Result Update

September 1, 2016
Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Cox & Kings (CNKLIM)

Hold
| 200
12 months
7%

Muted growth in international operations

Whats Changed?
Target
EPS FY17E
EPS FY18E
Rating

Changed from | 160 to | 200

Changed from | 21.9 to | 17.3
Change from | 26.6 to | 25.6
Unchanged

Quarterly Performance
Q1FY17* Q1FY16*

YoY (%) Q4FY16* QoQ (%)

Revenue

699.2

682.0

2.5

471.0

48.5

EBITDA

313.1

327.2

-4.3

55.8

461.2

EBITDA (%)
Adjusted PAT

44.8
108.1

48.0 -320 bps

141.6

-23.7

11.8 3293 bps

150.8

-28.3

*As per IGAAP

Key Financials
| crore
Net sales
EBITDA
Net Profit
EPS (|)

FY15
2570.1
1011.9
92.2
5.3

FY16
2350.3
812.1
61.0
3.5

FY17E*
2531.3
906.9
298.6
17.3

FY18E*
2806.6
1044.2
440.4
25.6

FY15
35.0
37.4
5.2
1.2
3.5
11.9

FY16
52.8
56.5
6.7
1.3
2.5
9.2

FY17E*
10.8
11.5
6.0
1.2
10.9
11.2

FY18E*
7.3
7.8
5.0
1.0
14.0
12.4

Valuation summary
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)

Stock data
Particular
Mcap
Debt (FY16)
Cash & Invest(FY16)
EV
52 week H/L
Equity cap
Face value

| 187

Amount
| 3222 crore
| 4101 crore
| 1851 crore
| 5472 crore
| 317/141
| 84.6 crore
|5

Price performance (%)

1M

3M

6M

12M

Cox & Kings

2.7

32.1

32.8

-17.7

Nifty

-0.4

5.5

23.2

7.6

Research Analyst
Rashesh Shah
rashes.shah@icicisecurities.com
Devang Bhatt
devang.bhatt@iciciseccurities.com

ICICI Securities Ltd | Retail Equity Research

Cox & Kings results are not directly comparable with our estimates
due to adoption of new accounting standard IND-AS. During the
quarter, the company reported gross sales (including cost of tours) of
| 2,062.5 crore. Excluding cost of tours, net sales increased 2.5%
YoY to | 699.2 crore (below I-direct estimate of | 749.7 crore)
Growth remained lower mainly due to muted growth in international
operations. On the other hand, India-leisure growth remained
healthy, growing 14.6% YoY to | 220 crore
The EBITDA margin declined 320 bps YoY to 44.8% (below I-direct
estimate of 48.4%) led by an increase in other expenses (up 26.2%
YoY due to forex loss of | 38.0 crore)
Improved domestic outlook to drive topline, going forward
The outlook for leisure India is expected to be positive as the company
has witnessed robust summer booking in the quarter. Further, with
improved consumer sentiments, pick-up in corporate travel, increased
income from pay commission and OROP are expected to drive topline
growth over the next two years. In addition, C&K should be a key
beneficiary of any positive policy announcements (visa on arrival) given
the new governments thrust on tourism. However, increased competition
in leisure India will adversely impact margins.
However, outlook for international business remains a concern
The Paris and Brussels attack have adversely impacted the companys
international business (mainly Meininger and education business).
Further, despite Q1 and Q2 being the best quarters, Meininger is
expected to report muted topline growth over the next two quarters
mainly due to the adverse impact of the Brussels attack. However, over
the long term, we expect Meininger and education business to report
healthy growth led by 6800 bed addition at Meininger and 480 beds in
PGL UK (education business). Further, various divestments of subsidiaries
in leisure international (like Explore worldwide, Late rooms and
Superbreak) are likely to positively impact C&Ks EBITDA margins.
High leverage remains a concern
Over the years, despite various measures undertaken by the company to
reduce debt, it has remained at elevated levels. In FY16, the companys
debt has increased to | 4101 crore from | 3456.5 crore in FY15. However,
in the current quarter, the company was able to reduce gross debt by
~| 600 crore mainly led by equity infusion by the promoter, sale of non
core asset and working capital efficiency. Further, the company has
guided debt reduction of | 300-500 crore in the next few years. We
believe that if the company is able to achieve the same, it will lead to rerating of the stock from a longer term perspective.
Slowing growth in Europe, high debt to keep growth under check
We expect the companys domestic leisure segment to remain healthy
due to an improving macroeconomic outlook. However, through high
exposure in the European market (through Holiday Break), we expect the
overall revenue growth to remain muted. Further, elevated debt levels
and higher cost will keep margins under check. Accordingly, we maintain
HOLD recommendation on the stock with a revised target price of
| 200/share (i.e. valuing at 8x FY18E EPS). A major debt reduction
remains a key trigger for re-rating of the stock from a longer term
perspective.

