Stock Review: Cox & Kings India

 

Cox & Kings India is likely to post better show in third and fourth quarters given the rising occupancy levels of hotels and growing optimism for the airline business

 

THERE has been a significant improvement in inbound and domestic travel in the past six months. A glimpse at the websites of the ministry of tourism and the Directorate General of Civil Aviation suggests that there has been a 24% jump in foreign exchange earnings from inbound arrival of foreign tourists and a 20% increase in the number of passengers flown by airlines during the period. This has not only changed fortunes of airline companies — especially those specifically focused on low-cost carrier model, but also travel companies that derive a substantial part of their revenues from air travel.

   A case in the point is Cox & Kings India. Factors such as adoption of franchise model to increase its reach in tier-II and III cities domestically, selectively acquiring companies internationally and consistent revenue stream from its profit-making subsidiaries and an the upcoming holiday season (Q3 and Q4) would foster growth of the company in the coming quarters.

   Cox & Kings India derives a chunk of revenues from selling complete leisure travel packages, which include arranging for flight tickets, hotels, car rentals and various other services, such as foreign exchange and visa processing for individuals and corporations.

Growth Plans:

In the past three years, the company's operating margin has increased from 40% to 47%, while its net margin has increased from 25% to 34%. This has come on the back of three factors — selectively acquiring companies overseas, adopting franchise model locally and consistent revenues streams from its profit-making overseas subsidiaries.

   The company in the past four fiscals has acquired seven travel and travel-services related companies globally covering destinations such the UK, Japan, Australia and New Zealand among others. These companies provide Cox & Kings with good bargaining power and range of offerings to corporates and individuals concerning leisure travel. Going forward, these subsidiaries would increase its scale of business and volume thereby boosting its topline as travel and tourism business is more of a volume-driven business.

   On the domestic front, with the overall improvement in the leisure and business travels, it is set to gain in a big way. To increase its market share locally, the company is now tapping into tier-II and III cities. For this, it has adopted franchise model— at present, it has 94 franchise sales shops that ensure its brand reach beyond the metros. In the coming two years, the company plans to increase the number of franchisee to about 150.

   This along with representative offices in various countries, besides the UK, gives the company access to a huge number of travellers. India contributes 52-53% of revenues to the company followed by the UK (20%), the US (7%) and remaining from 23% from Japan and Dubai region. In India, the company's revenue from outbound (travellers going abroad) travel is growing at a rate of 20% in the past few years, while its revenues from inbound travel (foreign tourists coming to India) is growing at 8-10% in the past few years. This means that around half of revenues of the company come from outbound travel.

Financials :

In the June 30, 2010 quarter, the company's net profit jumped by around 30% to 26.4 crore from the year ago. Its revenue rose by 28% to 78 crore. At present, the company has a cash of around 900 crore, which includes around 300 crore of unutilised IPO proceeds, 300 long-term bond and 300 crore raised through global depository receipts (GDRs). This cash would come handy to the company for its expansion. Going forward, due to seasonality of business, growing optimism for airline industry due to good passenger growth and rising occupancy levels of hotels, the company would see good third and fourth quarter.