13
1 Mar 15, 2016 Cox & Kings Ltd Consumer Discretionary - Leisure & Travel Services Cox & Kings Ltd India Research - Stock Broking BUY Bloomberg Code: COXK IN Recommendation (Rs.) CMP (as on Mar 14, 2016) 167 Target Price 202 Upside (%) 21 Stock Information Mkt Cap (Rs.mn/US$ mn) 28318 / 422 52-wk High/Low (Rs.) 341 / 140 3M Avg. daily volume (mn) 0.5 Beta (x) 1.2 Sensex/Nifty 24718 / 7510 O/S Shares(mn) 169.3 Face Value (Rs.) 5.0 Shareholding Pattern (%) Promoters 48.7 FIIs 33.3 DIIs 2.5 Others 15.4 Stock Performance (%) 1M 3M 6M 12M Absolute 5 (30) (19) (47) Relative to Sensex (2) (29) (15) (39) Source: Bloomberg Relative Performance* Source: Bloomberg; *Index 100 Analyst Contact Joyjit Sinha 040 - 3321 6275 [email protected] Global Tourism Expert with Over 250 Years of Experience A Global travel conglomerate with tailor made diversified products is well poised to grab the opportunity: C&K is well placed to grab the opportunities of growing inbound and outbound tourism in India. Its franchisee model has evolved as the mainstay of its Leisure - India business. C&K’s expansion in Tier II and III cities could able to sustain its growth trajectory in this business segment. Debt Reduction to boost the bottom line: Debt reduction from the proceedings of its camping business and QIP combined with promoter’s contribution in lieu of warrants could able to decrease the interest cost which could boost the bottom line. Exit from camping business to prevent dilution of earnings: During FY15, C&K closed its high capital intensive camping business which was in downtrend, could not able to meet its expectation and outlook for the same is either not so bright. It prevents from the losses that won’t be set-off from other business earnings. C&K to bring in synergies to its Meininger brand and educational tour business: C&K’s B2C business model in Meininger brand and educational tour business are well set to compliment each other. The offerings of Meininger brand are well popularized among the students which could benefit its education business and vice versa. We expect Revenue and PAT likely to grow at CAGR of 10% and 14% respectively during FY13 to FY18E. Accordingly, we also expect RoE and RoCE likely to be about 10% and 19% during FY17E and FY18E respectively. Valuation and Outlook C&K’s diversified and tailor made product basket segments will witness decent growth in the next 2-3 years driven by upswing in world economy which makes it a value buy for a time horizon of 9-12 months. At CMP of Rs.167, the stock is trading at 7.0x FY18E EPS and we recommend a “BUY” with a target price of Rs. 202 representing PE 8.5x FY18E EPS, with an upside potential of 21%. Key Risks y Exposed to exchange rates, Geo-political pressures, recession in economy could affect the business. For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters Exhibit 1: Valuation Summary YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E Net Sales 23076 25691 23156 25581 28835 EBITDA 11106 10115 8649 9006 10249 EBITDA Margin (%) 48.1 39.4 37.4 35.2 35.5 Adj. Net Profit # 4262 1450 4402 3103 4026 EPS (Rs.) 28.1 6.2 26.0 18.3 23.8 RoE (%) 19.2 4.9 12.7 8.3 9.7 PE (x) 5.7 52.0 6.4 9.1 7.0 Source: Company, Karvy Research, *Represents multiples for FY14 & FY15 are based on historic market price # FY16 profit influenced by exceptional item of Rs.2286 mn 20 60 100 140 180 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Sensex Cox & Kings

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Page 1: Cox & Kings Ltd , 15 Mar 2016

1

Mar 15, 2016Cox & Kings LtdConsumer Discretionary - Leisure & Travel Services

Cox & Kings LtdIndia Research - Stock Broking BUYBloomberg Code: COXK IN

Recommendation (Rs.)

