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

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

  • 1. Travel King Cox & Kings Initiating Coverage | 11 August 2014 Sector: Travel & Tourism Niket Shah ([email protected]); +91 22 3982 5426 Sagar Shah ([email protected])+91 22 3312 4958

2. 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. 3. Cox & Kings CMP: 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 FII 19.9 19.3 15.4 DII 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 Sales 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 King Increase 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 growth Cox 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 growth PGL 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. 4. Cox and Kings 11 August 2014 4 Meininger'splansaggressivepropertyadditions,entryintonewermarkets Meininger 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. ImprovedpenetrationbySuperbreaktodriveinternationalleisuregrowth Superbreak 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 view With 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. 5. 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 Quoprro Global Ltd, U.K Cox & Kings Gmbh, Germany Quoprro Global Services (P) Ltd, India Cox & Kings ( Australia) Pty Ltd, Australia Clearmine Ltd U.K Cox & Kings Tours LLC, Dubai Cox & Kings Singapore Pvt Ltd Signapore Cox & Kings (UK ) Ltd UK Cox & Kings Asia Pacific Pvt Ltd, Hongkong Prometheon Holdings Pvt Ltd, Mauritius Tempo Holidays Pty Ltd, Australia MyPlanet Australia Pty Ltd/ Bentours, Australia Tempo Holidays NZ Ltd, New Zealand Cox & Kings Destinations Management Services Ltd UK Quoprro Global Services Pte. Ltd, Singapore East India Travel Company Inc, USA Quoprro Global Services Hongkong Cox and Kings ( Japan) LtdJapan Prometheon Holdings Ltd, UK Cox & Kings Global Services Pvt. Ltd, India Cox & Kings Global Services LLC, Dubai Quporro Global Hellas, Greece Cox and Kings Global Services (Singapore) Pte.Ltd, Singapore Prometheon Holdings (UK) LimitedCox and Kings Global Services Mgmt (Singapore) Pte.Ltd, Singapore Holidaybreak Limited, UK Cox & Kings Travel Ltd UK Prometheon Enterprise LimitedUK Cox & Kings destination management , Singapore 6. 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 E