 cities, compared to competition. It derives ~40% of the revenue from Tier 2 and 3 cities. Management expects to derive further growth from Tier 2 and 3 cities. With increase in growth the bargaining power for Cox is expected to increase going forward thereby leading to improvement in gross margins going forward. Franchisees account for ~50% of total retail business. Company plans to add 10-15 franchisees each year, going forward. Over the last three years, it did not open any owned shop and growth was driven by the franchisee model. COXK has a asset light model for its franchisee network. Investment in land and furniture is done by the franchisees. Each franchisee owner is also required to make a deposit depending on his/her location (INR2.5m for metros and INR1.5m for Tier 2 and 3 cities). COXK provides marketing material such as banners, posters, etc. COXK also provides a manager and accountant, who are on its payroll. There is no difference in the selling price between a franchisee and company-owned outlet, thus avoiding conflict of interest. Franchisees’ systems are integrated with the head office and bookings can be done on a real-time basis, without depending on the head office.

Franchisee addition to drive growth


Franchisee share in retail revenues set to increase


56

94

150 153 155 155 165 175 185

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Number of Franchisee

Franchisee , 50%

Own store and other

outlet , 50%

Retail revenues breakup for FY14

India operations are largely driven by retail customers

who contribute 70% and the balance 30% is by corporate customers

Management expects to derive further growth from

Tier 2 and 3 cities

Franchisees account for ~50% of total retail

business. Company plans to add 10-15 franchisees each

year, going forward

Cox & Kings

11 August 2014 9

Shift from unorganized to organized market will lead to huge opportunity Travel and tourism industry in India is a highly unorganized market, with many small operators having a small share in the pie. There are 25,000 independent agents and 5,000 regional players in the travel sector. We expect in FY15E, 80% of the industry will be unorganized and 20% to be organized. COXK is the largest among organized players, with key competitors being Thomas Cook, Kuoni and regional players like Kesari Tours and Heena Tours. While most of the smaller players are restricted to local presence, COXK is present across Pan India, which gives it an edge over its competitors. Being the largest player, company has huge bargaining power in hotel bookings, airlines, transportation and logistics. We believe given the increase in size, COXK is well placed to capture shift from unorganized to organized play.

Largely unorganized market…


…expected to move towards organized players


Unorganised , 87%

Organised, 9%

C&K, 4%

Market Share FY12

Unorganised, 80%

Organised, 13%

C&K, 7%

Market Share FY15E

COXK is the largest among organized players, with

competitors being Thomas Cook, Kuoni and regional

players like Kesari Tours and Heena Tours etc

Cox & Kings

11 August 2014 10

PGL+NST (Education) - Touching lives of students Market leaders in educational tours

PGL is a 50 year old brand in UK, with 70% of its customers being repeats, which is a

testimony of brand popularity.

PGL provides residential outdoor tours for students in the age group of 8-12 years

across schools in the UK which forms part of the curriculum.

Post acquisition, management focused on profitability by closing down two loss-

making centers and thereby increasing utilization rates marginally each year.

In the UK, 50% of students go to centres run by Local Education Authorities (LEA) and

balance 50% are serviced by private players, where PGL dominates the market with

60% share followed by Kingswood with less than 30% market share.

LEA center has 100-200 beds/center compared to PGL’s 300-400 beds, which makes it

a right choice for large schools.

PGL made its first-ever expansion in Australia (which it saw in the UK 15 years ago) by

investing AUD4.5m to open an 200-acre center with a capacity of 350 beds.

NST is an education group tour for students in secondary school and targeted at the

age group of 11-16 with 32% market share in UK. Improvement in UK economy is

expected to drive growth for NST.

Cox recently sold its Camping division to Homair Vacances, for all-cash consideration

of GBP89.2m (~INR8.8b) which will be used to retire debt.

Holidaybreak acquisition - a significant step in right direction COXK acquired Holidaybreak (HBR) in September 2011 which is a leading travel and tour operator in Europe focusing on niche categories like education, adventure and camping tours. The deal was closed at an equity consideration of GBP312m (~INR23.4b), valuing the total HBR enterprise at GBP442m (~INR33.1b). The deal was financed by raising debt of USD330m in overseas SPV. The transaction implied a valuation of 7x FY11 EV/EBITDA for HBR. We believe the acquisition has bought synergies in economies of scale, hedge to Indian operations, diversification of revenue and access to newer markets. The complementary nature of two businesses will diversify COXK’s revenue stream, both on a product and geographical basis.

Product portfolio Segment Key brand Product description Education PGL Leading provider of residential outdoor trips, providing curriculum-based activity tours to about 300k

students aged 8-12 from across 5000 schools in UK. NST Market Leader providing educational travel tours for schools and colleges in UK and Ireland.

Meininger Hostel for young urban travellers offering superior amenities & service standards at affordable prices

Adventure Explore Explore is the adventure holiday offering to primarilry UK customers. Customer has an option to choose from 130 countries.

Regaldive Regaldive offers specialised scuba diving and it is 2nd largest operator in UK

Online Booking Super break SuperBreak has been a short break specialist for over 30 years. From theatre tickets to sightseeing and events around the UK and overseas Super break provide the entire package for a unique and unforgettable short break

Bookit Its an online short break booking platform


Cox & Kings

11 August 2014 11

Product portfolio for education business


PGL: A cash cow and growing business PGL is operating since the last 50 years and it was acquired by HBR in June 2007. PGL provides residential outdoor tours for students in the age group of 8-12 years across schools in the UK. It is a curriculum-based tour with state-of-art infrastructure and high safety standards. These centers are equipped with facilities including student accommodation, indoor classrooms, meeting rooms, conference halls, swimming pools, football pitches and activity areas. The activities are curriculum based, focus on personality development, and conducted by professional and qualified staff from government accredited centers. The trips are conducted during school terms, typically from March to October. It offers four to five-day trips to private primary schools across the UK, with curriculum based agenda and activities for kids. Company is focusing on consolidating its market leadership position in the UK school market, which witnessed better-than-industry growth.