CMP (as on Mar 14, 2016) 167Target Price 202Upside (%) 21

Stock InformationMkt Cap (Rs.mn/US$ mn) 28318 / 42252-wk High/Low (Rs.) 341 / 1403M Avg. daily volume (mn) 0.5Beta (x) 1.2Sensex/Nifty 24718 / 7510O/S Shares(mn) 169.3Face Value (Rs.) 5.0

Shareholding Pattern (%) Promoters 48.7FIIs 33.3DIIs 2.5Others 15.4

Stock Performance (%) 1M 3M 6M 12M

Absolute 5 (30) (19) (47)Relative to Sensex (2) (29) (15) (39)Source: Bloomberg

Relative Performance*

Source: Bloomberg; *Index 100

Analyst ContactJoyjit Sinha040 - 3321 [email protected]

Global Tourism Expert with Over 250 Years of Experience

A Global travel conglomerate with tailor made diversified products is well poised to grab the opportunity: C&K is well placed to grab the opportunities of growing inbound and outbound tourism in India. Its franchisee model has evolved as the mainstay of its Leisure - India business. C&K’s expansion in Tier II and III cities could able to sustain its growth trajectory in this business segment.

Debt Reduction to boost the bottom line: Debt reduction from the proceedings of its camping business and QIP combined with promoter’s contribution in lieu of warrants could able to decrease the interest cost which could boost the bottom line.

Exit from camping business to prevent dilution of earnings: During FY15, C&K closed its high capital intensive camping business which was in downtrend, could not able to meet its expectation and outlook for the same is either not so bright. It prevents from the losses that won’t be set-off from other business earnings.

C&K to bring in synergies to its Meininger brand and educational tour business: C&K’s B2C business model in Meininger brand and educational tour business are well set to compliment each other. The offerings of Meininger brand are well popularized among the students which could benefit its education business and vice versa.We expect Revenue and PAT likely to grow at CAGR of 10% and 14% respectively during FY13 to FY18E. Accordingly, we also expect RoE and RoCE likely to be about 10% and 19% during FY17E and FY18E respectively.

Valuation and Outlook C&K’s diversified and tailor made product basket segments will witness decent growth in the next 2-3 years driven by upswing in world economy which makes it a value buy for a time horizon of 9-12 months. At CMP of Rs.167, the stock is trading at 7.0x FY18E EPS and we recommend a “BUY” with a target price of Rs. 202 representing PE 8.5x FY18E EPS, with an upside potential of 21%.

Key Risksyy Exposed to exchange rates, Geo-political pressures, recession in economy

could affect the business.

For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters

Exhibit 1: Valuation Summary

YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E

Net Sales 23076 25691 23156 25581 28835EBITDA 11106 10115 8649 9006 10249EBITDA Margin (%) 48.1 39.4 37.4 35.2 35.5Adj. Net Profit # 4262 1450 4402 3103 4026EPS (Rs.) 28.1 6.2 26.0 18.3 23.8RoE (%) 19.2 4.9 12.7 8.3 9.7PE (x) 5.7 52.0 6.4 9.1 7.0Source: Company, Karvy Research, *Represents multiples for FY14 & FY15 are based on historic market price # FY16 profit influenced by exceptional item of Rs.2286 mn

20

60

100

140

180

Dec

-09

May

-10

Oct

-10

Mar

-11

Aug-

11Ja

n-12

Jun-

12N

ov-1

2Ap

r-13

Sep-

13Fe

b-14

Jul-1

4D

ec-1

4M

ay-1

5O

ct-1

5M

ar-1

6

Sensex Cox & Kings

Page 2: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Company BackgroundCox and Kings (C&K) is a well established Diversified, Multinational Travel Conglomerate, headquartered in London, United Kingdom. Its businesses is spread across 23 countries which range from experiential learning for children to flexible individual holidays and from packaged group tours to hybrid hotels. It operates four key verticals; Leisure – India, Leisure – International, Education and Meininger. The principal services offered by C&K is destination management, outbound tourism, business travel, incentive and conference solutions, domestic holidays, trade fairs and foreign exchange.

Its 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. Its India operations are headquartered in Mumbai with 12 fully owned offices in India across key cities such as New Delhi, Chennai, Bangalore, Kolkata, Ahmedabad, Kochi, Hyderabad, Pune, Goa, Nagpur and Jaipur.