Variance analysis
Q1FY17 Q1FY17E

Q1FY16

YoY (%)
2.5
-50.5
-4.4
NA

Q4FY16 QoQ (%)

Total Operating Income

Other Income
Employee Expenses
Advertisement expenses

699.2
14.1
192.8
0.0

749.7
21.5
222.5
39.9

682.0
28.5
201.6
0.0

471.0
11.8
214.5
19.2

48.5
20.0
-10.1
-100.0

Other expenses
EBITDA
EBITDA Margin (%)
Interest
Depreciation

193.4
313.1
44.8
67.3
26.3

124.7
362.6
48.4
55.7
45.6

153.3
26.2
327.2
-4.3
48.0 -320 bps
63.3
6.3
28.4
-7.3

181.5
6.6
55.8
461.2
11.8 3293 bps
63.6
5.7
53.2
-50.5

Less: Exceptional Items

PBT
Total Tax
Reported PAT

0.0
233.6
80.8
108.1

0.0
282.8
93.3
NA

0.0
264.0
79.6
64.6

NA
-11.5
1.4
67.3

470.8
-520.1
-16.1
107.1

NA
LP
-600.5
1.0

Adjusted PAT

108.1

154.5

141.6

-23.7

150.8

-28.3

Comments
Revenues increased 2.5% YoY druing the quarter mainly driven by 14.6% YoY growth
in leisure India

Increase in other expenses was due to forex loss of | 38 crore vs. forex gain of | 14
crore in Q1FY16
The fall in EBITDA margin was due to increase in other expenses

The decline in net profit was due to poor performance at operating level and lower
other income

Source: Company, ICICIdirect.com Research,* As per IGAAP

Change in estimates
(| Crore)
Revenue
EBITDA
EBITDA Margin (%)
PAT
EPS (|)

Old
2,589.9
968.8
37.4
370.4
21.9

FY17E
New % Change
2,531.3
906.9
35.8
298.6
17.3

-2.3
-6.4
-158 bps
-19.4
-20.9

Old
2,869.3
1,091.9
38.1
449.7
26.6

FY18E
New % Change
2,806.6
1,044.2
37.2
440.4
25.6

-2.2
-4.4
-85 bps
-2.1
-3.9

Comments
We have revised FY17E revenue estimate downwards led by poor outlook in
international business
We expect EBITDA margin to stabilise at 37.2% in FY18E

Source: Company, ICICIdirect.com Research, As per IGAAP

ICICI Securities Ltd | Retail Equity Research

Page 2

Company Analysis
Improved domestic outlook to drive topline, going forward
The outlook for leisure India is expected to be positive as the company
has witnessed robust summer booking in the quarter. Further, with
improved consumer sentiments, a pick-up in corporate travel, increased
income from pay commission and OROP are expected to drive topline
growth in the next two years. In addition, C&K should be a key beneficiary
of any positive policy announcements (visa on arrival) given the new
governments thrust on tourism. However, increased competition in
leisure India will adversely impact margins.
Exhibit 1: Revenue growth trend
3000
2500

| crore

2000
1500

1277

815

1000
500
0

1434

1140

621

612

649

674

140
147

224
176

262
235

331
297

372

418

481

537

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Leisure India

Leisure - RoW

HBR

Source: Company, ICICIdirect.com Research

Near term outlook for international business remains a concern

The Paris and Brussels attack have adversely impacted the companys
international business (mainly Meininger and education business).
Further, despite Q1 and Q2 being the best quarters, Meininger is
expected to report muted topline growth over the next two quarters
mainly due to the adverse impact of Brussels attack. However, over the
long term, we expect the Meininger and education business to report
healthy growth led by 6800 bed addition at Meininger and 480 beds in
PGL UK (Education business). Further, various divestments of subsidiaries
in leisure international (like Explore worldwide, Late rooms and
Superbreak) are likely to positively impact the companys margins.
Exhibit 2: Net profit growth trend
500.0
400.0

100.0

20.0

247.5

300.0
200.0

25.0

383.3

62.8

133.8

129.1

92.2

41.6

53.9

0.0
-100.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

-200.0

15.0
10.0
5.0

-300.0
-400.0

0.0
Net Profit (| crore) - LHS

Forex Gain/ (Loss)

EPS (|) - RHS

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

Expect revenue CAGR of 9.3% during FY16-18E

We expect net sales to grow at a CAGR of 9.3% in FY16-18E. The major
revenue growth driver would be leisure India, which is expected to grow
at a CAGR of 13.2% in FY16-18E on an expected recovery in demand
coupled with education growth assumption of 11.9% CAGR during the
same period.

