Cox Kings Ltd

Cox & Kings Ltd. Tours & Travel

SBICAP Securities Limited December 30, 2011 • 1

20

55

90

125

De c -10 Mar-11 Jun-11 Se p-11 De c -11

C o x & Kings Lt d S e n s e x

Year Sales EBITDA PBT PAT EPS DPS BV(Cr) (Cr) (Cr) (Cr) (Rs) (Rs) (Rs)

2010A 399.7 186.9 186.5 133.8 10.6 0.5 64.42011A 495.6 229.0 193.2 129.1 9.5 0.5 88.52012E 591.6 275.1 219.9 153.9 11.3 0.8 98.92013E 728.6 341.7 283.6 198.5 14.5 1.0 112.2

Holidaybreak Acquisition: Deriving Business Synergies:

Cox & Kings completed the acquisition process of a British specialist travelcompany Holidaybreak Plc for USD 530 million in an all cash transaction. Thedeal is looked upon as a game changer for C&K. Holidaybreak is an education,adventure, camping and activity travel group with dominant presence in UK andother major European markets.

It has over 15 long established and widely recognized brands with leading nichepositions in the travel sector. Interestingly, nearly 80% of the group's operatingprofit for fiscal year 2010 was driven by specialty travel verticals of education,adventure and camping.

C&K's outbound UK and European travel businesses, will specially benefit fromgreater access to certain markets and customers as a result of the acquisitionwhere Holidaybreak is a market leader. The acquisition will also help C&K toeffectively counter the cyclical nature of travel business, as Holidaybreak'srevenues typically peak in July-August and September, while C&K' businesspeaks from March to the end of June.

It appears to be a symbiotic relationship between the two companies reducingC&K's dependence on leisu re travel simultaneously capital izing onHolidaybreak's strength in the education segment. It can now look to drawstudents from captive base of customers in India, Japan, Australia, New Zealandand China to fill Holidaybreak's school tours and camps during off-seasons.

Valued at about Rs 2,250 crore, the acquisition is funded through a mixture ofdebt and equity. It is expected to become accretive from day one because thecompany is already cash generative. It generates free cash after capex and itsaverage profit before tax (PBT) is around 30 to 35 million pounds every year.

C&K will retain the Holidaybreak's brand since it has a great brand recall and isa market leader in education and adventure tourism so it will like to takeadvantage of the brand equity of Holidaybreak.

Cox & Kings Ltd. BUY: Rs 155 Target: Rs 244

Retail Research Tours & Travel

Initiating Coverage 30 December 2011

Cox & Kings Ltd. (C&K), a 250 years old brand, is one of the leading Tours and Travel Company providing an array of travelrelated services viz destination management, Domestic & International Holiday packages, Luxury travels, Businesses and MICE,Forex and Insurance etc. The company has a presence in more than 19 countries through its various direct and indirect subsidiaries.The company has recently acquired Holidaybreak PLC, an UK based education and activity travel group having dominantpresence in European market for price consideration of $530 million. We expect huge business synergies with this acquisition.The outbound travel is the largest revenue vertical and a high growing segment for C&K. With rising affordability and emergenceof cheap holiday destinations especially in South-East Asian region, we expect C&K to be major beneficiaries going forward.We initiate coverage on the stock with a 'BUY' rating.

FINANCIAL SUMMARY

Investment Rationale:

RAJESH GUPTA - Research AnalystRegd. Office: SBICAP Securities Limited, 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005

For a list of our branches refer to our website: www.sbicapsec.com

Particulars 2010A 2011A 2012E 2013E

PE (x) 14.6 16.4 13.7 10.7P/BV (x) 2.4 1.8 1.6 1.4EV/EBITDA (x) 11.1 8.7 7.1 5.7EV/Sales (x) 5.2 4.0 3.3 2.7Mcap/Sales (x) 4.9 4.3 3.6 2.9ROE (%) 25.8 12.8 12.0 13.8ROCE (%) 22.4 14.6 13.3 14.8

STOCK DATA

BSE Code 533144NSE Code COX&KINGSBloomberg Code COXK IN52 Week High / Low (Rs.) 277 / 154Face Value (Rs.) 5Diluted Number of Shares (Crore.) 13.65Market Cap. (Rs Crore.) 2239Avg. Yearly Volume 87367

SHAREHOLDING PATTERN (%)

FINANCIAL RATIOS

RELATIVE TO SENSEX

RETURNS STATISTICS (%)

Particulars Sept. Jun. Mar. Dec.FY11 FY11 FY11 FY10

Promoters 58.7 58.7 58.7 58.7FII's 18.9 21.5 22.7 25.8Other Institutions 8.2 9.0 8.6 6.1Public & Others 11.1 7.7 6.6 6.0Custodian 3.2 3.2 3.4 3.5Total 100.0 100.0 100.0 100.0

3 M 6 M 12 M

Cox & Kings (27.8) (15.5) (40.6)Sensex (6.9) (16.9) (23.3)


2 • December 30, 2011 SBICAP Securities Limited

Other Expenditure

21%Employee

Exp.48%

Advertisement 16%

Travelling & Conveyance

8%

Rent7%

Prominent margin business

C&K's operational efficiency lies in its high EBITDA margins which are as high as46% in congruence with high PAT margins which are over 25%. The company availsas good as 40-50% discounts from hotels, airlines and other travel partners on accountof advance bookings.

