Cox & Kings: Strong brand equity with market leadership position

13 February 2015

3QFY15 Results Update | Sector: Tourism

Cox & Kings

BSE SENSEX

28,047

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val,INRm/Vol ‘000

Free float (%)

Financials & Valuation (INR b)

Y/E MAR

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh.INR

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

2015E 2016E 2017E

26.1

10.6

4.6

26.9

43.8

153.8

21.0

13.1

11.9

2.1

25.4

9.9

4.4

25.8

-3.9

177.9

15.6

14.1

12.4

1.8

28.9

11.3

5.4

31.7

22.8

207.3

16.5

16.3

10.1

1.5

S&P CNX

8,390

COXK IN

136.5

42.1/0.7

366/94

-6/9/98

178/737

52.0

CMP: INR320

TP: INR380 (+20%)

Buy

Operational performance beats estimates:

COXK reported overall revenue of

INR4.6b (est. INR4.2b) in 3QFY15, as against INR4.1b in 3QFY14, marking a YoY growth

of 14.3%. EBITDA margin expanded 690bp from 25.8% in 3QFY14 to 32.7% (est. 31.7%)

led by non-consolidation of camping operations. EBITDA in Leisure business grew 3%

to INR1.11b, in Education grew 22% to INR250m and in Meininger business grew 36%

to INR190m. Hence, reported PAT stood at -INR139m (est. INR246m), against

INR309m in 3QFY14, impacted by translation related forex loss of INR652m.

Growth led by Meininger and Leisure India; Leisure International declines YoY:

During the quarter, Meininger business grew by 161% to INR810m, Leisure India grew

by 15% to INR1.10b and Education grew by 6% to INR920m. Meininger business

continues to post strong growth led by better capacity utilization which stood at 71%

during the quarter. On the negative side, Leisure International growth stood at -13%,

with a decline in business across Europe, Australia and Japan. Going forward, we

expect strong growth to continue in Leisure India and expect a 18% CAGR over FY15E-

17E, and similarly expect robust growth for Education and Meininger businesses (15%

and 22% CAGR) respectively. Given weak sentiments, especially in Europe, we expect

Leisure International business to report a muted growth of 5% CAGR over FY15E-17E.

De-leveraging process on right track:

COXK retired debt worth INR7.3b (INR6b Indian

debt and INR1.3b foreign debt) from QIP proceeds. This will result in interest cost

savings of INR150-180m per quarter going forward. Management maintains its

guidance of INR5b annual debt retirement over FY15-17, which should reduce net

debt/equity from 2.3x in FY14 to 0.4x by FY17E.

Valuation and view:

We believe COXK is on the right path of deleveraging its balance

sheet led by the sale of camping business and the recently-concluded INR10b QIP. We

expect COXK to be a key beneficiary of discretionary spends revival in India, and with

robust outlook on overseas education businesses as well as divestment of non-core

camping business, we believe the company is well placed. The stock trades at 12.4x

FY16E and 10.1x FY17E earnings. Maintain

Buy

with a target price of INR380 (valuing

the stock at 12x FY17E EPS of INR31.7).

Estimate change

TP change

Rating change

Niket Shah

(Niket.Shah@MotilalOswal.com); +91 22 3982 5426

Atul Mehra

(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417

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

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

Cox & Kings

Operational performance beats estimates



COXK reported overall revenue of INR4.6b (est INR4.2b) in 3QFY15 as against

INR4.1b in 3QFY14 marking a YoY growth of 14.3%.

EBITDA margins expanded by 690bps from 25.8% in 3QFY14 to 32.7%

(est.31.7%) led by non-consolidation of camping operations.

Consequently, Reported PAT stood at INR-139m (est.INR246m) as against

INR309m in 3QFY14 impacted by translation related forex loss of INR652m.

Exhibit 1: Revenue trend

Sales (INR m)

404

239

5,320

5,862

3,572

4,077

2,306

-12

10.2

18.8

14.1

8,188

4,949

114.6

26.0

5.9

YoY growth (%)

8,675

7,387

4,660

14.3

6,890

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 Q3FY15

Source: Company, MOSL

Exhibit 2: EBITDA trend

EBITDA (INR b)

58.4 56.6

47.3

28.3

3.1

3.9

1.0

14.8

0.3

2.8

1.1

55.3

Margin (%)

47.6

25.8

11.0

3.5

0.5

52.3

32.7

4.5

1.5

Exhibit 3: PAT trend

438.5

285.9

1.8

2.4

0.0 -2.1 1.3

-36.2

2.6

0.3

17.2

-297.9

-0.5

420.3

PAT (INR b)

YoY Growth (%)

1.3

-0.9 -0.1

4.5

32.2 0.0 0.0

-135.8 -174.2

Source: Company, MOSL

Meininger business reports robust growth



During the quarter, Meininger business grew by 163% to INR810m.