Growth (%) - RS

Revenues (| crore) - LS

2,807

2,531

140.0
120.0
100.0
80.0
60.0
40.0
20.0
(20.0)

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

Q1FY17

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Revenues ( | crore) - LS

500.0

2,350

1,000.0

2,570

2,308

1,500.0

1,808

30.0

838

2,000.0
497

2,500.0

60.0

399

90.0

(30.0)
Q1FY14

120.0

3,000.0

FY10

200.0

3,500.0

287

400.0

150.0

FY09

471.0

511.9

699.2

Exhibit 4: Expect revenue CAGR of 9.3% during FY16-18E

685.4

682.0

467.0

489.6

867.4

495.0

600.0

407.7

800.0

586.2

1,000.0

738.7

818.8

Exhibit 3: Q1FY17 revenues increased 2.5% YoY

Growth (%) - RS

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Margins to improve led by improvement in demand

We expect operating margins to improve to 37.2% in the next two years
led by healthy asset utilisation and better demand growth. The net margin
is also expected to improve led by better performance at operating level.
Exhibit 5: Quarterly trend in margins

50.0
55.3

20.8

47.6 52.3

46.4

Q1FY17

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

20.9
44.8
32.8
32.2 25.8
48.0
2.6
21.7
11.0 17.3
11.8
17.3
9.4 13.2
7.6
-2.8
-9.3
-10.9
Q3FY14

Q2FY14

80.0
60.0
40.0
20.0
0.0
-20.0
-40.0
-60.0
-80.0

Exhibit 6: Annual trend in margins

-64.9

42.3

40.0

46.7

46.3
39.9

33.5

30.0
21.9

20.0

26.0

20.0
13.7

10.0

5.0

0.0

38.6

39.4

34.6

16.6

35.8 37.2

11.8
3.6

15.7

2.6

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
OPM (%)

OPM (%)

NPM (%)

Source: Company, ICICIdirect.com Research

NPM (%)

Source: Company, ICICIdirect.com Research

Increased leverage a concern

Over the years, despite various measures undertaken by the company to
reduce debt, it has remained at elevated levels. In FY16, the companys
debt increased to | 4101 crore from | 3456.5 crore in FY15. However, in
the current quarter, the company was able to reduce gross debt by
~| 600 crore mainly led by equity infusion by the company, sale of non
core asset and working capital efficiency. Further, the company has
guided at a debt reduction of | 300-500 crore in the next few years. We
believe that if the company is able to achieve the same, it will lead to a rerating of the stock from a longer term perspective.

ICICI Securities Ltd | Retail Equity Research

Page 4

Outlook and valuations

We expect the companys domestic leisure segment to remain healthy
due to an improving macroeconomic outlook. However, high exposure to
the European market (through Holiday Break), we expect overall revenue
growth to remain muted. Further, elevated debt levels and higher cost will
keep margins under check. Accordingly, we maintain HOLD rating on the
stock with a revised target price of | 200/share (i.e. valuing at 8x FY18E
EPS). Any major debt reduction remains a key trigger from a longer term
perspective.
Exhibit 7: Valuation
FY15
FY16
FY17E
FY18E

Sales
(| cr)
2570.1
2350.3
2531.3
2806.6

Growth
(%)
11.4
-8.6
7.7
10.9

EPS
(|)
5.3
3.5
17.3
25.6

Growth
(%)
-76.0
-33.8
389.3
47.5

PE
(x)
35.0
52.8
10.8
7.3

EV/EBITDA
(x)
5.2
6.7
6.0
5.0

RoNW
(%)
3.5
2.5
10.9
14.0

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

RoCE
(%)
11.9
9.2
11.2
12.4

500

102.0
100.0
98.0
96.0
94.0
92.0
90.0
88.0
86.0
84.0
82.0
80.0

(|)

400
300
200
100
0
Nov-14

Jan-15
Price

Mar-15

Jun-15

Idirect target

Aug-15

Nov-15

Consensus Target Mean

Jan-16

Apr-16

Jun-16

(%)

Recommendation history vs. consensus estimate

Aug-16

% Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date
Jul-11

Event
Acquires a stake in US-based travel company Radius for an undisclosed amount.