In terms of expenditure, company shells out its majority of the pennies on its humanresource and advertisement expenses which comprises nearly 26 and 9 percent of totalrevenue respectively.

All Set to Grab Indian Tourism's Infinite Opportunities

After combating tough global conditions posed by economic crisis, T&T sector hasmade a strong comeback generating some very powerful GDP and employmentnumbers.

Growth in tourism sector outpaced economic growth but the sector still remains un-penetrated. The industry in India is expected to grow at a CAGR of 10.2% over 2010-2020 from USD 42 bn in 2010 to USD 111 bn in 2020.

The Indian Tourism Industry is extremely fragmented with majority being unorganizedplayers. There are as many as 25000 independent travel agents, nearly 5000 unorganizedtour operators and this number goes down to as low 20 when speaking about organizedplayers in this sector.

C&K with its varied product portfolio, market customized-specialized services, strongnetwork presence in major tourist attractions worldwide and integrated business modelpossesses immense scope to grab a significant market share in the industry.

EBDITA MARGIN (%) & NET PROFIT MARGIN (%)

Source: SBICAP Securities Research Source: Company

EXPENSE BREAKUP FOR FY11

T&T MARKET SIZE USD (BILLION)

Source: WTTC 2010 (World Travel & Tourism Council) Source: Company

INDIAN TOURISM: PLAYER SEGMENTATION

5

23

41

59

2010A 2011A 2012E 2013E

EBDITA Margins (%) Net Profit Margin (%)

Organised Players = 20

Unorganised Players = 5000

Independent TravelAgents = 25000

113

42

511

89

50

0 90 180 270 360 450 540

China

India

USA

UK

Australia



The pie of organized players is increasing courtesy:

n Growing demand for customized, convenient and flexible traveling options

n Professional Competence and strategic industry tie-ups

n Diseconomies of scale for unorganized players in treating tailor made individualrequests

Outbound Tourism: Leading the way ahead

C&K derives major chunk of revenues (62-65 percent) from outbound travel especiallySouth East Asia. India is one of the rapidly growing outbound tourism markets withoutbound traffic growing by 13 percent until 2010. C&K's outbound business isexpected to grow at 30-35 percent CAGR till 2015 vis-a-vis 12 percent CAGR of thetotal Indian outbound tourism. In 2010, the most outbound tourists visited Singapore,Malaysia, the United Arab Emirates and Thailand. Following are the factors contributingto the expansion of outbound tourism in these countries:

n Increase in the disposable income and rising aspirations of the Indian middleclass families.

n Change in the consumer preferences towards foreign trips from domestic tours.

n Affordable air fares.

n Competitive tour packages offered by tour operators

On an outbound journey, hotel accommodation in congruence with travel ticketsformulates the largest component of expense of the entire journey. A cost-benefitanalysis between South East Asian countries and the rest of the world tilts in favor ofthe former due to the price affordability of the accommodation and travel expenses inthese countries which doesn't leave a big hole in the traveler's wallet hence entitlingthem to be an enjoyable yet a price affordable proposition.

To capitalize on this opportunity, C&K has also commenced destination managementservices (DMS) in Singapore. We expect it to exhibit a double digit growth goingforward.

Apart from these destinations, Egypt, Indonesia and Italy are the emerging outbounddestinations. USA and Singapore continued to be the top two destinations in terms ofoutgoing tourist expenditure in 2010, accounting for a combined share of nearly 20percent of total outbound expenditure.

Source: SBICAP Securities Research

OUTBOUND SALES AS %OF TOTAL SALES

~ C&K's outbound business is expected togrow at 30-35 percent CAGR till 2015

56% 54%60% 63% 65% 67%

0%

28%

56%

84%

2008A 2009A 2010A 2011A 2012A 2013A



Round the Globe Presence

Cox & Kings operates in 20 countries across the globe through branch offices,subsidiaries, representative offices, franchised sales shops as well as through globalnetwork of sales agents.

C&K, through a series of strategic acquisitions, has attained the status of a truly globalfirm with presence in nearly all tourist friendly territories.

Apart from this, it has also set up subsidiary in Taiwan for handling outbound operationsmainly tapping the European market which would help in creating revenue synergies.Its newly opened subsidiary in Singapore is likely to increase its competitiveness andmarket share.

It is also the fourth DMS provider apart from other three namely India, UK and UAE.The strategic tie-ups will not only contribute in increasing the revenues but will alsohelp counter attack the slump in demand during off seasons.

Valuations:

At current price of Rs155, the stock is trading is at 13.7x and 10.7x of its FY12E andFY13E consolidated earnings (Excluding Holidaybreak) respectively while on P/BVfront it is available at 1.6x and 1.4x respectively. While comparing with its peers basedon TTM September 2011 earnings, C&K is fairly valued across all different parameterswith superior margin both at operating and net levels.

We have use sum of the parts valuations (SOTP) to value the company which includesthe valuation Indian operation, Overseas operation and Holidaybreak PLC. We haveused DCF (Discounted Cash Flow) analysis for Holidaybreak whereas C&K'sconsolidated business (including overseas operations) is valued on PE multiple basis.

