TCIL InitiatingCoverage
- 1. THOMAS COOK (INDIA) INITIATE BUY CMP Rs57 TP Rs70 INITIATINGCOVERAGE KEY FINANCIALS (Rs mn) KEY RATIOS CY10 CY11 CY12E CY13E CY14E Net Sales 3,180 3,738 4,360 4,947 5,630 YoY Gr (%) 19.9 17.6 16.7 13.4 13.8 Op. Profits 893 1,057 1,185 1,373 1,637 OPM (%) 27.0 27.0 26.6 27.2 28.6 Adj. Net Profit 447 562 585 696 856 YoY Gr (%) 78.9 25.7 4.1 18.9 22.9 EPS (Rs) 2.1 2.7 2.8 3.3 4.0 ROCE (%) 12.2 12.4 11.5 12.7 13.8 RoE (%) 13.9 15.4 14.1 14.8 15.9 PER (x) 25.5 21.4 20.6 17.3 14.1 EV/ Net Sales (x) 3.6 3.1 2.7 2.3 2.1 EV/ EBITDA (x) 13.0 11.0 9.8 8.4 7.1 A Leading Travel and Forex Player We initiate coverage on Thomas Cook (India) (TCIL) with a BUY rating and TP of Rs70, (23% upside). We like TCIL for its: 1) leadership position in the Forex business, 2) Strong distribution network and brand name, 3) expected revenue CAGR of 15% over CY11-13E with Forex Business and Outbound Travel expected to grow at CAGR of 11% and 17% respectively, and 4) 152bps expansion in margin over CY11-14E owing to operational efficiency. Our TP of Rs70 discounts CY12 and CY13 EPS of Rs2.8 and Rs3.3 by 25.5x and 21.4x respectively. Forex Business and Outbound travel - Key revenue drivers TCIL has a strong presence in the highly profitable forex business and derives ~50% of its consolidated CY11 revenues from this segment. It is currently the only AD-II category dealer to operate an overseas NOSTRO account and is the single largest exporter of physical currency notes. We expect the forex business to grow at a CAGR of 11% over CY11-13E. The outbound segment is expected to grow at a CAGR of 17% over CY11-13E. We expect revenue to grow at a CAGR of 15% over CY11-13E. TCIL is also focusing on new growth initiatives such as: 1) Launch of multi-currency prepaid forex card in tie-up with Master Card, 2) Remittance business - The Company has tied up with 'MoneyGram' and 'XpressMoney' (UAE Exchange) for its remittance business and 3) Focus on online travel. Strong distribution network and Brand Name TCIL has a strong distribution network in India with nearly 215 locations by way of its own branches, and additional presence by way of Preferred Sales Agents (PSAs) and Franchisee Offices. To further expand its operations TCIL plans to expand its geographical reach over Tier-II & III cities. TCIL will also be able to use the 'Thomas Cook' Brand for the next 12.5 years allowing it to leverage the strength of the brand. EBITDA% to show 152bps improvement over CY11-14E We expect EBITDA margins to improve by 152bps over CY11-14E. Margin growth is expected to come from improved productivity and further operational efficiencies with change in ownership. We also expect the Mauritius subsidiary to improve financial performance going forward. However, with RBI allowing other AD-II Category players to operate NOSTRO accounts, we expect forex business to see margin pressures. VALUATIONS AND RECOMMENDATION TCIL has historically traded in the 1-year forward P/E band of 17x-25x. We assign a 1-year forward P/E multiple of 18x, considering a premium to the ~17.5x offered for the recent stake sale, and arrive at a target price of Rs70 for the stock (upside of 23%) based on a 1-year forward EPS of Rs3.9 (CY13E-Rs3.3, CY14E-Rs4.0). At CMP of Rs57, the stock trades at a 1-year forward P/E multiple of 17.8x. We thus initiate coverage on the stock with a 'BUY' rating and a target price of Rs70. STOCK DATA RELATIVE PERFORMANCE Market Cap (Rs. Bn.) 12.1 Book Value per share (Rs.) 18 Eq Shares O/S (F.V. Rs1) (mn) 213 Free Float (%) 12.9 Avg Traded Value (6 months) Rs43mn 52 week High/Low (Rs.) 77 / 32 Bloomberg Code TCIN Reuters Code THOM.BO PERFORMANCE (%) 1M 3M 12M Absolute (1.6) (10.8) 17.6 Relative (6.6) (20.9) 1.6 Initiating Coverage Sector: Travel and Tourism BSE Sensex: 18,753 TOP SHAREHOLDERS Name % holding Fairbridge Capital (Mauritius) 87.1 Public Shareholders 12.9 *As on Aug 16, 2012 21 September 2012 Abhishek Kumar +91-22-6618 6624 abhishek.kumar@pinc.co.in For rating objective and disclaimer, please refer to last page of the report PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO> 1 20 35 50 65 80 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 TCIL Sensex Rebased RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