Various activities for kids in PGL



PGL is operating since the last 50 years and it was

acquired by HBR in June 2007

Cox & Kings

11 August 2014 12



What changed in PGL post acquisition Post PGL’s acquisition by COXK, management focused on efficiency and profitability of the center. PGL closed down two loss-making centers and focused on increasing capacity in own beds, compared to leased beds. Management has been able to increase the occupancy by 1% annually, from 57% in FY11 to 60% in FY14. Strong brand set for market share gain Management believes through its world class infrastructure coupled with high safety standards and superior customer experience, it will be able to pull Local Education Authorities’ (LEA) customers. LEA operates ~230 centers in UK, compared to PGL’s 16 centres, thus leaving a huge opportunity to gain market share. PGL has a land bank of >1,000 acres, which we believe can be used for expansion of more beds without any meaningful capex. Flexi pricing to cater to larger schools PGL has adopted a flexi pricing strategy of GBP100-300 per week depending on the category of seasons, thus ensuring higher utilization. Currently, it services ~5,500 schools across UK and its presence across multiple price points ensures services to both small and large schools. We believe its presence in the lower end of pricing point will complement the strategy of attracting LEA customers. Shortage of schools in UK – Structural driver for long term growth The Local Government Association has guided that two-thirds of England’s school districts are expected to have more primary pupils than centers within three years. The LGA's analysis of local authority data on school-place needs suggests about 1,000 of the 2,277 local school planning districts will run out of capacity by 2015-16. We believe that this will lead to increase in students per class as well as addition of newer schools which will provide long term visibility to PGL and NST businesses.

Management believes through its world class

infrastructure coupled with high safety standards, it will

be able to convert LEA customers as its own due to

inferior quality of infrastructure offered by

LEA centers

Cox & Kings

11 August 2014 13

Better utilization in lean season to improve PGL profitability PGL operates 23 centers spread across 50-250 acres in the UK, France and Spain. Of these, 16 centers are owned and the rest being leased. Of the total ~8,900 beds, 1,500 beds are leased and the balance 7,400 being owned. Education business is a highly seasonal; with ~70% of revenue being derived from 1Q and 2Q, and balance quarters are relatively lull due to extreme climatic conditions. Centers remain shut for a period of two months every year. During 1Q and 2Q weekdays sees ~90% capacity utilization while weekends have lower capacity utilization. The current blended capacity utilization stands at c.60% during the business season. Management is focusing on increasing the utilization by targeting more non-school revenues. Specifically, by

1) Offering centre’s to families, training bodies, football coaching etc on weekends and during holidays.

2) Undertaking English language coaching to foreign students which is approved by the British council. Normally the duration of coaching is around 2-6 weeks.

3) Recent initiating of national citizenship program by the UK government during the holiday period.

Management has guided for INR 500mn as growth capex while INR 400-500mn for maintenance capex with negligible working capital requirement. Management expects the education business (NST+PGL) to grow at 10-15% going forward. Revenue mix in Education business between PGL and NST remained at 75:25 for FY14. Total number of beds in PGL trend


Expansion in Australia, India to drive long term growth As a part of its global expansion plan, in 4QFY14, PGL made its first-ever expansion in Australia by investing AUD4.5m. Australia has a concept similar to its UK business called “Learning outside Classroom”. The center is spread over 200 acres and has a capacity of 350 beds. Management believes that Australia has huge potential to scale up its business (which it saw in the UK 15 years ago). We believe this plan will be earnings accretive and boost its strategic expansion. It is also looking for a similar expansion in India which, while delayed, remains a strategic market for PGL.

8,150 8,150 8,900 9,790 10,867 12,171


Total number of beds

PGL operates 23 centers spread across 50-250 acres

in the UK, France and Spain. Of these, 16 centers are

owned and the rest being leased

The Australian center is spread over 200 acres and has a capacity of 350 beds. Management believes that

Australia has huge potential to scale up its business

Cox & Kings

11 August 2014 14

Snapshot of selected PGL centers Sr no

Name of the Site

Region/City Capacity

(beds) Area

(acres) Description

1 Boreatton

Park Shropshire 1,021 250

Mansion house; lodges and tented village for accommodation. Indoor pool and 2 indoor sports halls; 20 foot sandstone wall for abseiling; lakes. Numerous activities including high ropes; quad biking; canoeing; initiative exercises

2 Campaspe

Downs Victoria, Aus 350 200

Facilities include 18 different activities, Sport Hall, Indoor pool, classrooms & teacher meeting lounge

3 Liddington Wiltshire 1,000 150 Former conference centre; netball courts & football pitches; lake; woodland. 22 activities including crate and vertical challenges

4 Dalguise Perthshire 475 50 Craigvinean Lodge; 18th century mansion house; close to Loch Tay; woodland environment; sports dome. 23 activities including orienteering; quad biking; kayaking

5 Winmarleigh

Hall Lancashire 308 50

Mansion house and lodges; onsite lake; woodland environment. 19 activities including raft building; bouldering wall

6 Caythorpe

Court Lincolnshire 790 65

Purpose built lake; mansion house / lodges; tent villages. 21 activities including high ropes; canoeing; trapeze

7 Barton Hall Devon 711 46 Accommodation in main house and lodges; outdoor heated swimming pool; lake; dry ski slope; classrooms and ICT suites. 19 activities including fencing and crate challenge