The Fair value of Holidaybreak PLC using DCF stands at Rs90 per share whereas thevalue of C&K's consolidated business is pegged at Rs154 per share by discountingFY13E EPS of Rs14.5 by 10.6x (Average PE ratio of last 2 years less standarddeviation) All the things put together, we have arrived at the fair value of Rs244 whichentails an upside potential of 57 percent from current price level.

Source: SBICAP Securities Research / Company

ACQUISITIONS OVER THE YEARS

Source: SBICAP Securities Research Company

PEAK HOLIDAY SEASONS

IndiaMarch-June Australia/Other

July-Sept. USA/EuropeOct.-March

Peak

FY06

FY08

FY09

FY10

FY11



Cox & Kings Ltd. is the largest and longest established travel company in India withan existence of over 250 years. It is a premium brand that offers on stop travel solutionsand travel related products for individuals and group travel. C&K has its businessstretched in 20 countries across 120 cities with considerable presence in India, UK,Australia, Japan, Dubai and USA.

C& K's Business Model :

Source: Company

C&K's CORPORATE STRUCTURE

Indian Operations

C&K's business operations comprises of four segments namely Leisure Travel,Business, Visa Processing and Foreign Exchange. C&K holds 255 points of presencecovering 164 locations through a mix of branch sales offices, General Sales Agents(GSAs) and Preferred Sales Agents (PSAs). It also operates through 56 franchisedsales shops spread across India to have larger access to their customers.

1. Leisure TravelIt is the most important segment contributing approximately 90 percent of theconsolidated revenues in the preceding three financial years. It offers pre-packagedtours through brochures or customized packages as per traveler's pre requisites. It canbe classified as Inbound, Outbound, Domestic and Rail Tour.

a) Outbound Travel refers to sales of tour packages to customers traveling todestinations outside their home country. USA and South East Asia are the mostfavored travel destination amongst Indians. In FY11, the outbound segmentaccounted for ~63% of revenues. Outbound travel can either be free independenttraveler (FIT) or group individual traveler (GIT). C&K's brands - 'Flexihol' and'Duniya Dekho' are premium names that cater to these sub-segments respectively.

(FIT, GIT, MICE)



b) Inbound Travel refers to non-residents traveling in the given country. It is typicallya B2B where in the company provides destination management services to theirown subsidiaries and other tour operators located abroad. This division alsoprovides specialist services to foreign participants for international meetings,conferences, ad hoc incentives and exhibitions and also caters for domesticconferences and corporate incentives. Ground related services to internationalcruise companies touching Indian shore with a provision of shore excursions areother leading activities of this division. Over the past many years, USA and UKhave remained the largest tour client countries for India. In FY11, the inboundsegment accounted for ~18% of revenues.

c) Domestic Travel refers to residents of the given country traveling only withinthis country. C&K sells domestic-travel-related products under the brand 'BharatDekho' to both FIT and GIT. C&K's NRI division caters to travelers primarilyfrom the Middle East, Europe, US, Australia, Sri Lanka and Hong Kong. AndhraPradesh receives the largest share of domestic travellers in India followed by UPand Tamil Nadu. In FY11, the domestic segment accounted for ~8% of revenues.C&K's market share in domestic travel is nearly 2%.

d) Rail Tours is yet another area of operation where C&K has a 50:50 JV withIndian Railways Catering and Tourism Co-operation Ltd (IRCTC) named RoyaleIndian Rail Tours. The JV marked the launch of Maharaja Express - a luxury traintravel experience. This provides various packages (Princely India, Royal India,Classical India and India Sojourn) which mainly covers the northern territoriesof the country. The train has a capacity of 86 passengers and 23 coaches and runsbetween September to April every year. It is scheduled to run 28 times a year inthese 8 months. The JV clocked 25 crore revenues in FY11 in which C&K has50% share. The train witnessed 80% occupancy during the period of September- November 2011 and is expected to breach this level going forward.

2. Business

C&K offers customized business travel solutions to its 200+ corporate clients inIndia. It also caters to all aspects of Conference organizing, Business Meetings, EventManagement, Seminars, Exhibitions, Product Launches and Incentives which forms apart of MICE (Meeting Incentive Conference & Exhibition). Business travel constitutes2 percent of its total revenue share generating 20-22% margins at gross level.

3. Visa Processing

C&K is a leading provider of visa processing services for inbound travelers fromGermany, Greece, Hong Kong, the U.K. and Singapore in India. It facilitates visaprocessing in various categories such as Business Visa, Tourism Visa, EmploymentVisa, Student Visa etc. It operates these services as an outsourced business solution todiplomatic missions in countries like Germany, Greece, Hong Kong, the UK andSingapore. Through a series of subsidiaries operating in several countries (C&KMarhaba Dubai, Quoppro Global Services) and through numerous approvals fromthe diplomatic missions of India at Athens, Greece and at Hong Kong for outsourcingtheir visa processing activities, this segment looks promising for the company. Thebusiness requires bare minimal working capital generating a strong revenue stream ofRs 1200-1500 per applicant. It processed 5500 applications last fiscal.

4. Foreign Exchange

C&K is a licensed Authorized Dealer-Category II under the new licensing regime andprovides foreign exchange services either as a part of its leisure travel and corporatetravel packages, or by itself. C&K is amongst the leading retail forex dealers in India.The enhanced status (from FFMC to Authorized Dealer-Category II) helps it transactoutward remittance requirements.

