Stock Review: Cox and Kings

AS CORPORATE India gets hit by high interest rates and input costs, investors are hunting for defensive themes with a consumption tilt. From this viewpoint, Cox & Kings looks interesting, as it is well placed to capitalise on a potential trend in travel expenditure. The travel company, one of the largest and widely recognised holiday brands in India, caters holistically to the travel needs of Indian and international consumers. It is present in 19 countries and in India it has 255 touch points, covering 164 locations. The robust growth in its Indian operations, accounting for nearly 50 per cent of consolidated revenue, justifies the preference brokerages have for the stock. Morgan Stanley expects a 22 per cent compounded annual growth rate from it in the next five years.

The company's robust standalone performance in FY11 justifies this. Revenue grew 33.6 per cent and profit was up 53 per cent in the financial year ended March. On a consolidated basis, total revenues jumped around 24 per cent, while the bottom line remained flat due to the Egypt crisis and exchange loss. The company's consolidated Q4FY11 sales jumped 15.9 per cent year-on-year (y-o-y) to `159 crore, while Indian operations reported a y-o-y sales growth of 40 per cent. Political unrest in Egypt, natural disaster in Japan and forex losses in UK reduced y-o-y sales growth to four per cent in international operations. Going forward, even if Japanese operations lag (contributes nine per cent of total revenues and five per cent to profits), it will not impact the company's numbers in a big way.

Given the rising aspirations of Indians, C&K is a great consumption play. The company's business can be broadly categorised as leisure travel, corporate travel, forex and visa processing. It provides end-to-end travel solutions, including land, air and cruise bookings, hotel bookings, in-transit arrangements and various other travel-related services.

The stock is currently trading at 14.4x FY12 earnings, according to Morgan Stanley's estimates and has `960 crore cash on its balance sheet. Given the company may be looking at acquisitions, the Street is concerned about capital destruction if they don't work. However, many believe the concern is stretched, as the company has a successful record in creating value from acquisitions.