8 Osmington

Bay Dorset 804 45

Accommodation in lodges; located by the sea with private beach; watersports at Weymouth Olympic Centre; sports hall. 24 activities including tunnel trail. Pond dipping lake used by Field Studies groups

9 Little Canada Isle of Wight 722 48 Accommodation in log cabins or Woodlands House; both sleep up to 8. Indoor heated swimming pool; 28 activities including a challenge course and dragon boating

10 Windmill Hill East Sussex 462 21 Main house and accommodation lodges; sports hall (2k sqm); outdoor heated swimming pool. 19 activities including initiative exercises and archery. Optional day trip to France available


NST: Higher share of long hauls to drive growth and profitability NST is an education group tour for students in secondary school and targeted at the age group of 11-16 having 60 courses covering history, science, maths, arts, music, etc. NST was acquired by Holidaybreak in September 2007. It offers domestic and international education group tours for students across schools and colleges in the UK and Ireland. It has a strong market share of 32%, a testimony of relationships with schools and colleges in the UK. NST carries over 100,000 students each year with tours organized to several domestic and overseas destinations, typically for five days. Improvement in UK economy is likely to further benefit the growth of this business. Education (PGL+NST) Revenue growth trend


4,906 5,539 6,257

7,131 8,19713% 13%

14%

15%

FY13 FY14 FY15E FY16E FY17E

Total Education revenue (INR m) YoY Growth

NST is an education group tour for students in

secondary school and targeted at the age group

of 11-16.

Cox & Kings

11 August 2014 15

EST business - a niche segment EST provides educational tours for higher education students. It specializes in study visits and student conferences for students aged over 16. Travelplus provides accommodations for UK/German students seeking gap-year placements. With EST, COXK completes its portfolio by catering to students across all age groups.

Camping business sale: a step in right direction Camping business was a part of HBR, which was acquired by COXK in September 2011. It provided premium camping holidays to customers in the UK through two brands, Eurocamp and Keycamp, which were market leaders in the region. These facilities were spread across popular camping destinations like France, Italy, Spain and other countries in Europe including Switzerland, Austria, Germany, Croatia and Portugal. COXK provides a wide range of accommodation choices, ranging from basic one-room mobile homes to three-room luxury chalets stylish safari tents. These brands enjoy No.1 position in the UK with 60% market share and No.2 and 3 positions in the Netherlands and Germany, respectively. For the period ended FY14, Camping business contributed revenue of INR3.92b (17% of the total revenue) and EBITDA of INR1.6b (18% of the total EBITDA). COXK owned ~8,500 accommodation sites (including 7,128 mobile homes). With each mobile home costing ~GBP15,000-20,000 (useful life of 12 years), it is a relatively capital intensive business.

On June 2, 2014, C&K Group announced the sale of its Camping division to Homair Vacances, a French leader in the camping market. The deal was valued at all-cash consideration of GBP89.2m (~INR8.8b). Company would use the proceeds to retire a portion of its INR42b debt before maturity. FY14 net debt/equity ratio (pro forma for camping sale) improved from 2.4x to 2x, and a reducing debt will lead to annualized interest cost savings of £4m. We believe Camping business’ sale is a step in the right direction as it required huge capital expenditure and consumed free cash flows of the business. However, it’s important to note that Cox generated around GBP15mn of free cash flows in last 2 years before selling the asset. Thus, COXK has aligned its focus on two main businesses —education and leisure.

On June 2, 2014, C&K Group announced the sale of its

Camping division to Homair Vacances, a French leader

in the mobile home market. Deal was valued at all-cash consideration of GBP89.2m

(~INR8.8b)

Cox & Kings

11 August 2014 16

Meininger – tapping twin opportunities Penetration into newer markets through asset light model

Meininger has 7,340 beds spread across 2,092 rooms, with beds per room varying from 2-8 depending on the category. It enjoys 70% bed capacity utilization and 90% room capacity utilisaiton.

All properties are on leased basis, thus reducing stress on balance sheet and making it an asset light model.

With presence already in 10 cities in Europe, management is planning to open new properties in Paris, London and Amsterdam, where it does not have a presence which will drive growth.

Around 50% of the revenue is derived by selling it to schools including PGL and NST and balance 50% by selling it to outsiders like families etc.

We believe with the presence in newer cities and higher utilization of current properties, it will be able to achieve growth of 15%, going forward.

An asset light model complements its primary business In November 2010, HBR acquired 50% stake in Meininger, with the option to purchase remaining shares. The second tranche of 24% was acquired in April 2012. The final disposal of 26% shares was acquired in April 2013, thus making Meininger a wholly-owned subsidiary of HBR. With COXK acquiring HBR, Meininger became its wholly-owned subsidiary. Meininger is a preferred accommodation provider across Europe. It generates revenue from two categories of customers:

a. Group segment: Typically, B2B business which targets school tour operators. b. Leisure clients/business clients/backpackers/youth travelers: Booking is done

mostly through websites - hotelbookings.com, hostelbooking.com, etc.

It is typically a hostel for young urban travelers offering superior amenities and service standards at affordable prices. Hotel is used by groups, including student tours by NST, individual travelers, business men, families and backpackers, thus complementing its primary NST business. All the properties are operated on long term lease basis, thus reducing stress on the balance sheet and keeping the business model asset light. Any further growth will require low capex. Expansion into newer markets to ensure sustained growth Meininger offers clean, affordable bed and breakfast accommodation in the heart of a city. The cost effective value proposition opened market for families and corporate travelers alike. It has 7,340 beds spread across 2,092 rooms, with beds per room varying from 2-8 depending on the category. Meininger enjoys 70% bed capacity utilization and 90% room capacity utilization. It faces competition from hostel providers like Generator Hostel and A&O. However, with its strong relations with school tour operators and prime location of properties, it has an edge over competitors, in our view. It has a presence in 10 cities in Europe. Management is planning to open new properties in Paris, London and Amsterdam where Meininger does not have any presence. Thus, we believe that with a presence in newer cities and higher utilization of current properties, Meininger will be able to achieve a growth of 15% going forward.