Exhibit 2: Shareholding Pattern (%)

Source: BSE, Karvy Research

Exhibit 3: Geographic Revenue Segmentation (%)

Source: Company, Karvy Research

Balance sheet (Rs. Mn)

FY16E FY17E FY18E

Total Assets 91806 94334 98199Net Fixed assets 20317 22348 24583Current assets 38265 38761 40392Other assets 33224 33224 33224Total Liabilities 91806 94334 98199Networth 28206 31918 36422Minority Interest 7541 7541 7541Debt 29865 27173 24751Current Liabilities 25673 27155 28910Other Liabilities 522 546 576Balance Sheet Ratios

RoE (%) 12.7 8.3 9.7RoCE (%) 19.3 18.2 18.9Net Debt/Equity 0.8 0.7 0.6Equity/Total Assets 0.4 0.4 0.4P/BV (x) 0.8 0.7 0.6Source: Company, Karvy Research

Cash Flow (Rs. Mn)

FY16E FY17E FY18E

PBT 6269 4412 5732 Depreciation 2230 2453 2698

Interest (net) 2695 2437 2159

Tax (1434) (1881) (1324)Changes in WC 567 299 (2728)Others (2286) 0 0 CF from Operations 8041 7720 6538 Capex (2252) (2478) (2725)CF from Investing (2252) (2478) (2725)Change in Debt (1740) (2461) (2599)Dividends and Int Paid (3113) (2892) (2658)CF from Financing (4853) (5353) (5257)Change in Cash 936 (110) (1445)

Source: Company, Karvy Research

Company Financial Snapshot (Y/E Mar)

Profit & Loss (Rs. Mn)

FY16E FY17E FY18E

Net sales 23156 25581 28835Optg. Exp (Adj for OI) 14507 16575 18586EBITDA 8649 9006 10249Depreciation 2230 2453 2698Interest 2954 2733 2499Other Income 259 296 340PBT 6269 4412 5732Tax 1881 1324 1720Adj. PAT 4402 3103 4026Profit & Loss Ratios

EBITDA margin (%) 37.4 35.2 35.5Net margin (%) 19.0 12.1 14.0P/E (x) 6.4 9.1 7.0EV/EBITDA (x) 5.9 5.3 4.6Dividend yield (%) 0.6 0.6 0.6Source: Company, Karvy Research

Promoters48.7%

FIIs33.3%

DIIs2.5% Others

15.4%India

19.0%

Rest of World81.0%

Page 3: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

A sustainable growth in the industry:Travel and tourism is the largest service industry in India with a diversified portfolio like cruises, adventure, medical, wellness, sports, MICE, eco-tourism, film, rural and religious tourism.

During 2015, India ranked 11th among 184 countries in terms of sectoral contribution to GDP. This sector’s contribution to GDP expected to grow by 7.2% per annum during 2015-25. It is expected that foreign tourist arrivals to increase at a CAGR of 7% over 2005-25. Arrival of 7.1 Mn foreign tourists registered during Jan-Nov 2015 grew by 5.4 percent over the previous year. The GoI’s policy supports like visa on arrival scheme, tax holidays extended to Hotels located around UNESCO world heritage sites and development of infrastructure further help to boost the industry.

Exhibit 4: Direct contribution of tourism and hospitality to GDP

Source: India Brand Equity Foundation (IBEF), Karvy Research

Exhibit 6: Foreign tourists arriving in India

Source: IBEF, Karvy Research

Exhibit 8: Domestic expenditure on tourism

Source: IBEF, Karvy Research

Exhibit 5: Travel and tourism’s total contribution to GDP

Source: IBEF, Karvy Research

Exhibit 7: Per capita income in India

Source: IBEF, Karvy Research, Note: E – Estimated, F- Forecast

Exhibit 9: Capital investments in the tourism sector

Source: IBEF, Karvy Research

18 25 24 26 31 31 36 40 43

86

0

30

60

90

2006

2007

2008

2009

2010

2011

2012

2013

2014

2025

E

Direct contribution of tourism and hospitality to GDP (US$ Bn)

88 82 89 103

105 116

122

127 14

8

275

0

100

200

300

2006

2007

2008

2009

2010

2011

2012

2013

2014

2025

E

Travel and tourism’s total contribution to GDP (US$ Bn)

62.9

58.6

66.1 79.7

89.7

85.7

89.0

96.7

332.