~ Over the past many years, USA and UKhave remained the largest tour clientcountries for India. In FY11, the inboundsegment accounted for ~18% of revenues.

~ In FY11, the domestic segment accountedfor ~8% of revenues. C&K's market sharein domestic travels is nearly 2%.

~ Visa Processing requires bare minimalworking capital generating a strong revenuestream of Rs 1200-1500 per applicant. Itprocessed 5500 applications last fiscal.



India50%

Aust ralia12%Dubai

4%

East India5%

UK Travel18%

CNK Japan8%

ETN3%

Foreign Operations:

C&K has operations in 19 countries besides India which includes UK, USA, Japan,UAE, Australia etc. Through a series of strategic acquisitions and by setting upsubsidiaries worldwide, it has attained phenomenal global visibility. As a part of itsglobal expansion plan, it has recently commenced operations in Taiwan and a yearback in Singapore.

The company achieved stupendous growth, registering consolidated income of Rs533crore in FY11 as against Rs 441 crore FY10 out of which 52% is attributed to non -Indian operations. With the recent acquisition of Holidaybreak PLC, this contributionis expected to go much higher.

REVENUE BREAKUP (RS. IN CR)

Source: Company Source: Company

SUBSIDIARY WISE CONTRIBUTION - 2011

Overseas operations of Cox & Kings:

259.95223.27236.79

175.88

50

160

270

380

2011 2010

India Rest of the World

C&K Ltd UK

• OUTBOUND• Premium long haul tour operator for retirees

C&K Destination Management Services UK

• INBOUND

• DMS in Europe for group companies and tour operators

C&K Japan Ltd

• OUTBOUND

• Wholesaling white label packages to other tour operators& DMS for Japanese travelers

Tempo Holidays Pty Ltd Australia, Tempo HolidaysNZ Ltd New Zealand

• OUTBOUND

• Establishing synergies with group companies operating inMiddle East and Europe

My Planet Australia Pty Ltd Australia, BentoursInternational Pty Ltd Australia

• OUTBOUND• Leading tour and travel operator to Scandinavia

C&K Tours LLC, UAE

• INBOUND - Serving tourists from C&K, India

• OUTBOUND - Tour operator for local population

Quoprro Global Services Pte Ltd, Singapore,Quoprro Global Services Pvt. Ltd, Honkong

• VISA-PROCESSING

C&K Gmbh, Germany , C&K Hellas, Greece,C&K Global Services Pvt Ltd, India

• VISA-PROCESSING

East India Travel Company Inc. USA

• OUTBOUND

• Customizing luxury packages for celebrity clientele

Holidaybreak PLC

• EDUCATION - Outdoor trips for school children

• ADVENTURE - Worldwide tours, language travel, gapyear trips

• CAMPING - Family holidays in European camp sites

• HOLIDAY BREAKS - Domestic short break trips



UK:

n C&K (UK) Ltd.

n C&K DMSn Holidaybreak Plc (HBR)

USA:

n East IndiaTravel Company Inc

JAPAN:

n C&K Japan Ltd

AUSTRALIA:

n Tempo Holidays Pty Ltd.

n My Planet Pty Ltd.

n Bentours InternationalPty Ltd.

SWOT analysis of various overseas operations:

Country - wise Operations STRENGTH WEAKNESS OPPORTUNITY THREAT

n Wealthy retirees withfixed holiday plansevery year as targets.

n DMS when providedbesides outboundservices increasesrevenue earned percustomer.

n Limited targetcustomer range.

n Targeting midmarket segmentmore extensively.

n Diversification ofproduct portfoliowith HBR in yetuntapped markets.

n Synergies with HBRwill help double thegroup revenue.

n Uncertain globalenvironment andeconomicslowdown hasreduced outboundtravel.

n Instable Euro.

n Price insensitive,loyal celebritycustomer base.

n Strong brand equity.

n Most profitablesegment, yieldingmargins as high as~40%

n Strong security andprivacy concerns oftarget customers.

n Chartered flightscan strengthen therevenue basefurther.

n Zero portfoliodiversification.

n Insulated fromseasonal/cyclicaldemands since itsmain revenue driver isits business segment.

n The business issuffering lossesdue to the recenttsunami attack.

n Expected to beturned around byFY13.

n Plans to utilize stafffor setting upoperations in EastAsia ensuringincreasedproductivity.

n Frequentincidence ofearthquakes.

n Amongst the mostwell connectedcountries in terms ofstrategic &geographic location.

n Operating at its corecompetency; uniquepositioning.

n Huge customer basewith majority ofproducts targetingmass market.

n Synergies with C&K,UK for DMS

n Scheduling &timing of theflights throughoutthe week.

n Customizedproducts forpremium marketsegment.

n Capitalizing onAustralia's scenicbeauty &swashbucklinglandscapes byventuring intoinbound travel.

n Hugecustomizationrequirements ofFITs increasingthe developmentand operatingcosts.



World Travel & Tourism Industry

"Atithi Devo Bhava" - Really!!!

Today, countries across the globe leave no stone unturned to ensure maximum numberof tourist inflows every year, every season but not with the idea of pure hospitality,but for its own profit. The tourists along with their own baggage also bring bags fullof much needed foreign exchange.

T&T has always been a critical economic sector worldwide, with a huge potential inproviding economic growth and exposure internationally .