All the properties are operated on long term

lease basis, thus reducing stress on the balance sheet

and keeping the business model asset light. Any

further growth will require low capex

Meininger has 7,340 beds spread across 2,092 rooms, with beds per room varying from 2-8 depending on the category. Meininger enjoys

70% bed capacity utilization and 90% room capacity

utilization

Cox & Kings

11 August 2014 17

Meininger bed capacity on the rise


Revenue growth trend


Meininger’s location and bed capacity

Sr no Site Location Country Opening No. of rooms No. of beds

1 Munich Germany Sep-04 94 447

2 Cologne Germany May-06 52 184

3 London UK Oct-06 47 256

4 Vienna City Austria Sep-07 68 299

5 Berlin Prenzlauer Berg Germany Apr-08 90 328

6 Hamburg Germany Apr-09 116 589

7 Berlin Central Station Germany Oct-09 296 848

8 Frankfurt Germany Apr-10 163 387

9 Salzburg Austria May-11 101 426

10 Berlin Oranienburgerstr Germany Aug-11 118 430

11 Vienna Downtown Austria Oct-11 131 484

12 Vienna Schiffamt Austria Nov-11 103 297

13 Frankfurt Airport Germany Jan-12 168 436

14 Berlin Airport Germany Apr-12 156 468

15 Amsterdam Netherlands Jul-12 219 737

16 Brussels Belgium May-13 170 724

Total

2,092 7,340


New properties and increased utilization to drive growth COXK is one of the largest European hotel chains that cater to the twin opportunity of student travel (competing with various youth hostels) and leisure/business travel (competing with budget hotels). During FY14, Meininger recorded revenue of GBP45m and capacity utilization of 70% (v/s FY13 revenue of GBP38m, with a capacity utilization of 65%). Company has guided to double its capacity from current levels by FY18-19, with about 14 hotels in the pipeline. We expect Meininger to be a key contributor to earnings going forward, with increasing capacity, higher utilization and lower capex requirements.

6,616

7,340 7,840 9,44011,840


Number of beds

3,231 3,5204,037 4,649

9%

15%15%

FY14 FY15E FY16E FY17E

Revenue YoY Growth

Company has guided to double its capacity from

current levels by FY18-19, with about 14 hotels in

the pipeline

Cox & Kings

11 August 2014 18

Meininger Hotel Brussels





Cox & Kings

11 August 2014 19

International leisure operations Expanding business from UK to pan Europe

Superbreak was acquired in September 2011 as a part of Holidaybreak acquisition. Superbreak (UK) and Bookit (Netherlands) are 15-year-old brands which provides domestic short break trips.

Until acquisition, Superbreak was concentrated only in the UK. However, management is planning to improve its presence pan European product portfolio, which will drive growth.

B2C Direct Business (Online+Phone) bookings now contributes 30% of Superbreak revenue.

UK contributes 20% of revenues is expected to grow at 8-9% while Dubai operations which contribute 9% of the revenue, is expected to grow at 15% in the next two years.

Superbreak – a unique value proposition Superbreak was acquired in September 2011 as a part of Holidaybreak acquisition. Superbreak (UK) and Bookit (Netherlands) are 15-year-old brands which provides domestic short break trips. Superbreak is among the largest operator in UK providing integrated solution and complete short breaks holiday package. Most tour operators either provide airlines booking or hotel bookings, thus Superbreak brings unique value proposition. Hotelbreaks has a tie-up with ~2,000 hotels across Europe and brings cost synergies in the business, thus driving profitability. Improved penetration to drive growth Superbreak contributes 30% of the international leisure business. Until acquisition, it was concentrated only in the UK. However, management is planning to increase its presence pan Europe as well as product portfolio to drive growth. Superbreak is planning to provide robust airlines and rail connectivity to support its expansion plan. Its packages are distributed through all the channels: B2B, B2C and Affiliate marketing. B2C Direct Business (Online + Phone) bookings form 30% of Superbreak revenue. Even competitors/large retailers like Thomas Cook and Thomson do not have an independent and complete product portfolio. Hence, Superbreak package sales complement its business. Other international leisure business Other international leisure business includes product offerings in Dubai, Australia and US, and outbound tours in the UK. UK contributes ~20% to revenues while US and Australia contributes ~10% each followed by Dubai operations which contribute 9%, UK business contributes 25%, while balance international business is contributed by the Japan, Singapore etc. Management expects 8-9% growth in UK operations and ~15% growth for Dubai operation over next 2 years.

Hotelbreaks has a tie-up with ~2,000 hotels across

Europe and brings cost synergies in the business,

thus driving profitability

B2C Direct Business (Online+Phone) bookings

now form 30% of Superbreak revenue, which

was negligible till acquisition

Dubai operations contribute 9%, UK business contributes

25%, while balance international business is

contributed by the US/Australia

Cox & Kings

11 August 2014 20

Financial outlook De-leveraging of balance sheet in sight

Revenue to clock 13% CAGR over FY15E-17E We expect COXK revenue to grow at 13% CAGR over FY15E-17E from INR21.3b in FY15E to INR27.1b in FY17E. The growth will largely driven by the expansion of the Meininger business; contribution from new centers in Educational business viz. Australia etc and opening of new franchisee domestic leisure business. Revenue growth trend post selling off camping business


EBITDA margin to sustain; robust growth in PAT We believe that EBITDA will grow from INR8.2b in FY15E to INR10.6b in FY17E while maintaining overall margin at 39%. Improvement in capacity utilization in PGL complimented by improvement in UK economy (which will benefit NST and Meininger business) thereby driving operating leverage. We expect PAT to grow at 29% CAGR from INR2.6b in FY15E to INR4.3b in FY17E.