Meininger business continues to post strong growth led by better capacity

utilization which stood at 71% during the quarter.

Education business grew by 6% to INR920m.

EBITDA in Education business grew by 22% to INR250m and in Meininger

business EBITDA grew by 36% to INR190m.

COXK added 500 beds in PGL business in France and added a second PGL site in

Australia during the quarter.

COXK plans to add another 12,000 beds in Meininger business going forrward.

We expect robust growth for Education and Meininger businesses (15% and 22%

CAGR) respectively over FY15-17.

13 February 2015

Cox & Kings

Exhibit 4: Education revenue trend

Total Education revenue (INR m)

19%

13%

14%

15%

10,100

10,600

YoY Growth

Exhibit 5: Total number of beds trend in PGL

Total number of beds

4,906

7,495

5,539

FY14

6,569

FY15E

FY16E

8,625

8,150

8,900

9,100

FY13

FY17E

FY12

FY13

FY14

FY15E

FY16E

FY17E

Source: Company, MOSL

Exhibit 6: Meininger revenue trend

Revenue (INR m)

52%

YoY Growth

Exhibit 7: Total number of beds in Meininger

Number of beds

15%

3,231

4,914

5,632

6,488

15%

5,411

FY17E

Source: Company, MOSL

FY12

FY13

FY14

6,616

7,340

8,090

9,090

11,090

FY14

FY15E

FY16E

FY15E

FY16E

FY17E

Source: Company, MOSL

Leisure India reports robust growth, while Leisure International disappoints



Leisure India grew by 15% to INR1,100m.

COXH launched Summer Campaign for Domestic & Outbound Holidays during

the quarter and received encouraging response to European & American

packages in the Outbound space.

Similarly it also launched a unique holiday proposition with Holiday 365 Plan for

the Domestic Market which elicited strong response.

Leisure International disappointed this quarter with growth standing at -13%

with decline in business across Europe, Australia and Japan.

For Leisure International, even as revenue growth was weak at -13%, EBITDA

decline was contained at -4% as margins expanded 300bp YoY from 37% to 40%.

Going forward, we expect strong growth to continue in Leisure India and expect

18% CAGR over FY15-17.

Given weak sentiments, especially in European markets we expect Leisure

International business to report muted growth of 5% CAGR over FY15-17.

13 February 2015

Cox & Kings

Exhibit 8: Quarterly revenue and EBITDA mix

Revenues (INR m)

Leisure India

Leisure international

Education (Including Meininger)

Camping

Others

Total

EBITDA (INR m)

Leisure India

Leisure international

Education (Including Meininger)

Camping

Others

Total

EBITDA margins (INR m)

Leisure India

Leisure international

Education (Including Meininger)

Camping

Total

3QFY13

850

1910

780

3580

3QFY13

370

460

-60

-260

-30

480

3QFY13

43.5%

24.1%

-7.7%

13.4%

4QFY13

850

1280

2310

4QFY13

390

340

-220

-70

480

4QFY13

45.9%

26.6%

44.4%

20.8%

1QFY14

1,450

1,080

2,410

890

5,862

1QFY14

890

230

1,320

390

-56

2,774

1QFY14

61.4%

21.3%

54.8%

43.8%

47.3%

2QFY14

850

1,830

2,700

2,770

8,188

2QFY14

390

900

1,380

1,890

-31

4,560

2QFY14

45.9%

49.2%

51.1%

68.2%

55.7%

3QFY14

950

1,750

1,170

120

4,077

3QFY14

430

610

310

-270

-27

1,080

3QFY14

45.3%

34.9%

26.5%

4QFY14

930

1,460

2,410

4,949

4QFY14

360

330

270

-400

-15

560

4QFY14

38.7%

22.6%

11.2%

11.3%

1QFY15

1,660

1,200

3,510

900

117

7,387

1QFY15

1,020

270

2,020

240

-36

3,514

1QFY15

61.4%

22.5%

57.5%

26.7%

47.6%

2QFY15

1000

1870

2940

2,630

235

8,675

2QFY15

460

830

1630

1770

-150

4,540

2QFY15

46.0%

44.4%

55.4%

67.3%

52.3%

3QFY15

1,100

1,540

1,730

290

4,660

3QFY15

490

620

440

-30

1,520

3QFY15

44.5%

40.3%

25.4%

32.6%

Source: Company, MOSL

Debt reduction on track



COXH retired debt worth INR7.3b (INR6b Indian debt and INR1.3b foreign debt)

during the quarter from proceeds of recently concluded INR10b QIP.