A growing T&T sector is a huge contributor of employment, elevates national incomeand can improve the balance of payment positions of any country. Thus the sector is animportant driver of growth and prosperity especially in developing countries,simultanoeusly playing a key role in employement generation, infrastructuredevelopment and mainteneance.

Despite the difficult global environment over the past decade - from terrorist attacksand health scares to natural disasters - international T&T demand has shown phenomenalgrowth. In 2011, the World Travel & Tourism Council (WTTC) expects it to contributealmost USD 6 trillion to the global economy or 9 percent of global gross domesticproduct (GDP). This is more than the automotive industry which accounts for 8.5percent, and slightly less than the banking sector which accounts for 11 percent.

The money visitors spend on travel, accommodation, activities and souvenirs i.e visitorexports in 2011, is expected to exceed USD 1.2 trillion around the world with 260million estimated people across the globe.

Furthermore, demand for T&T- both international and domestic - stimulates investment.In 2011, 4.5 percent of total capital investment i.e. approximately USD 650 billion, isexpected to be driven by T&T. The rapid rise in global demand for T&T over the pastfew decades has been spurred by the rise in living standards, in turn fuelled by growingwealth, coupled with the increased affordability of air travel.

According to the World Tourism Organization (UNWTO), international arrivalsworldwide have more than doubled since 1990, rising from 435 million to 675 millionin 2000, and to 940 million in 2010.

The world T&T market is divided into two segments viz business and leisure. In 2011,worldwide leisure travel spending (both inbound and domestic) is expected to reachUSD 3 trillion i.e. 77% of total expenditure, with business travel accounting for arelatively meek 23% or USD899.0 billion. Nevertheless, the impact of business travel-which includes travel to conventions, meetings and exhibitions, as well as corporate-sponsored leisure travel (incentive trips) should not be underestimated.

WORLD INBOUND INT. TOURIST ARRIVAL IN 2010 (%)

Source: UNWTO Source: WTTC, 2010

T&T MARKET SIZE (USD BILLION)

WORLD T&T SPENDING BREAK-UP

Source: WTTC 2011.

77%

23%

Leisure Spending

Business Spending

113 42

511

89 50

501

111

917

148 80

0

300

600

900

1,200

China India USA UK Australia

2010 202050

22

16

5 7

0

18

36

54

Europe Asia Pacific America Africa Middle East



Indian T&T market

Inbound:Over the past few years, India has witnessed maximum tourist inflows from US andUK and the trend is expected to continue till 2015. Over 2010-2015, inbound tourismis expected to grow at 6 percent CAGR, whereas tourism receipts are expected toincrease at 3 percent CAGR. However, an increased inflow of tourists from SouthAfrica, Malaysia, Brazil and many other countries are expected to generate furthervisitor's spending for India.

Outbound:The recovering economy, improved consumer confidence and attractive deals have ledto 13 percent growth in the number of departures from India in 2010 and is expectedto increase at a CAGR of 12 percent by 2015. In 2010 the most outbound touristsvisited Singapore, Malaysia, the UAE and Thailand. Apart from these destinations,Egypt, Indonesia and Italy are the emerging outbound destinations. US and Singaporecontinued to be the top two destinations in terms of outgoing tourist expenditure in2010, accounting for a combined share of nearly 20% of total outbound expenditure.

Domestic:

With increasing disposable incomes and the surging trend of short trips and weekendget aways, in 2010 the number of domestic tourist trips increased by 14% and isexpected to increase by a CAGR of 14% in 2015.

In 2010, Andhra Pradesh received the largest share of domestic tourists, followed byUttar Pradesh and Tamil Nadu. Karnataka was the fastest growing domestic destinationin 2010 followed by Tamil Nadu and Bihar. In 2010, domestic tourist expenditureincreased by 15% and is expected to continue at CAGR of 8% p.a.

INDIA TOURISM - INBOUND

Source: Euromonitor International, April 2011 Source: Euromonitor International, April 2011

INDIA TOURISM - OUTBOUND

INDIA TOURISM - DOMESTIC

Source: Euromonitor International, April 2011

5722 6012 6356 6755 72217768

619631

647666

689

717

500

3000

5500

8000

2010 2011E 2012E 2013E 2014E 2015E

560

620

680

740

Arrivals (in '000 trips) Rec iepts (Rs bn)

12497 13842 15414 17253 1939221902

452 475 500 530 565604

1000

8300

15600

22900

2010 2011E 2012E 2013E 2014E 2015E

50

240

430

620

Departures (in '000 trips) Expenditure (Rs bn)

168 189 214 243 277 318

573645

730829

946

1082

100

450

800

1150

2010 2011E 2012E 2013E 2014E 2015E

Business Leisure

mm

tri

ps



Government Initiatives

1. FDI PolicyWith a view to stimulating domestic and international investments in this sector, thegovernment has implemented the following initiatives:

a. 100% FDI under the automatic route is permitted in all construction developmentprojects including construction of hotels and resorts, recreational facilities andcity and regional level infrastructure.

b. 100% FDI is permitted in all airport development projects subject to the conditionthat FDI for up gradation of existing airports requires FIPB approval beyond74%.

c. A five year tax holiday has been extended to Companies that set up hotels, resortsand convention centers at specified destinations, subject to compliance with theprescribed conditions.