4

050

100150200250300350

2008

2009

2010

2011

2012

2013

2014

2015

2025

F

Domestic expenditure on tourism (US$ Bn)

1430

1553

1515

1505

1596

1702

1833

1979

2129

2303

-5

0

5

10

0

500

1000

1500

2000

2500

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

F

FY17

F

FY18

F

FY19

F

GDP per capita, current prices (Rs.) Growth Rate (%)

3.9

4.4 5.1

5.3

5.2 5.8 6.3 6.6 7.0 7.4

7.1

15.3

0

4

8

12

16

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*201

5

2025

E

Foreign tourists arriving in India (Mn)

33.7

23.8

28.9 33

.0

31.3

32.2 35.0

40.5

125.

9

0

32

64

96

128

2008

2009

2010

2011

2012

2013

2014

2015

2025

F

Capital investments in the tourism sector (US$ Bn)

Page 4: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Exhibit 10: Collective government spending on tourism

Source: IBEF, Karvy Research

Exhibit 11: Growth in visa on arrival

Source: IBEF, Karvy Research

1.3

1.3

1.5 1.9

2.1

2.1

2.1 2.4

7.0

0

2

4

6

8

2008

2009

2010

2011

2012

2013

2014

2015

2025

F

Collective government spending on tourism (US$ Bn)

6549

1276

1

1608

4

2029

4

3904

6

2581

82

0

100000

200000

300000

2010

2011

2012

2013

2014

*201

5

Growth in visa on arrival

With Superior Brand amid positive future outlook for the Industry, C&K is well poised to grab the opportunity: C&K is one of the leading travel and tour companies in India with a strong brand recall. C&K with its customised products like ‘Duniya Dekho, Bharat Dekho’ created a better brand awareness among the tourists. It is one stop shop for varied travel requirements like ticketing, visa, holidays insurance and foreign exchange etc which makes it one of the preferred travel agents among the frequent travellers.

Expansion of Leisure India Business could add to the top line:C&K brand has been the travel market leader in India. It has a wide bouquet of travel destination choices delivered across multiple price points. Its franchisee model has evolved as the mainstay of its Leisure – India business. C&K’s expansion in Tier II and III cities could able to sustain its growth trajectory in this business segment. Its operating with 12 own stores, 142 franchisees and 90 preferred sales agents.

Outbound business to grow amid changing demographics and progressive outlook:With the rise in disposable incomes, cheap air fare and increased value added offers make foreign holidays becoming more popular in Indian society. C&K, being a well diversified multinational travel conglomerate with a focus on new age global consumer, could benefit from the rising awareness among the commuters. It is well established in 23 countries in business which range from experiential learning for children to flexible individual holidays and from packaged group tours to hybrid hotels. With an added advantage of its brand, it can gain more popularity among commuters.

Government’s impetus likely on tourism industry to boost inbound tourism business: For inbound business to pick-up, India will need to invest considerably in its soft and hard infrastructure over the medium term to drive tourist arrival numbers to its true potential. Security, sanitation, hygiene and cleanliness are some of the key focus areas in terms of soft infrastructure; and roads, railways, airports, ports and non-premium hotels need to be brought up to global standards in terms of hard infrastructure. The GoI’s policy supports like visa on arrival scheme likely to boost the inbound tourism industry. Capital investment is projected to grow 6.5% per annum during 2015–25, above the global average of 4.6 per cent in this sector and the contribution of visitor exports to total exports is estimated to increase 6.3 per cent per annum during 2015–2025 compared to the world’s average of 4.2 per cent.

MICE business to bud on the back of change in outlook of the corporate: Meetings, Incentives, Conferences and Events (MICE) are now-a-days routine part of corporate culture; and it sees MICE as part and parcel of business operations against discretionary spending. The popularity of MICE is mushrooming across India and world. This change could able to boost this segment with a sustainable growth in long run as the economy grows. C&K is well placed to grab this opportunity with its end-to-end solutions, i.e. visas, travel insurance, tickets, hotels, transfers, tours, attractions, entertainment and hassle-free payment options, among others.