This will result in interest cost saving of INR150-180m per quarter.

Management has guided for annual debt retirement of INR5b over FY15-17.

Gross debt on books stood at INR40b while net debt stood at INR25b.

We believe COXK is on the right track for balance sheet de-leveraging, which will

reduce net debt/equity from 2.3x in FY14 to 0.4x by FY17E.

Exhibit 9: Net debt to Equity to reduce over next two years

2.8

2.2

33,044

41,132

29,406

22,815

FY12

FY13

FY14

FY15E

0.9

0.7

19,934

FY16E

0.4

15,500

FY17E

Source: Company, MOSL

Net Debt (INR m)

2.3

Net D/E

13 February 2015

Cox & Kings

Valuation and view

We value COXK at a multiple of 12x FY17E EPS as against its 5 year average multiple

of 10.3x, which we believe is justified considering:

Strong brand equity with market leadership position

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. Its economies of

scale and strong brand, enable it earn higher gross margins (20-22%) in outbound

segment compared to Thomas Cook (~12%) and other small players (~8-9%

margins). COXK’s international presence brings significant value proposition as it

enables it to understand international tourist markets better and also offer lower

cost to consumers, compared to peers, due to higher scale of operations, which

ensures lower cost sourcing.

Significantly de-leveraged its balance sheet

With a view to de-leverage its balance sheet, COXK sold its camping business,

resulting in proceeds of INR8.9b and recently concluded an equity fund raising

amounting to INR10b. We expect further de-leveraging which should drive Net

Debt-Equity lower from 2.3x in FY14 to 0.4x in FY17. Similarly, we expect Net Debt to

EBITDA to decline from 4.6x in FY14 to 1.4x in FY17. Thus, in line with the

management’s stated objective, COXK has significantly improved its balance sheet

and liquidity position, enabling the management to now focus on core operations.

Discretionary spend revival, operating leverage – additional earnings levers

COXK’s travel and tourism business will benefit from revival in discretionary spends

in India, due to an improving consumer sentiment. Similarly, with concerted efforts

by management on increasing utilization in PGL and NST in the lean season, success

in these initiatives can drive strong margin improvement, and can thus surprise

earnings going forward.

Exhibit 10: Price to earnings (One year forward)

Negative

Earnings

Cycle

Exhibit 11: Price to book (One year forward)

3.5

3.0

2.5

2.0

12.1

1.5

1.0

0.5

1.8

P/B (x)

5 Yrs Avg(x)

P/E (x)

5 Yrs Avg(x)

10.3

Source: Company, MOSL

We value the stock at 12x FY17E EPS and arrive at a target price of INR380 – 20%

upside. Maintain

Buy

rating.

13 February 2015

Cox & Kings

Story in charts

Exhibit 12: Franchisee addition to drive growth

Number of Franchisee

150

Own store

and other

outlet , 50%

Franchisee

, 50%

Exhibit 13: Franchisee share revenues set to increase

175

185

153

155

165

Retail revenues breakup for FY14

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Source: Company, MOSL

Exhibit 14: Education and Leisure international business biggest contributor

Leisure India

32%

33%

34%

35%

FY12

21%

FY13

Leisure International

18%

27%

17%

14%

24%

27%

18%

FY14

Education (PGL + NST)

Meininger

22%

29%

26%

22%

FY16E

Camping

22%

30%

24%

23%

FY17E

19%

25%

24%

19%

FY15E

Source: Company, MOSL

Exhibit 15: Travel business which was highly unorganized

Exhibit 16: ..is now moving towards organized market

Market Share FY12

Organised,

C&K, 4%

Market Share FY15E

Organised,C&K, 7%

13%

Unorganise

d , 87%

Unorganise

d, 80%

Source: Company, Company, MOSL

13 February 2015

Cox & Kings

Key assumptions

Exhibit 17: Key Assumption table

Particulars

Education business

Number of Beds

Capacity utilization

Meininger business

Number of Beds

Capacity utilization

Growth Snapshot

Leisure India

Leisure International

Education (PGL + NST)