2. Visa on Arrival

As a facilitative measure to attract more foreign tourists to India, Government launcheda Scheme of "Visa on Arrival" (VoA) from January 2010 for citizens of five countries,viz. Finland, Japan, Luxembourg, New Zealand and Singapore, visiting India for tourismpurposes. The Government has now extended this Scheme for the citizens of six morecountries, namely Cambodia, Indonesia, Vietnam, Philippines, Laos and Myanmar fromJanuary 2011. The important highlights of VOA issued during the period of Januaryto November 2010-11 as shown below:

COUNTRY WISE VISA ON ARRIVAL (VOA)

Source: Ministry of Tourism Source: Ministry of Tourism

VOA ON VARIOUS INDIAN AIRPORTS

1123 1241

53

1604 1623

1089

2079

66

2289

1654

Finland Japan Luxembourg New Zealand Singapore

Jan - Nov 2010 Jan - Nov 2011

3035

1258 1073278

6416

24021713

590

Delhi Mumbai Chennai Kolkata

Jan - Nov 2010 Jan - Nov 2011



Outlook:

As per WTTC, T&T Industry in India is expected to grow at a CAGR of 10.2% over2010-2020 i.e. from USD 42 bn to USD 111 bn in 2020. The total contribution ofT&T segment to India's GDP including both direct and indrect is expected to reachRs5 lakh crore from current Rs1.4 lakh crore. India's international tourist arrival isexpected to reach 11.2 million from current 6 million growing at 6 percent CAGRbetween 2011 and 2021. Thus declaring it to be a highly promising and growing market.

In India, T&T is expected to generate 30 million jobs by 2021 from current 24 millionaccounting for nearly 22.1% of total employment including employment by hotels,travel agents, airlines and other passenger transportation services.

On the international front, the arrival in South Asia is expected to grow at 6 percentCAGR to 19 million in 2020 as compared to 11 million trourist in 2010. Europe willcontinue to be largest travel destination in the world. In Australia, the T&T'scontribution is expected to reach 64.4 billion AUD in 2021 from 47.6 billion AUD in2011. The inbound tourist arrival in Australia is expected to grow to 8.4 million by2021 from 6.1 million in 2011 whereas Australia's outbound tourism is expected toreach 10.3 million by 2021 from current 7.8 million. In US market, T&T's directcontribition to GDP is expected to reach USD 570 billion by 2021 from current USD404 billion.

C&K is strategically present across all the travel destinations to take levarage on itsexpertise and growth in world T&T market.

T&T'S CONTRIBUTION TO INDIA'S GDP (RS BILLION)

Source: UNWTO Source: UNWTO

T&T'S CONTRIBUTION TO EMPLOYMENT (MILLION)

INTERNATIONAL TOURIST ARRIVAL (IN MILLION)

Source: UNWTO Source: WTCC, 2011

ASIA PACIFIC T&T MARKET

500

4000

7500

11000

14500

2005 2006 2007 2008 2009 2010 2011 2021

Direct Indirect Induced

22.1 24.4 23.6 25.5 24.6 24.3 24.930.4

19.7 17.6 24.413.3 12.2 12.4 12.7

17.0

0

12

24

36

48

2005 2006 2007 2008 2009 2010 2011 2021

Direct Indirect

47

190 195

527

36 1177

282397

717

6919

0

285

570

855

Africa America East Asia& Pacific

Europe M iddleEast

South Asia

2010 2020

0

250

500

750

2005 2006 2007 2008 2009 2010 2011 20210

125

250

375

Visitors Export (USD Bn) Tourist Arrival (in Mn)



Forex Risk

The company has significant risk exposure with regards to the forex market.Fluctuations in exchange rates have direct impact on business. Strengthening of therupee may increase the number of outbound tourists from India as foreign tours willbecome relatively cheaper. However, at the same time it may affect inbound tourismas traveling to India would become relatively expensive and vice-versa.

Unorganized Market with high competition

T&T industry's highly fragmented and unorganized nature results into intensecompetition. There are 25000 independent players and nearly 5000 unorganized playersagainst 20 organised players. In addition, C&K sometime faces margin split whenDMS (Destination Management Services) is outsourced to third party.

Sensitive to changes in unforseen circumstances

In the past, occurrence of Swine Flue, SARS, Bird Flue and Mad Cow etc saw a dropin the number of tourist arrivals in the affected countries and has ability to affect theoutbound tourism. Precautionary measures like the suspension of flights in such eventsalso impacts the numbers of tourists coming into the country.

Natural calamities like recent earthquake in Japan, Tsunami, Haiti Earthquake, IcelandVolcanic Eruptions and many more disastrous calamities have affected the travel andtourism industry badly. People have reduced their traveling to a few countries with thefear of natural calamities.

T&T industry also got hampered due to global terrorist attacks and other acts of violenceor war causing a drop in the number of arrivals into the country. The September 11,2001 attack on US and the November 26, 2009 attack on Mumbai have had an adverseeffect on the number of people traveling to these countries.

Key Risks & Concerns:

~ There are 25000 independent players andnearly 5000 unorganized players against20 organised players.

~ The company has significant risk exposurewith regards to the fo rex market.Fluctuations in exchange rates have directimpact on business.