Exit from camping business to prevent dilution of earnings:During FY15, C&K closed its high capital intensive camping business which was in downtrend, could not able to meet its expectation and outlook for the same is either not so bright. It booked a net loss to the tune of Rs.2020 mn. The net proceeds from the sale of its Camping division have been utilized to repay the debt thereby reducing the effective gross debt.

Page 5: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Debt Reduction to boost the bottom line:C&K has reduced its debt from the proceedings of camping business, QIP (Qualified Institutional Placement) of equity shares of the size Rs.10000 Mn and contribution from promoters against share warrants. This reduces its debt equity ratio to 1x at the end of FY15 from 1.8x at the end of FY14 on consolidation basis. This could lower its interest cost and boost the bottom line.

Extended global footprint with diversification mitigates the risk and impact of seasonality business: C&K, a travel conglomerate having presence in 23 countries including India, U.K., USA, UAE, Australia and Japan among others. It has a wide network of branches, franchisees and overseas subsidiaries which enable it to gain a strong foothold in the travel industry. Travel and tour business is an asset light business model and hence has less entry barriers. Most of the domestic travel and tour business is cyclical and seasonal in nature. C&K’s global presence mitigates all these cons of the domestic sector.

Flourishing educational tour business in UK and expanding:C&K’s educational tour business contributes 29% of its total revenue. PGL is leading brand which only contributed 2/3rd of the revenue from the education business and rest 1/3rd is shared by NST, EST, Study Link and Travel Works put together. PGL and NST are leading brands in Europe and Australia which provide experiential learning for primary and secondary schools kids in its own campuses. In UK, PGL has tie-ups with more than 5000 schools. It has 23 campuses for UK kids, including 16 in UK, 6 in France and 1 in Spain. It has started 2 campuses in Australia. It engages students in numerous activities like raft-building, nature science, quad biking, rappelling, spy games, bush skills, wall climbing, pony riding, etc. These applied learnings increasingly being seen as the way forward in the field of education. C&K intends to expand in this business with this brand, with variety of products.

Meininger Brand, a value proposition for lodging, likely to grow at a decent pace:This brand contributes 16% to the total revenue. It is expected that the Meininger brand could be a significant growth driver for the C&K over medium and long term on the back of large vacuum in the branded hotel rooms market in Europe. Meininger’s asset light business model, capital intensity and high occupancy are well placed for the company to achieve high return on capital invested. It offers twin-bed rooms, 3-bed rooms, 4-bed rooms, 8-bed rooms or dorm-style accommodation. It has 16 hotels in Europe, mainly concentrated in Germany and Austria.

Page 6: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Exhibit 12: Business Assumptions

Y/E Mar (Rs. Mn) FY15 FY16E FY17E FY18E Comments

Revenue 25691 23156 25581 28835

We have assumed that growth in the domestic business to register a growth 12 to 15 percent during the next three financial years on the back of growing inbound and outbound tourism in India. Its expansion in tier-I and tier-II cities along with franchisee business model amid Government's impetus in tourism industry along with brand promotion of “Incredible India” to drive the growth of its domestic business. Further, we have assumed that its Leisure International, Education Business and Meininger to de-grew in FY16E on the backdrop of geo-political concerns. However, we expect the growth of 10-12 percent during the next two financial years on the back of higher occupancy rate in its Meininger business, expansion of its education business in Australia and Europe and most importantly, the upswing of Europe and US economies.

Revenue Growth (%) 11.3 (9.9) 10.5 12.7

EBITDA 10115 8649 9006 10249

C&K's top line affected during Q3FY16. We expect that the top line to see an upswing on the back of strong economy and C&K's expansion in global market.

EBITDA Margins (%) 39.4 37.4 35.2 35.5

Adjusted PAT 1450 4402 3103 4026Exceptional items have impacted the profitability of FY15 and FY16E.

Fully Diluted EPS (Rs.) 6.2 26.0 18.3 23.8

Capex (ex. Acquisition) - cash capex (1544) (2252) (2478) (2725)We expect capex to be incurred for inorganic growth.

Net CFO 5516 8041 7720 6538

Net Debt 33065 29865 27173 24751 Debt has been reduced significantly. We expect further reduction of debt during FY17E and FY18E.

Free Cash Flow 3972 5789 5243 3812

Historically, C&K has a decent operating cash flow. We expect, for any further expansion, internal accruals may be used during the next couple of years.