Meininger

Total Revenue

Revenue Mix

Leisure India

Leisure International

Education (PGL + NST)

Meininger

Camping

Total

44%

56%

100%

47%

53%

100%

35%

33%

32%

100%

21%

34%

27%

18%

100%

18%

27%

24%

14%

17%

100%

19%

24%

25%

19%

14%

100%

22%

26%

29%

22%

100%

23%

24%

30%

22%

100%

14%

69%

34%

17%

24%

26%

70%

26%

118%

114%

12%

13%

14%

28%

16%

19%

13%

18%

14%

22%

-3%

18%

15%

22%

13%

2,951

61%

3,338

62%

5,411

63%

6,616

64%

7,340

70%

8,090

92%

9,090

92%

11,090

86%

7,750

8,150

57%

8,150

58%

8,150

59%

8,900

60%

9,100

67%

10,100

68%

10,600

75%

FY10

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

Source: MOSL

13 February 2015

Cox & Kings

Financials and valuations

Income Statement (Consolidated)

Y/E March

Total Income from Operations

Change (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

Extraordinary Items

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Less: Mionrity Interest

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY10

3,992

39.1

2,148

53.8

151

1,998

270

137

1,865

477

27.7

1,339

113.2

33.5

FY11

4,967

24.4

2,430

48.9

186

2,245

544

230

1,931

559

32.4

1,291

-3.6

26.0

FY12

8,379

68.7

1,673

20.0

491

1,182

1,843

356

-306

993

687

398

60.8

-146

416

-67.8

5.0

FY13

18,087

115.9

7,225

39.9

1,474

5,751

3,705

588

2,634

-588

2,046

548

-27

25.5

-959

2,484

2,922

497.3

13.7

FY14

23,076

27.6

8,901

38.6

1,711

7,190

3,236

431

4,385

1,748

6,133

1,746

-103

26.8

659

3,832

2,552

54.3

16.6

FY15E

26,089

13.1

10,597

40.6

2,022

8,575

3,338

487

5,724

-4,322

1,402

944

16.5

184

274

4,595

80.1

1.0

(INR Million)

FY16E

25,422

-2.6

9,915

39.0

1,384

8,530

2,305

536

6,761

1,893

28.0

450

4,418

-3.9

17.4

FY17E

28,853

13.5

11,282

39.1

1,463

9,818

2,109

589

8,298

2,324

28.0

550

5,425

22.8

18.8

Balance Sheet (Consolidated)

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

FY10

629

7,472

8,101

5,043

13,192

1,337

615

722

205

2,584

9,565

3,021

3,747

2,715

2,113

1,770

344

7,452

13,192

FY11

683

11,396

12,079

8,443

20,613

1,841

819

1,021

486

2,112

17,838

4,142

9,613

3,997

3,032

2,681

350

14,807

20,613

FY12

683

11,241

11,924

766

46,618

59,308

24,951

5,804

19,147

1,238

3,042

26,426

173

7,151

10,533

8,570

17,190

16,409

781

9,236

59,308

FY13

683

12,577

13,260

5,422

746

46,763

66,190

26,028

6,412

19,616

1,434

4,664

30,404

186

9,054

12,693

8,471

17,328

16,850

478

13,076

66,190

FY14

683

16,867

17,549

8,205

700

55,520

81,974

32,331

8,398

23,934

2,188

602

37,551

199

11,356

13,786

12,209

22,833

21,945

888

14,718

81,974

FY15E

855

25,441

26,295

8,389

700

38,520

73,905

29,891

10,420

19,472

2,188

602

41,589

218

12,838

15,103

13,430

24,961

23,984

977

16,629

73,905

(INR Million)

FY16E

855

29,559

30,414

8,839

700

33,520

73,473

31,641

11,804

19,837

2,188

602

40,486

218

12,511

12,985

14,773

24,655

23,580

1,075

15,832

73,473

FY17E

855

34,585

35,440

9,389

700

28,520

74,049

33,391

13,268

20,124

2,188

602

43,540

247

14,624

12,418

16,251

27,419

26,237

1,182

16,121

74,049

13 February 2015

Cox & Kings

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Working Capital Turnover (Days)

Leverage Ratio (x)