EBITDA growth trend


Robust growth in PAT to continue


FCF generation will assist in de-leveraging the balance sheet Net debt shot up to INR41b in FY14 mainly due to acquisition of HBR in FY12. We believe that cash generated from selling of camping business (~INR8.9b)and strong FCF from existing businesses will help to pay off the debt. This will assist in substantial de-leveraging of balance sheet and Net Debt/Equity ratio is expected to drop from 2.4x in FY14 to 1x in FY17E.

8,45018,092

23,08021,280 23,966 27,123

114%

28%

-8%13% 13%


Revenue (INR m) YoY Growth

7,225

8,901 8,2099,304

10,58440%

39% 39%39%

39%


EBITDA (INR m) Margins

2,922

2,552 2,601

3,510 4,332

-13%

2%

35%

23%


PAT (INR m) YoY Growth

Cox & Kings

11 August 2014 21

Substantial FCF generation will lead to reduction in Net D/E


33,044

29,40641,592

34,79531,154

26,265

2.8

2.2 2.4

1.7

1.31.0


Net Debt (INR m) Net D/E

Cox & Kings

11 August 2014 22

Key risks Concentration of operations in Europe Over half of the company’s revenue is linked to travel outlook in Europe. A significant deterioration in travel outlook for Europe can affect our growth estimates. Further stress on balance sheet Historically, COXK growth has been primarily driven by overseas acquisitions. The main concern on the stock has been company’s high leverage. Any further acquisitions, before reducing leverage on the balance sheet, could stress cash flows, going forward. Fluctuation in foreign currency ~3/4ths of COXK business is international in nature and thus exposed to foreign exchange. Any adverse fluctuation in foreign currency can have major implications in the functioning of business.

Cox & Kings

11 August 2014 23

Key management team Mr A B M Good, Promoter & Non-Executive Chairman Mr Good, 76 years, is the promoter of the company. He is a Fellow member of the Relations. After forming what later became the London Stock Exchange listed Good Relations Group Plc, he acted as a consultant to Laker and the parent company of British Caledonian Airways for a few years reporting directly to the Chief Executive. In 1971, he was appointed on the board of Cox & Kings Ltd, UK and subsequently became the Chairman in 1975. He was also a Director of Grindlays Commercial Holdings Ltd. During the period when Cox & Kings remained a wholly-owned subsidiary of the bank, he was given a consultancy assignment to turn the company into a long haul tour operator specializing in India. He was appointed on the board of Cox and Kings (India) Ltd for the first time on January 12, 1976. He is currently the Non-Executive Chairman of the company, its UK subsidiaries and promoter group entity, Good Relations (India) Private Ltd. Mr Ajay Ajit Peter Kerkar, Promoter & Non-Executive Director Mr Ajay Ajit Peter Kerkar, 46 years, is the promoter of the company. He is a graduate in arts (B.A.) with distinction in Anthropology from Stanford University, USA. He joined Cox & Kings Travel Ltd in October of 1986 in the capacity of General Manager. It was under his tenure wherein Cox & Kings Travel Ltd expanded its product geographies from India to sell Latin America, Environmental Journeys, Special Interest Tours, Middle East, Africa, Egypt, China and the Far East. He is based in the UK and responsible in the company for overall leadership, strategy, global centralized buying and international growth, as a part of which he has been actively involved in the identification of newer opportunities. He was appointed on the board of Cox and Kings (India) Ltd for the first time on November 30, 1993. Ms Urrshila Kerkar, Promoter & Whole Time Director Ms Urrshila Kerkar, 51 years, is the promoter of the company. She is a graduate in art (B.A.) with distinction in Economics and Psychology from Bombay University and holds an associate degree from Pratt University, NY, USA in Graphic Design. Prior to joining the company in 1990, Ms Kerkar was running her own enterprise, a graphic design and production house which won many international awards for design. Ms Kerkar initially worked with the company in an advisory role on marketing and brochures design from 1985 and her role was extended when she joined the company in 1999 and was made in-charge of Indian operations. She has been at the forefront of company's growth playing a vital role in the development of outbound leisure and domestic leisure business and is the driving force behind the company's IT vision. Ms Kerkar was invited to be on the board as an Executive Director in the 2004 and since then she continues to be on the board. She has been directly involved and responsible for the day-to-day management of the company in India and for all marketing and design initiatives for the group.

Mr Ajay Peter Kerkar

Ms Urrshila Kerkar

Mr A B M Good

Cox & Kings

11 August 2014 24

Annexure: Industry overview Indian tourism industry has significantly improved in past decade

Indian travel and tourism set to rise Indian tourism industry delivered significant growth over the last decade. Growth in tourism ensures sustained foreign earnings and also creates employment opportunities in the country. The World Tourism and Travel Council (WTTC) estimates Indian tourism industry to post 12% CAGR over CY13-23. Growth in travel and tourism is expected to surge on the back of an increase in disposable income, favorable demographics and improvement in economic condition. T&T sector also creates massive employment opportunities. It generated 39m opportunities, which was 10% of the total employment generated in Indian economy.