Source: Company, Karvy Research

Exhibit 13: Karvy vs Consensus

Karvy Consensus Divergence (%)

Revenues (Rs. Mn)

FY16E 23156 24032 (3.7)

FY17E 25581 26577 (3.9)

FY18E 28835 29730 (3.1)

EBITDA (Rs. Mn)

FY16E 8649 8707 (0.7)

FY17E 9006 9926 (10.2)

FY18E 10249 10912 (6.4)Source: Bloomberg, Karvy Research

Page 7: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Exhibit 14: Revenue (Rs. Mn) & Revenue Growth (%)

Source: Company, Karvy Research

Exhibit 16: Net Profit (Rs. Mn) & Margin (%)

Source: Company, Karvy Research

Exhibit 15: EBITDA (Rs. Mn) & EBITDA Margin (%)

Source: Company, Karvy Research

Exhibit 17: Revenue Segment - FY15

Source: Company, Karvy Research

We expect the revenue to grow at a CAGR of 10% during FY13-FY18E and operating revenue is likely to grow by 10.5% and 12.7% during FY17E and FY18E respectively. A de-growth in FY16E is expected on the backdrop of geo-political concerns and severe weather conditions in UK.

During FY15, consolidated adjusted PAT was lower year-on-year by 66% mainly as a result of the net loss on sale of Camping business. We expect net profit to grow uniformly during the succeeding years excluding exceptional items. The adjusted net profit margins are also likely to be maintained above 10% during the years to come.

We expect the EBITDA to register a CAGR of 7% during FY13-FY18E. C&K’s robust EBITDA is likely to maintain the margins above 35% during FY16E-FY18E.

Leisure - India (22% of net revenues): C&K, a travel market leader in India for many years, is enjoying tremendous recall and consumer trust.

Leisure – International (29% of net revenues): C&K is a premium brand USA, UK, UAE and Australia among other countries.

Education business (29% of net revenues): Famous with PGL brand in NST which provides experiential learning for primary and secondary schools kids.

Meininger (16% of net revenues): The Unique Selling Proposition (USP) of Meininger is to deliver its guests a clean, safe stay. Hybrid hotels are a unique fit between a 3-star hotel and hostels.

1808

7 2307

6

2569

1

2315

6

2558

1

2883

5

115.9%

27.6%11.3%

-9.9%10.5%12.7%

-50%

0%

50%

100%

150%

0

10000

20000

30000FY

13

FY14

FY15

FY16

E

FY17

E

FY18

ERevenue (Rs. Mn) Revenue Growth (%)

7180

1110

6

1011

5

8649

9006

1024

9

39.748.1

39.4 37.4 35.2 35.5

0%

2000%

4000%

6000%

0

3000

6000

9000

12000

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

EBITDA (Rs. Mn) EBITDA Margin (%)

Leisure -India

22.0%

Leisure -International

29.0%

Education29.0%

Meininger16.0%

Others4.0%

3071

4262

1450

4402

3103

4026

17.0 18.5

5.6

19.0

12.114.0

0

5

10

15

20

0

1010

2020

3030

4040

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

Net Profit (Rs. Mn) Margin (%)

Page 8: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Exhibit 18: Net Debt Equity Ratio (x)

Source: Company, Karvy Research

Exhibit 20: Dividend Payout (%) & Dividend Yield (%)

Source: Company, Karvy Research

Exhibit 19: RoE (%) & RoCE (%)

Source: Company, Karvy Research

Exhibit 21: Current Ratio (x)

Source: Company, Karvy Research

During FY15, the company has reduced its debt from the proceedings of QIP of Rs.10000 Mn at the rate of Rs.305.05 per share, and Rs. 560 Mn from the promoters as upfront contribution for warrants issued in Jan 2015 convertible into equity shares within 18 months at a price of Rs. 309.8 per share and from sale of the non-core business of Camping together with cash flow from operations.

During 9MFY16, it has further reduced its debt by Rs.700mn.

Historically, it pays dividend on a regular basis.

C&K’s RoE and RoCE are likely to be about 10% and 19% respectively during the next three years.

Historically, C&K has already maintained a decent current ratio above 1x. We expect that the company to maintain its working capital management on a sustainable basis.

