COX AND KINGS LTD - ACCUMULATE

 

The brand ‘COX and KINGS’  ( C&K) need no explanation not only in India but in many countries around the world.Founded in 1758 in UK ,C&K is the oldest travel  company in the world.After changing many hands ,now this company owned by UK born Mr.ABM Good and India based Mr .Ajit Kerkar.Company came out with an IPO in India in 2009 and listed its stocks both in BSE and NSE .

                                       C&K is one of the largest travel companies in the world with a network in more than 20 countries including India ,Australia,  United Kingdom,USA ,Japan, ,Newzealand ,Sri Lanka , United Arab Emirates..etc. Company offering a wide array of travel related services in the field of Domestic Tourism,Business travel,Outbound tourism,Travel Insurance,currency exchange,Destination management,Visa processing services...etc.Like many other companies,it is not mere an arranger of tours but owns valuable assets like hotels,Mobile homes ..etc.Its hotel chain - Meininger  - runs 16 hotels across 10 cities in Europe with 7340 beds capacity .Recently company started its  720 bed hotel in Brussels, the capital of Belgium . In addition to this ,Company having 1300 permanent  homes and 7000 mobile homes which is using for its Camping business .Added to  own hotels ,C& K having strong tie-up with large hotel chains across the globe .Company is the leader in packaged tours in India with its brands like ‘Duniya Dekho’ ,’Bharat Dekho’..etc.Its European subsidiary is leading  Education and Camping business with well known brands like PGL,NST,Eurocamp,Keycamp..etc.

                                         I know , I could not convey the mammoth picture of this company and its size of operations into your mind through this brief note.Don’t think ,this is a small travel company arranging tour operations  but  it is a true Indian multinational .To get a better insight into company’s business and offerings ,I request you to go through the links of websites of C&K and its subsidiaries listed below.

1)      Cox and Kings

2)      Holidaybreak

3)      Meininger

4)      Eurocamp

5)      Keycamp

Investment rationale

Cox and Kings came out with an IPO in 2009 @ Rs.330  which oversubscribed 6 times.Thereafter  it divided its FV to Rs.5 and currently trading at its all time low price of Rs.87.This sharp price erosion happened mainly  due to the fear of  increasing  debt level which the company raised for acquiring ‘Holidaybreaks’ of UK for an amount of Rs.2250 Cr in an all cash deal. In many cases we have seen the failure of many companies due to high debt acquisitions .It happened  mainly due to lack of synergies in business and  failure to  integrate the business of acquired companies.Here the case is different,the acquired company having wonderful assets and a market leader in many of the segments it is operating and a perfect fit for C&K Almost 90% of its total capacity for education and camping business for 2014 is already booked and this point alone indicating its dominant position in UK market .Its integration with C&K  happened smoothly and the latest financial results giving a clear indication for that.C&K is now planning to introduce many new concepts of acquired companies in India too in near future.In the last FY ,company reported a consolidated turnover of Rs.1808 Cr and a net profit of Rs.248 Cr. In the recent June quarter alone company reported a Sale of Rs.586 Cr and a net profit of Rs.135 Cr. The past few years were not so good for travel and tourism sector due to various reasons.The severe recessionary pressure in western countries affected both tourism and business travels. But now the situation is changing  slowly in favor.The sharp depreciation of Indian currency making India as a preferred destination for many western travelers.On the other side, touring outside the country is becoming a passion even for middle class families in recent times even after rupee depreciation. Malaysia ,Singapore,Hong-Kong,Middle East ,USA ..etc are turning as hot destinations for Indian tourists.With revival in western economies , Business tours are expected to improve in future .With vast network in all these countries   Cox and kings will be one of the biggest beneficiary  of this changing trends.

Some more positive indications

Higher level of debt is considered as the major dampener for C&K .But company already initiated various steps to reduce its debt.In recent past City Venture Capital purchased a 30 % stake in one of C&K’s UK arm (Prometheon Holdings UK) for Rs.765 Cr. In last FY itself  Company re-paid Rs.200 Cr from its free cash flow. Management recently indicated that, their first priority will be the reduction of debt. As an indication of promoters increasing confidence in their company ,they recently hiked their stake through open market purchases. Even one of the most conservative investor in Indian Market - Life Insurance Corporation of India- declared their faith in the company  by acquiring  a 2 %   stake in the latest September  quarter.

                                                                                I believe ,this is a great Indian MNC ( now ) available at an attractive valuation at a time many positives are started to kick in.With robust cash flow and well experienced promoters ,company can manage the debt and move to new heights.Recommending to accumulate the stock . CMP Rs.87


Link to latest Annual Report HERE

 Disc: I have vested interest in C&K