India’s GDP growth

Source: WTTC 2013, MOSL

T&T contribution to Indian economy on the rise

Source: WTTC, MOSL

Contribution of T&T to total GDP

Source: WTTC, MOSL

Employment generation by T&T sector

Source: WTTC, MOSL

Inbound tourist arrivals picked up in past decade… Foreign tourist arrivals have jumped significantly post the launch of campaign “Incredible India” in 2002. Before 2002, the Indian government regularly formulated policies and prepared pamphlets and brochures for the promotion of tourism, though it did not support tourism in a concerted manner. However, in 2002, the tourism ministry made efforts to bring more professionalism in its attempts to promote tourism. Hence, foreign tourist arrivals in India increased ~3x from 2.38m in FY02 to 6.65m in FY12 based on a creative campaign created by Ogilvy & Mather

721 834 9491,238 1,224 1,365

1,708 1,880 1,858 1,876

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP (USD b)

3,476 4,014 4,131 4,769 5,686 6,385 7,416

23,020

2007 2008 2009 2010 2011 2012 2013 2023E

Total Contribution of T&T to GDP (INR b)

12% CAGR

Mining, 4.8%

Chemicals manufactur

ing, 7.1% Auto manufactur

ing, 7.3%

Communication, 9.7%

Education, 6.0%

Higher education,

1.0%

Financial services, 36

.8%

Banking, 18.0%

T&T, 9.2%

% Contribution to GDP

Mining, 5.8%

Chemicals manufactur

ing, 7.6% Auto manufactur

ing, 9.1%

Communication, 9.2%

Education, 12.6%

Higher education,

1.5%

Financial services, 29

.8%

Banking, 14.4%

T&T, 10.1%

% of Total employment generated

The World Tourism and Travel Council (WTTC)

estimates Indian tourism industry to post 12% CAGR

over CY13-23

Foreign tourist arrivals in India increased ~3x from

2.38m in FY02 to 6.65m in FY12 based on a creative

campaign created by Ogilvy & Mather (India) (O&M)

Cox & Kings

11 August 2014 25

(India) (O&M). Foreign tourist arrivals also assisted in forex earnings. Forex receipts increased ~5.5x from USD3.1b in FY02 to USD17.7b in FY12. Apart from the global financial crisis which hit in 2008, there has been a consistent increase in both foreign tourist arrivals and forex receipts. Foreign tourist arrivals have shown a persistent increase…

Source: Ministry of Tourism, MOSL

…which led to an increase in foreign earnings over the years


…yet India at a nascent stage Even though tourism picked up significantly in the past decade, India is yet to match international peers. Global tourism arrivals peaked the 1b mark in 2012, and France led the space with 83m visitors, marking it as the most attractive tourist destination. China was also in the leading space with 57m visitors, while India lags at 6.6m visitors annually. 16% of the total visitors are from the US and 12% from the UK. State-wise, Maharashtra is the preferred foreign tourist state attracting 1/4th of the total visits followed by Tamil Nadu with 17% foreign visits. In global tourism receipts, India contributes 1.6% of the global receipt of USD1,075b and 5% to the Asia Pacific tourist receipt of USD322b. India’s global rank in tourism receipts has improved from 37th place in 2002 to 16th place in 2012. While in the Asia Pacific region, India’s rank improved from 13th in 2002 to 7th in 2012. Thus, Indian tourism industry is showing signs of improvement.

2.65

2.542.38

2.73 3.46 3.92 4.44 5.08 5.28 5.17 5.78 6.31 6.65

7%

-4% -6%

14%

27%

13% 13% 14%

4%-2%

12% 9%5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Foreign Tourist Arrivals (m) YoY Growth

3.46 3.20 3.10 4.46 6.17 7.49 8.63 10.73 11.83 11.14 14.19 16.56 17.74

15%

-8%-3%

44%38%

21%15%

24%

10%

-6%

27%17%

7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Forex Earnings (USD b) YoY Growth

Global tourism arrivals peaked the 1b mark in

2012, and France led the space with 83m visitors,

marking it as the most attractive tourist

destination

Cox & Kings

11 August 2014 26

Indian foreign tourist arrivals are significantly lower…


…and so are international tourism receipts


States attracting maximum foreign tourists


Foreign tourists arrival breakup


Comparison of world, Asia Pacific and India tourism receipts


Outbound travel growth shows confidence in economy Over the last 15 years, outbound visits have shown significant growth primarily due to higher affordability, rise in aspirations and availability of cheaper airline travels. Growth in outbound travel is a sign of growth in the economy whereby travelers have disposable income and affordability to travel out of the country. Barring the financial crisis phase, outbound travel has also grown significantly. While outbound travel results in forex outgo, it helps in the growth of domestic tourist agents, airlines and other allied industries. Outbound travelers from India prefer Singapore, Malaysia, Thailand, Indonesia etc as major tourist destination and thus 48% of the total outbound travel in 2011 was for the Far East. Apart from these countries, Egypt, UAE, the US etc are other destinations where tourists outgo is high.

83

57.7 57.746.4

35.7 30.4 29.3 25.7 25

6.6

Fran

ce

Chin

a

Spai

n

Ital

y

Turk

ey

Ger

man

y

UK

Rus

sia

Mal

aysi

a

Indi

a

Foreign Tourist Arrivals (m)

128.6

55.9 53.7 50 41.2 38.1 36.4 31.7 31.5 17.7

USA

Spai

n

Fran

ce

Chin

a

Ital

y

Ger

man

y

UK

Hon

g Ko

ng

Aus

tral

ia

Indi

a

International Tourism Receipts (USD b)

Maharashtra, 25%

TN, 17%

Delhi, 11%UP, 10%

Rajasthan, 7%

WB, 6%

Bihar, 5%

Kerala, 4%

Kar, 3%

Himachal Pradesh, 2

%Others, 10

%

% ShareUS, 16%

UK, 12%

Ban, 7%

SL, 5%Can, 4%Ger, 4%Fra, 4%Japan, 3%

Aus, 3%Mal, 3%

Others, 39%

% Share

443 445 458 475 464 482 529633 680 744

857939

853 9271,042 1,075

82.6 72.3 79.1 85.3 88.1 96.5 93.7 124.1 135.0 156.9 187.0 208.6 204.2 255.3 289.4 322.8