1.2 1.2

1.61.5

1.4 1.4

1.0

1.2

1.4

1.6

1.8

FY13 FY14 FY15 FY16E FY17E FY18E

Current Ratio (x)

20.1% 19.2% 4.9%12.7%

8.3% 9.7%

41.1% 44.2%

29.2%

19.3% 18.2% 18.9%

0%

10%

20%

30%

40%

50%

FY13 FY14 FY15 FY16E FY17E FY18E

RoE (%) RoCE (%)

2.11.8

1.0 0.8 0.7 0.6

0.0

0.5

1.0

1.5

2.0

2.5

FY13 FY14 FY15 FY16E FY17E FY18E

Net Debt Equity Ratio (x)

5.53.6

16.1

3.85.5

4.2

0.8

0.6

0.3

0.6 0.6 0.6

0.0

0.5

1.0

0

5

10

15

20

FY13 FY14 FY15 FY16E FY17E FY18E

Dividend Payout (%) Dividend Yield (%) (RHS)

Page 9: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Exhibit 22: Company Snapshot (Ratings)

Low High

1 2 3 4 5

Quality of Earnings 3 Domestic Sales 3 Exports 3 Net Debt/Equity 3 Working Capital Requirement 3 Quality of Management 3 Depth of Management 3 Promoter 3 Corporate Governance 3 Source: Company, Karvy Research

Exhibit 23: Domestic VS Export Sales (Rs. Mn)

Source: Company, Karvy Research

Domestic revenue is very low ~20% of the total consolidated revenue. It has prominent presence in Europe, Australia, US and UAE among others.

Debt Equity ratio has been more than 1x during last 5 years. C&K is able to reduce its net debt to equity ratio to a comfortable level and we expect a further reduction of Debt Equity ratio.

C&K has good working capital management, keeping current ratio multiple nearly 1.5x.

2989

3773

4248

4885

5390

1431

4 1882

8

2080

6

0

3500

7000

10500

14000

17500

21000

FY12 FY13 FY14 FY15

India Rest of the World

Page 10: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Valuation & OutlookC&K is well poised to capture the growth in tourism industry with its multiple and tailor made product portfolio. Its diversified global presence insulates its top line from any economic slow down in a particular region. We have assigned a P/E multiple of 8.5x based on FY18E EPS of Rs. 23.8 on expectations of further declining of its debt, continuation of healthy EBITDA margins and sustenance of leading brand in tourism industry and give “BUY” recommendation for a target price of Rs. 202 representing an upside potential of 21%.

Exhibit 24: Average PE

Source: Prowess, Karvy Research

Key Risksyy Majority of revenue is from export earnings and earnings outside India. So, C&K’s top line is highly exposed to exchange

fluctuations.yy Any slow down in global and domestic economies could impact the business adversely.yy Geo-political pressures in and among various countries could impact the movement of the tourists which in turn would affect

the business of tourism.yy Any natural calamities like the flood, earthquake and tsunami could affect the business.

20

22

24

26

28

50

150

250

350

450

Apr-1

0

Jun-

10

Aug-

10

Oct

-10

Dec

-10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

Oct

-11

Dec

-11

Feb-

12

Apr-1

2

Jun-

12

Aug-

12

Oct

-12

Dec

-12

Feb-

13

Apr-1

3

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Feb-

14

Apr-1

4

Jun-

14

Aug-

14

Oct

-14

Dec

-14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct

-15

Dec

-15

Feb-

16

CMP (Rs.) Avg PE (x) (RHS)

Page 11: Cox & Kings Ltd , 15 Mar 2016

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Financials

Exhibit 25: Income StatementYE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E

Revenues 23076 25691 23156 25581 28835Growth (%) 27.6 11.3 (9.9) 10.5 12.7Operating Expenses 11970 15576 14507 16575 18586EBITDA 11106 10115 8649 9006 10249Growth (%) 54.7 (8.9) (14.5) 4.1 13.8Depreciation & Amortization 1711 1983 2230 2453 2698Other Income 430 534 259 296 340EBIT 9825 8666 6678 6849 7891Interest Expenses 3236 3243 2954 2733 2499PBT (before exceptional item) 7019 5957 3983 4412 5732Exceptional Item 456 3087 (2286) 0 0PBT (after exceptional item) 6563 2870 6269 4412 5732Tax 1643 1434 1881 1324 1720Adjusted PAT 4262 1450 4402 3103 4026Growth (%) 132.8 (70.8) 205.6 (29.6) 29.9Source: Company, Karvy Research