Jul-11
Jul-12
Jul-12
Dec-13
Jan-14
Mar-14
May-14
Sep-14
Nov-14
Jan-15
Oct-15
Dec-15

Cox & Kings acquires UK travel firm for | 2,300 crore

Cox & Kings inks pact with Singapore-based travel solutions and services provider Abacus International for distribution of services
Cox & Kings' arm opens visa application centres for Royal Norwegian Embassy across India
Cox & Kings' arm signs up for a new 802 bed hotel in Amsterdam
Cox & Kings expands its footprint in Australia
Cox & Kings inks partnership pact with Canada based tour operator
Cox & Kings' arm receives visa processing contract
Concludes sale of camping division
Concludes | 1000 crore QIP at | 305 per share
CARE upgrades the rating of long term bank facilities with issue of non-convertible debentures of the company to AA (double A) from AA-(Double A minus)
Acquires LateRooms.com for | 85 crore
Sells Explore Worldwide

Apr-16

Divest majority stake in Late Rooms and Superbreak

Source: Company, ICICIdirect.com Research

Top 10 Shareholders

Shareholding Pattern

Rank Name
1
Sneh Sadan Graphic Services Pvt. Ltd.
2
Kubber Investments Mauritius Pvt. Ltd.
3
LIZ Investments Pvt. Ltd.
4
Capital Research Global Investors
5
Standford Trading Pvt. Ltd.
6
Good (Anthony Bruton Meyrick)
7
HSBC Global Asset Management (Hong Kong) Limited
8
SSG Investment Holding India I, Ltd.
9
Kerkar (Urrshila)
10 Macquarie Investment Management Ltd.
Source: Reuters, ICICIdirect.com Research

Latest Filing Date

30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16

% O/S Position (m) Change (m)

18.7
33.0
0.0
10.4
18.3
0.0
9.7
17.2
0.0
5.0
8.9
0.0
4.1
7.3
7.3
3.4
6.0
0.0
2.8
5.0
0.0
2.7
4.8
0.0
2.6
4.6
0.0
2.6
4.6
0.0

(in %)
Promoter
FII
DII
Others

Jun-15 Sep-15 Dec-15 Mar-16

48.12
48.73
48.73
49.06
34.79
33.84
33.34
32.54
4.10
3.97
4.04
2.66
12.99
13.46
13.89
15.74

Jun-16
51.26
31.27
1.72
15.75

Recent Activity
Investor name
Standford Trading Pvt. Ltd.
Putnam Investment Management, L.L.C.
Waverton Investment Management Ltd.
The Vanguard Group, Inc.
First State Investments (Singapore)

Buys

Value
18.05
1.67
1.76
0.28
0.10

Shares
7.25
0.67
0.61
0.10
0.04

Sells
Investor name
India Capital Management Ltd
Mirae Asset Global Investments Co., Ltd.
Morgan Stanley Investment Management (India) Pvt. Ltd.
Fidelity Management & Research Company
Escorts Asset Management Ltd.

Value
-1.82
-0.98
-0.60
-0.47
-0.03

Shares
-0.73
-0.36
-0.27
-0.16
-0.01

Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

Financial summary
Profit and loss statement

| Crore
(| Crore)

(Year-end March)

Cash flow statement

| Crore

(Year-end March)

FY15

FY16

FY17E

Profit after Tax

92.2

61.0

298.6

FY18E
440.4

198.3

148.5

109.1

120.2
-173.3

FY15

FY16

FY17E

FY18E

2,570.1

2,350.3

2,531.3

2,806.6

Growth (%)

11.4

-8.6

7.7

10.9

(Inc)/dec in Current Assets

146.9

-399.8

11.5

Employee Expenses

914

831

853

926

Inc/(dec) in CL and Provisions

-598.8

-183.5

-237.9

-82.1

Advertisement expenses

140

128

133

147

CF from operating activities

-161.5

-373.8

181.2

305.3

Total operating Income

Other expenses

Add: Depreciation

504

579

638

689

(Inc)/dec in Investments

0.0

0.0

0.0

0.0

Total Operating Expenditure

1,558.3

1,538.2

1,624.4

1,762.4

(Inc)/dec in Fixed Assets

392.4

-270.7

-300.0

-300.0

EBITDA

Goodwilll on consolidation

780.6

657.9

0.0

0.0

Others

-111.1

0.0

158.1

224.1

1,062.0

387.2

-141.9

-75.9

16.4

0.0

0.0

0.0

-1,629.3

644.5

-500.0

-325.0

-19.9

-19.9

-20.3

-20.3
0.0

1,011.9

812.1

906.9

1,044.2

Growth (%)