We expect the consolidated net sales and profit (Excluding Holidaybreak) togrow at 21 and 23 percent CAGR to Rs729 and Rs198 crore respectively between2011 and 2013. C&K is banking on high growing outbound vertical which isexpected to grow at 30-35 percent over next few years. We expect the share ofoutbound revenue from Indian operations to cross 65 percent from current62 percent.

The overseas subsidiaries like C&K Dubai, C&K DMS in UK and Australiansubsidiaries to drive the overseas revenue growing at 30-45 percent CAGR overnext 2-3 years whereas Japanese subsidiary will take another 1-2 years to showpositive growth. UK Travel and East India USA is also expected to show positivegrowth between 7-15 percent over next 2 years.

We expect the consolidated EBITDA to grow at 22 percent CAGR to Rs342crore between 2011-FY13 whereas EBITDA margin is expected to remain at46-47 percent level. The net margin is also expected to be at 26-27 percent levelin spite of increase in debt.

At current price of Rs155, the stock is trading is at 13.7x and 10.7x of its FY12Eand FY13E consolidated earnings (Excluding Holidaybreak) respectively whileon P/BV front it is available at 1.6x and 1.4x respectively. While comparingwith its peers based on TTM September 2011 earnings, C&K is fairly valuedacross all different parameters with superior margins both at operating andnet level.

We have use sum of the parts valuations (SOTP) to value the company whichincludes the valuation Indian operation, Overseas operation and HolidaybreakPLC. We have used DCF (Discounted Cash Flow) analysis for Holidaybreakwhereas C&K's consolidated business (including overseas operations) is valuedon PE multiple basis.

The Fair value of Holidaybreak PLC using DCF stands at Rs90 per share whereasthe value of C&K's consolidated business is pegged at Rs154 per share bydiscounting FY13E EPS of Rs14.5 by 10.6x (Average PE ratio of last 2 yearsless standard deviation) All the things put together, we have arrived at the fairvalue of Rs244 which entails an upside potential of 57 percent from currentprice level.

Financials & Valuations:

SOTP (Rs. in Crore)

Sources: SBICAP Securities Research

A) Cox & Kings FY13E

EPS (Rs) 14.5

PE Multiple (x) 10.6Fair Value (Rs) 154

B) Holidaybreak PLC

Discounted T. Value 594.4

PV of FCFF 1,535.7

Total 2,130.1

Current Debt 1,311.4Current Cash 406.7

Enterprise Values 1,225.4

Equity 68.3

FV (Rs) 5.0

Value per Share (Rs) 90

Total Value (Rs) 244

RELATIVE VALUATIONS

Sources: SBICAP/Cline based on TTM September 2011 earnings.

Particulars Cox & Kings Thomas Cook (I) Mahindra Holiday

CMP (Rs) 155 33 297

TTM Sales (Rs Crore) 560.8 353.2 537.6

Mcap (Rs Crore) 2116.1 708.8 2501.6

PE (x) 16.5 13.5 22.3

EV/Sales (x) 3.6 2.1 6.3

EV/EBITDA(x) 8.1 8.9 20.2

Mcap/Sales (x) 3.8 2.0 2.0

P/BV(x) 1.8 2.1 5.0

OPM (%) 51.6 32.2 34.1

NPM (%) 22.9 14.9 20.9



1 YEAR FORWARD PE MULTIPLE


1 YEAR FORWARD P/BV MULTIPLE

Source: SBICAP Securities Research Source: SBICAP Securities Research

AVERAGE P/BV MULTIPLE

AVERAGE PE MULTIPLE


NET SALES


ROE & ROCE (%)

Source: SBICAP Securities Research Source: SBICAP Securities Research

NET SALES GROWTH (%) & CAPEX GROWTH (%)

EBDITA & MARGINS


0

150

300

450

Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11

Close Price 11x 15x 19x 23x

5.0

15.0

25.0

35.0


Daily PE Average PE 1+SD

1+2SD 1-SD 1-2SD

50

165

280

395


Close Price 1.4x 1.9x 2.4x 2.9x

0.50

1.70

2.90

4.10


Daily P/BV Average P/BV 1+SD

1+2SD 1-SD 1-2SD

-

190

380

570

760

2010A 2011A 2012E 2013E

Net Sales EBDITA Adjusted Net Profit

Fig

Rs

Cro

re

5

23

41

59

2010A 2011A 2012E 2013E

EBDITA Margins (%) Net Profit Margin (%)

5.0

19.0

33.0

47.0

2010A 2011A 2012E 2013E

Net Sales Growth (%) Capex Growth (%)

6.0

14.0

22.0

30.0

2010A 2011A 2012E 2013E

ROE (%) ROCE (%)



Financial Statements:

Income Statement Figures in Cr.