2.9 3 3 3.5 3.2 3.1 4.5 6.1 7.5 8.6 10.7 11.8 11.1 14.1 16.6 17.7

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

World Asia Pacific India

Outbound travelers from India prefer Singapore,

Malaysia, Thailand, Indonesia etc as major

tourist destination and thus 48% of the total outbound

travel in 2011 was for the Far East

Cox & Kings

11 August 2014 27

Outbound travel trend


Far East and Middle East are the preferred outbound tourist destinations

Source: Indian Tourism Statistics 2012, MOSL

Growth backed by capital investment Capital investment in tourism is the contribution of all sectors directly relating to the industry. Development of tourism requires investment in various sectors like infrastructure, hotels and accommodations, transportation, restaurants, transport equipment and leisure facilities etc. With a stable Modi-led government ruling, we believe that tourism will be its primary focus as suggested in the manifesto. In the past five years, capital investment clocked a CAGR of 5% from INR1,556b in FY08 to INR2,012b in FY13. However, as per recent KPMG report; with increased government focus and improvement in the economy, the capital investment in tourism sector will be major and it is poised to clock a CAGR of 10.5% to reach INR5,459b by FY23E.

Capital investment in T&T sector set to rise

Source: KPMG, MOSL

3.73.8

4.1 4.4 4.6 4.9 5.4 6.2 7.2 8.3 9.8 10.9 11.1 13.0 14.0 14.92%

8% 8%

3%

8% 8%

16% 16% 16% 17%

11%

2%

17%

8% 7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

No of Outbound visits (m) YoY Change

North America, 9%South America, 1%

Europe, 9%

Africa, 5%

Middle East, 26%

Far East Asia, 48%

Australia, 2%% of Outbound travels

1,5561,128 1,319 1,545 1,716 2,012

5,459

2008 2009 2010 2011 2012 2013 2023E

Capital Investment in T&T (INR b)

CAGR 10.5%

As per recent KPMG report; with increased government

focus and improvement in the economy, the capital

investment in tourism sector will be major and it is

poised to clock a CAGR of 10.5% to reach INR5,459b

by FY23E

Cox & Kings

11 August 2014 28

Excerpts of BJP manifesto

“Tourism - Untapped Potential

BJP recognizes the role tourism and hospitality can play as a foreign exchange earner and its ability to create millions of jobs every year. Tourism plays a key role in socio-economic progress through creation of jobs, enterprise, infrastructure development, and foreign exchange earnings.

BJP realizes that the tourism sector needs a clear plan for growth, and BJP commits to initiate a mission mode project to create 50 tourist circuits that are affordable and built around themes like: a.) Archaeological and Heritage, b.) Cultural and Spiritual, c.) Himalayan, d.) Desert, e.) Coastal, f.) Medical (Ayurveda and Modern Medicine), etc. This will lead to creation of infrastructure and employment around each tourist circuit and help in boosting revenue generation. Specialized course in tourism will be started for capacity development. Safety and Security of tourists would be accorded due priority.”

World tourism touches 1b mark International tourism arrivals marked a historic figure of 1b in 2012. According to figures released by the United Nation’s World Tourism Organization (UNWTO) in January 2013, international tourist arrivals exceeded the figure of 1b for the first time ever in 2012, reaching a total of 1.03b tourists, 39m more than 2011. The data suggested that Asia Pacific was the fastest growing region by 7% over 2011, followed by Africa 6% growth over 2011. International tourist arrivals to Europe were up by only 3%, which was a positive result in view of the economic situation in 2011. Europe is the largest tourist destination attracting 52% of the world arrivals in 2012.

Foreign tourist arrivals in different regions (m)

Source: Tourism Government of India, MOSL

Europe contributes most of tourist arrivals

Source: Tourism Government of India, MOSL

461 488 518 535

181 205 218 233141 150 156 16246

50 49 5252 5955 53

2009 2010 2011 2012

Europe Asia Pacific Americas Africa Middle East

Europe52%

Asia Pacific22%

Americas16%

Africa5%

Middle East5%

% Share of World Tourist Arrivals in 2012

Europe is the largest tourist destination attracting 52%

of the world arrivals in 2012

Cox & Kings

11 August 2014 29

Financials and valuations Income statement (INR Million) Y/E Mar 2012 2013 2014 2015E 2016E 2017E Net Sales 8,379 18,087 23,076 21,280 23,965 27,122 Change (%) 68.7 115.9 27.6 -7.8 12.6 13.2 EBITDA 1,673 7,225 8,901 8,209 9,303 10,583 EBITDA Margin (%) 20.0 39.9 38.6 38.6 38.8 39.0 Depreciation 491 1,474 1,711 1,221 1,278 1,527 EBIT 1,182 5,751 7,190 6,988 8,025 9,056 Interest 1,843 3,705 3,236 3,059 2,639 2,444 Other Income 356 588 431 397 447 506 Extraordinary items -993 588 -1,748 0 0 0 PBT 687 2,046 6,133 4,326 5,834 7,118 Tax 418 521 1,643 1,125 1,633 1,993 Tax Rate (%) 60.8 25.5 26.8 26.0 28.0 28.0 Min. Int. & Assoc. Share 146 959 -659 -600 -690 -794 Reported PAT 416 2,484 3,832 2,601 3,510 4,331