Exhibit 26: Balance SheetYE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E

Cash & Cash Equivalents 13786 14057 14992 14881 13437Sundry Debtors 11355 11805 12842 12549 14638Inventory 199 236 198 205 209Loans & Advances 12193 10238 10096 10989 11970Investments 602 604 604 604 604Net Block 25651 20060 20317 22348 24583CWIP 471 156 0 0 0Miscellaneous 40549 32775 32758 32758 32758Total Assets 104806 89931 91806 94334 98199Current Liabilities & Provisions 30713 22835 25673 27155 28910Debt 47394 33065 29865 27173 24751Other Liabilities 945 459 522 546 576Total Liabilities 79052 56359 56059 54874 54236Shareholders Equity 683 847 847 847 847Reserves & Surplus 16866 24622 27359 31071 35575Total Networth 17549 25469 28206 31918 36422Minority Interest 8205 7541 7541 7541 7541Total Networth & Liabilities 104806 89369 91806 94334 98199Source: Company, Karvy Research

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Exhibit 27: Cash Flow StatementYE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E

PBT 6563 2870 6269 4412 5732 Depreciation 1711 1983 2230 2453 2698 Interest 3236 3243 2954 2733 2499 Tax Paid (1294) (1618) (1434) (1881) (1324)Inc/dec in Net WC (179) (3873) 567 299 (2728)Other Income (275) (437) (259) (296) (340)Other non cash items (1239) 3348 (2286) 0 0 Cash flow from operating activities 8523 5516 8041 7720 6538 Inc/dec in capital expenditure (2840) (1544) (2252) (2478) (2725)Inc/dec in investments (2568) 1 0 0 0 Others (4951) 11677 0 0 0 Cash flow from investing activities (10359) 10134 (2252) (2478) (2725)Inc/dec in borrowings 1302 (18031) (1740) (2461) (2599)Issuance of equity 0 10562 0 0 0 Dividend paid (158) (159) (159) (159) (159)Interest paid (3365) (3243) (2954) (2733) (2499)Others 1035 (1293) 0 0 0 Cash flow from financing activities (1186) (12164) (4853) (5353) (5257)Net change in cash (3022) 3485 936 (110) (1445)Source: Company, Karvy Research

Exhibit 28: Key RatiosYE Mar FY14 FY15 FY16E FY17E FY18E

EBITDA Margin (%) 48.1 39.4 37.4 35.2 35.5EBIT Margin (%) 42.6 33.7 28.8 26.8 27.4Net Profit Margin (%) 18.5 5.6 19.0 12.1 14.0Dividend Payout Ratio (%) 3.6 16.1 3.8 5.5 4.2Net Debt/Equity (x) 1.8 1.0 0.8 0.7 0.6RoE (%) 19.2 4.9 12.7 8.3 9.7RoCE (%) 44.2 29.2 19.3 18.2 18.9Source: Company, Karvy Research

Exhibit 29: Valuation ParametersYE Mar FY14 FY15 FY16E FY17E FY18E

EPS (Rs.) 28.1 6.2 26.0 18.3 23.8DPS (Rs.) 1.0 1.0 1.0 1.0 1.0BV (Rs.) 188.6 198.3 211.1 233.1 259.7PE (x) 5.7 52.0 6.4 9.1 7.0P/BV (x) 0.8 1.6 0.8 0.7 0.6EV/EBITDA (x) 5.7 8.0 5.9 5.3 4.6EV/Sales (x) 2.8 3.2 2.2 1.9 1.6Source: Company, Karvy Research; *Represents multiples for FY14, FY15 are based on historic market price

Page 13: Cox & Kings Ltd , 15 Mar 2016

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Mar 15, 2016Cox & Kings Ltd

Stock Ratings Absolute ReturnsBuy : > 15%Hold : 5-15%Sell : <5%

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