Debt/Equity

FY10

10.6

11.8

64.4

0.5

5.5

FY11

9.5

10.8

88.5

0.5

6.2

FY12

0.2

3.8

87.3

1.0

38.2

FY13

21.4

32.2

97.1

1.0

6.4

FY14

18.7

31.2

128.5

1.0

4.2

17.1

10.2

2.5

3.7

9.6

0.3

25.8

22.5

0.3

7.6

276

162

339

0.6

12.8

14.7

0.2

304

197

382

0.7

0.2

3.9

0.1

311

715

-56

3.9

23.2

10.7

0.3

183

340

3.5

16.6

11.5

0.7

0.3

180

347

3.2

FY15E

26.9

38.7

153.8

1.0

72.9

11.9

8.3

2.1

2.6

6.3

0.3

21.0

13.1

0.9

0.4

180

336

1.5

FY16E

25.8

33.9

177.9

1.5

6.8

12.4

9.4

1.8

2.5

6.5

0.5

15.6

14.1

0.8

0.3

180

339

1.1

FY17E

31.7

40.3

207.3

2.0

7.4

10.1

7.9

1.5

2.1

5.3

0.6

16.5

16.3

0.9

0.4

185

332

0.8

Cash Flow Statement (Consolidated)

Y/E March

NP / (Loss) Before Tax and EO Items

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(inc)/dec in FA

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

13 February 2015

FY10

1,865

151

200

-584

-833

799

-415

384

-312

-2,135

-849

-3,295

5,294

930

-296

-7

6,040

3,129

618

3,747

FY11

1,931

186

417

-539

-815

1,180

-229

951

-883

-139

213

-809

3,040

400

-80

-489

5,732

5,874

3,739

9,613

FY12

687

491

1,675

-259

-3,529

-935

-431

-1,366

-1,307

2,013

-23,252

-22,546

26,542

-1,449

-80

24,837

925

9,608

10,533

FY13

1,969

1,474

3,347

-806

-3,417

2,566

-528

2,038

-1,695

-1,719

1,370

-2,044

131

-3,917

-159

2,554

2,549

10,144

12,693

FY14

6,133

1,711

2,961

-1,294

-180

9,332

-1,239

8,093

-2,663

-2,568

-582

-5,813

1,303

-3,365

-159

-1,186

1,094

12,693

13,786

FY15E

5,724

2,022

2,851

-944

-594

4,737

7,959

-1,513

6,446

10,672

-17,000

-3,338

-199

-9,866

1,317

13,786

15,103

(INR Million)

FY16E

6,761

1,384

1,770

-1,893

-1,321

6,700

-1,750

536

-1,214

-5,000

-2,305

-299

-7,605

-2,118

15,103

12,985

FY17E

8,298

1,463

1,520

-2,324

-856

8,103

-1,750

589

-1,161

-5,000

-2,109

-399

-7,508

-567

12,985

12,418

Cox & Kings

Corporate profile: Cox & Kings

Company description

Cox & Kings is the longest established travel company in

the world. Its India operations are headquartered in

Mumbai and have the status of a limited company.

Today, Cox & Kings is a premium brand in all travel

related services in the Indian subcontinent, employing

over 5000 trained professionals. 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 & Australia.

Exhibit 18: Shareholding pattern (%)

Dec-14

Promoter

DII

FII

Others

48.0

5.4

34.1

12.5

Sep-14

59.5

3.5

22.8

14.1

Dec-13

59.9

5.7

16.0

18.4

Exhibit 9: Sensex rebased

Cox & Kings

350

300

250

200

150

100

Feb-14

May-14

Aug-14

Nov-14

Feb-15

Sensex - Rebased

Exhibit 19: Top holders

Holder Name

Smallcap World Fund INC

Janus Overseas Fund

HSBC Global Investments Fund A/c HSBC Gif Mauritius

ICICI Prudential Life Insurance Company Ltd

Macquarie Bank Ltd

Holding

6.5

3.4

3.0

2.9

2.7

Note: FII Includes depository receipts

Exhibit 20: Top management

Name

A B M Good

Designation

Chairman

Exhibit 21: Directors

Name

A B M Good

Pesi Patel

M Narayanan

Name

S C Bhargava

Peter Kerkar

Urrshila Kerkar

*Independent

Exhibit 22: Auditors

Name

Chaturvedi & Shah

Statutory

Type

Exhibit 23: MOSL forecast v/s consensus

EPS (INR)

FY15

FY16

FY17

MOSL forecast

26.9

25.8

31.7

Consensus

forecast

23.6

26.9

35.8

Variation (%)

14.1

-3.9

-11.5

13 February 2015

Cox & Kings

NOTES

13 February 2015

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Cox & Kings

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COX & KINGS

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