Adjusted PAT 26 2,922 2,552 2,601 3,510 4,331

Change (%) -67.8 497.3 54.3 -32.1 34.9 23.4

Balance sheet (INR Million) Y/E Mar 2012 2013 2014 2015E 2016E 2017E Share Capital 683 683 683 683 683 683 Reserves 11,241 12,577 16,867 19,309 22,660 26,832 Net Worth 11,924 13,260 17,549 19,991 23,342 27,514 Minority Interest 0 5,422 8,205 8,805 9,495 10,289 Debt 46,618 46,763 55,981 45,981 41,981 39,481 Deferred Tax 766 746 700 700 700 700 Total Capital Employed 59,308 66,190 82,435 75,477 75,518 77,984 Gross Fixed Assets 24,951 26,028 32,739 28,299 29,799 31,299 Less: Acc Depreciation 5,804 6,412 8,123 9,344 10,622 12,149 Net Fixed Assets 19,147 19,616 24,616 18,955 19,177 19,150 Capital WIP 1,238 1,434 1,506 1,506 1,506 1,506 Investments 3,042 4,664 602 602 602 602 Current Assets 26,426 30,404 37,551 34,670 36,997 42,443 Inventory 173 186 199 184 206 232 Debtors 7,151 9,054 11,356 10,472 11,793 13,347 Cash & Bank 10,533 12,693 13,786 10,584 10,225 12,613 Loans & Adv, Others 8,570 8,471 12,209 13,430 14,773 16,251 Curr Liabs & Provns 17,190 17,328 22,373 20,789 23,298 26,250 Curr. Liabilities 16,409 16,850 21,485 19,812 22,223 25,068 Provisions 781 478 888 977 1,075 1,182 Net Current Assets 9,236 13,076 15,178 13,881 13,700 16,193 Total Assets 59,308 66,190 82,435 75,477 75,518 77,983

E: MOSL Estimates

Cox & Kings

11 August 2014 30

Financials and valuations Ratios Y/E Mar 2012 2013 2014 2015E 2016E 2017E Basic (INR) EPS 0.2 21.4 18.7 19.1 25.7 31.7 Cash EPS 3.8 32.2 31.2 28.0 35.1 42.9 Book Value 87.3 97.1 128.5 146.4 171.0 201.5 DPS 1.0 1.0 1.0 1.0 1.0 1.0 Payout (incl. Div. Tax.) 38.2 6.4 4.2 6.1 4.5 3.7 Valuation(x) P/E

13.9 13.6 10.1 8.2

Cash P/E

8.3 9.3 7.4 6.1 Price / Book Value

2.0 1.8 1.5 1.3

EV/Sales

3.4 3.3 2.8 2.3 EV/EBITDA

8.7 8.6 7.2 5.9

Dividend Yield (%)

0.4 0.4 0.4 0.4 Profitability Ratios (%) RoE 0.2 23.2 16.6 13.9 16.2 17.0 RoCE 3.9 10.7 11.4 10.6 12.9 14.5 Turnover Ratios (%) Asset Turnover (x) 0.1 0.3 0.3 0.3 0.3 0.3 Debtors (No. of Days) 311 183 180 180 180 180 Inventory (No. of Days) 8 4 3 3 3 3 Creditors (No. of Days) 715 340 340 340 338 337 Leverage Ratios (%) Debt/Equity (x) 3.9 3.5 3.2 2.3 1.8 1.4

Cash flow statement (INR Million) Y/E Mar 2012 2013 2014 2015E 2016E 2017E OP/(Loss) before Tax 687 1,969 4,385 4,326 5,834 7,118 Depreciation 491 1,474 1,711 1,221 1,278 1,527 Others 0 0 0 0 0 0 Interest 1,675 3,363 2,805 2,662 2,192 1,938 Direct Taxes Paid -259 -806 -1,643 -1,125 -1,633 -1,993 (Inc)/Dec in Wkg Cap -3,529 -3,728 -1,008 -1,905 -178 -105 CF from Op. Activity -1,366 1,745 5,772 5,179 7,492 8,485 (Inc)/Dec in FA & CWIP -1,307 -1,695 -19,982 4,440 -1,500 -1,500 (Pur)/Sale of Invt 2,013 0 4,062 0 0 0 Others -23,252 -69 2,635 397 447 506 CF from Inv. Activity -22,546 -1,764 -13,285 4,837 -1,053 -994 Inc/(Dec) in Net Worth 0 0 0 0 0 0 Inc / (Dec) in Debt 26,542 144 9,218 -10,000 -4,000 -2,500 Interest Paid -1,449 -3,917 -3,236 -3,059 -2,639 -2,444 Divd Paid (incl Tax) -80 -159 -159 -159 -159 -159 CF from Fin. Activity 24,837 2,568 8,606 -13,218 -6,798 -5,103 Inc/(Dec) in Cash 925 2,548 1,093 -3,202 -359 2,388 Add: Opening Balance 9,608 10,144 12,693 13,786 10,584 10,225 Closing Balance 10,533 12,693 13,786 10,584 10,225 12,613

E: MOSL Estimates

Cox & Kings

11 August 2014 31

N O T E S

Cox & Kings

11 August 2014 32

Disclosures This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Research Department Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. Our research professionals are paid in part based on the profitability of MOSt which include earnings from investment banking and other business. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest . MOSt and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement COX AND KINGS LTD Analyst ownership of the stock No

Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K. This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to which this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Anosh Koppikar Kadambari Balachandran Email:[email protected] Email : [email protected] Contact(+65)68189232 Contact: (+65) 68189233 / 65249115 Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025 Phone: +91 22 3982 5500 E-mail: [email protected]

Cox and Kings: Strong Brand Equity; Buy for a target of Rs360 - Motilal Oswal

Documents

Transcript of Cox and Kings: Strong Brand Equity; Buy for a target of Rs360 - Motilal Oswal