13.7

-19.7

11.7

15.1

Depreciation

198.3

148.5

109.1

120.2

CF from investing activities

Interest

324.3

253.9

269.0

203.1

Issue/(Buy back) of Equity

53.5

54.3

56.4

94.7

234.0

159.2

585.2

815.6

Other Income
PBT
Profits from Associates

Inc/(dec) in loan funds

Dividend paid & dividend tax

-1.7

-0.9

-7.2

4.0

0.0

0.0

0.0

143.3

156.8

202.3

269.1

Others

779.8

-192.8

0.0

0.0

PAT

92.2

61.0

298.6

440.4

CF from financing activities

-853.1

431.8

-520.3

-345.3

Growth (%)

-76.0

-33.8

389.3

47.5

Net Cash flow

47.5

445.2

-480.9

-115.9

5.3

3.5

17.3

25.6

Opening Cash

1,358.6

1,406.1

1,851.2

1,370.3

Closing Cash

1,406.1

1,851.2

1,370.3

1,254.4

FY16

FY17E

FY18E

Total Tax

EPS (|)

Source: ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March)

| Crore
FY15

FY16

FY17E

FY18E

Liabilities
Equity Capital
Reserve and Surplus

Inc/(dec) in Sec. premium

Key ratios
(Year-end March)

84.7

84.7

84.7

84.7

2,462.6

2,310.8

2,589.1

3,009.3

EPS
Cash EPS

Total Shareholders funds

2,547.2

2,395.5

2,673.8

3,093.9

BV

Total Debt

3,456.5

4,101.0

3,601.0

3,276.0

DPS

28.7

210.3

214.3

218.3

6,032.4

6,706.8

6,489.1

6,588.3

Def Tax Liability

Total Liabilities

FY15

Per share data (|)

Assets

5.3

3.5

17.3

25.6

16.9

12.2

23.7

32.5

151.1

142.3

158.4

182.8

1.0

1.0

1.0

1.0

Operating Ratios (%)

EBITDA Margin

39.4

34.6

35.8

37.2

PBT / Total Operating income

5.0

13.7

16.6

3.6

Asset Turnover

0.4

0.3

0.3

0.4

Gross Block

2,892.6

3,163.3

3,539.3

3,889.3

Debtor days

2.2

1.7

1.8

1.9

Less: Acc Depreciation

1,097.1

1,245.6

1,354.7

1,474.9

Creditor days

6.5

5.1

6.1

6.6

Net Block

1,795.5

1,917.7

2,184.7

2,414.5

Return Ratios (%)

Capital WIP

226.0

226.0

150.0

100.0

RoE

3.5

2.5

10.9

14.0

Total Fixed Assets

2,021.5

2,143.7

2,334.7

2,514.5

RoCE

11.9

9.2

11.2

12.4

Goodwill on Cons

3,272.6

2,624.9

2,624.9

2,624.9

RoIC

15.7

12.5

13.8

14.7

32.4

92.2

92.2

92.2

3.3

0.1

0.1

0.1

35.0

52.8

10.8

7.3

Investments
Def Tax Assets
Inventory
Debtors

Valuation Ratios (x)

P/E

23.6

29.2

27.7

35.3

EV / EBITDA

5.2

6.7

6.0

5.0

1,180.5

1,398.6

1,387.0

1,461.0

EV / Net Sales

2.0

2.3

2.1

1.9

Loans and Advances

1,023.8

1,189.2

1,190.1

1,279.7

Market Cap / Sales

1.3

1.4

1.3

1.1

Cash

1,406.1

1,851.2

1,370.3

1,254.4

Price to Book Value

1.2

1.3

1.2

1.0

Total Current Assets

3,634.0

4,468.3

3,975.2

4,030.4

Solvency Ratios

Total Current Liabilities

2,150.7

1,967.2

1,729.2

1,647.2

Debt/EBITDA

3.4

5.0

4.0

3.1

Net Current Assets

1,483.3

2,501.1

2,245.9

2,383.2

Debt / Equity

1.3

1.7

1.3

1.0

Current Ratio

1.7

2.3

2.3

2.5

Quick Ratio

1.0

1.3

1.5

1.7

Misc Exp not W/f

Application of Funds

0.0

0.0

0.0

0.0

6,032.4

6,706.8

6,489.1

6,588.3

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Source: Company, ICICIdirect.com Research

Page 7

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 8

ANALYST CERTIFICATION
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