Thomas Cook

THOMAS Cook India was up 12% at Rs 64 per share in the last trading session. While the immediate trigger for the sudden jump in the stock is difficult to ascertain, some market observers attribute it to the upcoming listing of Cox and Kings, one of India's leading travel and tour operators in the capital market.

Cox and Kings IPO, which closed on November 20 received a good response from investors and was oversubscribed six times. This has raised hopes for travel companies, as travel stocks have been laggards recently. The company's IPO created a buzz around the sector and there is now an expectation of re-rating of companies in the travel and tourism sector. Another stock in the sector, International Travel House, was up 8% on Monday.

In the past three years, both the companies have shown a steady increase in toplines, but their bottomlines have been stagnant. This was primarily due to a new trend in the industry. Forex earnings — the industry's bread and butter in the past — have been dwindling, while sales (earnings) in the domestic space have shown improvement over a period of time. For instance, Thomas Cook India's sales increased from Rs 121 crore to Rs 274 crore in the past three years, while its forex earnings during the same period has been hovering around Rs 63 crore. This shows that the sector growth driver has moved from inbound travellers (foreigners visiting India) to the outbound market (Indian travelling outside). To tap the domestic opportunity, the companies had to invest afresh in creating a network across the country, which led resulted in financial difficulties in the short-term. For instance, Thomas Cook had total debt outstanding of Rs 260 crore at the end of December 2008. Its debt to equity ratio stands at 1.4 at the end of last year marginally down from 1.5 at the end of in December 2007. The industry,however,seems to be off its lows and the December quarter is expected to be better than the preceding quarter. A revival was partly visible in the September quarter as the company reported 8% in its profit after tax to Rs 10.2 crore. The sentiment, for both the hospitality and travel & tourism sectors, is perking up. And Thomas Cook India, which is one of the largest and most diversified players, is poised to gain from the buzz around the sector.