Net Sales 399.7 495.6 591.6 728.6

Other Income 41.6 37.1 41.4 51.0

Total Income 441.3 532.7 633.0 779.6

Total Expenditure 212.7 266.6 316.5 386.9

Employee Cost 99.4 129.5 153.8 190.2

As % of Sales 24.9% 26.1% 26.0% 26.1%

Other Operating Cost 113.3 137.1 162.7 196.7

As % of Sales 28.4% 27.7% 27.5% 27.0%

EBDITA ( Excl OI) 186.9 229.0 275.1 341.7

EBDITA ( Incl. OI) 228.5 266.1 316.5 392.7

Interest 27.0 54.4 74.1 82.9

PBDT 201.6 211.7 242.4 309.8

Depreciation 15.1 18.6 22.5 26.2

PBT 186.5 193.2 219.9 283.6

Tax 51.7 62.5 66.0 85.1

Net Profit 134.8 130.6 153.9 198.5

Extra-ordinary Item 1.0 1.5 - -

Adjusted PAT 133.8 129.1 153.9 198.5

Equity 62.9 68.3 68.3 68.3

EPS 10.6 9.5 11.3 14.5

Cash EPS 11.8 10.8 12.9 16.5

FV 5.0 5.0 5.0 5.0


Equity Capital 62.9 68.3 68.3 68.3Reserve and Surplus 747.2 1,139.6 1,281.6 1,464.3Net Worth 810.1 1,207.9 1,349.9 1,532.5Secured Loans 294.6 544.3 707.6 764.2Unsecured Loans 209.7 300.0 300.0 300.0Loan Funds 504.3 844.3 1,007.6 1,064.2Deferred Tax Liability 4.8 9.1 5.9 7.3Total Capital Emp. 1,319.2 2,061.3 2,363.4 2,604.0Gross Block 133.7 184.1 225.7 251.2Less: Accumulated Dep. 61.5 81.9 104.5 130.7Net Block 72.2 102.1 121.3 120.5Goodwil 217.5 217.5 217.5 217.5Capital Work In Progress 20.4 64.1 22.4 27.0Investments 258.4 211.2 266.2 327.9Deferred Tax Assets 3.4 1.2 3.0 3.6Inventories 8.3 8.6 10.5 12.9Sundry Debtors 302.1 414.2 443.7 548.5Cash and Bank Balance 374.7 961.3 1,182.9 1,219.9Loans and Advances 271.5 382.5 396.3 488.2Total Current Assets 956.5 1,766.6 2,033.5 2,269.4Creditors 98.0 96.1 118.7 145.1Other Current Liabilities 79.0 172.1 142.0 167.6Provision 34.4 35.0 41.1 50.3Total Current Liabilit ies 211.3 303.1 301.8 363.0Net Current Assets 745.2 1,463.5 1,731.7 1,906.5Micellanious Exp. 2.1 1.7 1.3 1.1Total Assets 1,319.2 2,061.3 2,363.4 2,604.0

Balance Sheet Figures in Cr.

Cash Flow Statement Figures in Cr.Particulars 2010A 2011A 2012E 2013E

PBT 186.5 193.2 219.9 283.6

Depreciation 15.1 18.6 22.5 26.2

Interest (Net) 27.0 54.4 74.1 82.9

Direct Taxes Paid (51.7) (62.5) (66.0) (85.1)

Change in WC (92.6) (131.7) (46.6) (137.8)

CF from optg. activities 84.3 71.9 204.0 169.8

(Inc) / Dec. Capex (26.5) (94.0) - (30.0)

Free Cash Flow 57.8 (22.1) 204.0 139.8

(Inc) / Dec. in Investment (212.7) 47.1 (55.0) (61.7)

CF from invest. activities (239.2) (46.9) (55.0) (91.7)

Issue of Shares 529.4 304.0 - -

Change in Debt 150.2 340.0 163.3 56.6

Interest Paid (27.0) (54.4) (74.1) (82.9)

Dividend (7.3) (7.9) (11.9) (15.9)

Other Adjustment (Net) (179.1) (20.1) (4.7) 1.0

CF from fin. activites 466.2 561.5 72.7 (41.2)

Net Change in cash 311.3 586.6 221.7 37.0

Opening Balance 63.4 374.7 961.3 1,182.9

Closing Balance 374.7 961.3 1,182.9 1,219.9

Important Ratios:Particulars 2010A 2011A 2012E 2013E

(A) Measures of Performance (%)EBIITDA Margin (%) 46.8 46.2 46.5 46.9Gross Profit Margin (%) 50.4 42.7 41.0 42.5Total Tax Rate (%) 27.7 32.4 30.0 30.0Net Profit Margin (%) 33.5 26.1 26.0 27.2

(B) Measures of Financial StatusDebt / Equity (x) 0.6 0.7 0.7 0.7Net Debt / Equity (x) 0.2 (0.1) (0.1) (0.1)Debtors Period (days) 240.6 260.1 270.0 271.0Creditors Period (days) 165.8 129.7 135.0 135.0Inventory Period (days) 14.0 11.6 12.0 12.0

(C) Measures of InvestmentEPS (Rs) 10.6 9.5 11.3 14.5Book Value (Rs) 64.4 88.5 98.9 112.2 Earning Yield (%) 6.5 5.8 6.9 8.9 ROA (%) 14.1 7.6 7.0 8.0Return on Net Worth (%) 25.8 12.8 12.0 13.8Return on Cap. Emp. (%) 22.4 14.6 13.3 14.8 Interest Coverage (x) 7.9 4.6 4.0 4.4

(D) Measures of ValuationP/E (x) 15.4 17.3 14.5 11.3M. Cap to Sales (x) 5.2 4.5 3.8 3.1EV/Sales (x) 5.5 4.3 3.5 2.9EV/EBDITA (x) 11.7 9.3 7.5 6.1




Name Designation

Alpesh Porwal SVP & Head (Retail)

Rajesh Gupta Research Analyst

Megha Hemdev Research Associate

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