- 2. 2 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH A) Strong presence in the highly profitable forex business TCIL has a strong presence in the highly profitable forex business. The company derives ~50%(PINCe) of its consolidated revenues from the forex business. The company is an authorized AD-II Category dealer and is the single largest exporter of physical currency notes in India. The company caters to a whole gamut of Authorized Money Changers (AMCs) which include Banks, FFMCs and RMCs as well as corporate and retail customers. It provides services such as buying/selling of currency notes, Traveler's cheques, Prepaid money cards, Pay Orders and Wire transfers. Till recently the company was the only AD- II category dealer allowed to operate an overseas NOSTRO account. It ships out the surplus currencies to overseas vendors. This allowed the company to better manage forex risk via its dealing room and also to offer a wide range of services. Strong regulations ensure high entry barriers - TCIL largest Indian player The foreign exchange currency market in India is highly regulated. With RBI tightly governing the issue of fresh licenses for AMCs, incumbents have a huge advantage. TCIL is one of the largest exporters of physical currency in the world and handles ~60% of the country's physical currency shipments. It handles ~1.6mn transactions annually. TCIL, UAE Exchange, Centrum and Weizmann Forex are the some of the top players in India operating in the forex space in addition to Banks. INVESTMENT RATIONALE Segment Customers Purpose Characteristics of Business Wholesale Retail Corporate Institutions (Banks, Full Fledged Money Changers, Restricted Money Changers) Individuals (Walkins at Shops & Airports,Agents) CorporateHouses (TravellingEmployees) Bulknoteconsolidation andbulksale Leisure, education, remittances,migration Business travel High volume and low margin business Extremely sensitive to market movements andpricing Relatively price inelastic at airports; some degreeofelasticityatnon-airportoutlets TypicallycorporatesarefromIT,manufacturing andfastmovingconsumergoodssectors Sensitivetoglobaleconomicconditions Source: Company National Regional Local Wholesale Retail ThomasCook(India)Ltd. HDFC Bank Weizmann Centrum UAE Exchange ThomasCook(India)Ltd. HDFC Bank Weizmann Centrum UAE Exchange Cos & Kings FRR Forex Axis Bank ICICI bank PherozeFramroze Das Money Changer LuluInternational Multi Money PherozeFramroze Multi Money VKC Credit & Forex Services RRSB Forex Large number of players who offloadtolargeexporters Largenumberofplayers Source: Company Forex Competitors Forex Segments
- 3. 3 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Travel and tourism to drive forex business Travel and tourism (T&T) is a major contributor of foreign exchange via inbound tourists who bring in forex and also via outbound customers who buy foreign currency. With the Inbound and Outbound tourism expected to grow at a rate of 6% and 12% respectively over CY10-15 (source:Euromonitor), we expect a strong growth in the foreign exchange earnings (FEEs). As a major player in the forex business, we expect TCIL's forex business to grow at a CAGR of 11% over CY11-13E (8% CAGR over CY09-11-PINCe). However, with the outbound travel segment expected to grow at a faster clip (~17%) than the forex business, the forex revenue contribution is expected to come down marginally over CY11-13E. Focus on Niche segments Remittance business - The remittance business (inward and outward) is a high growth business. Inward remittances to India are expected to cross USD70bn in 2012. TCIL has already entered into this space by tieing up with 'MoneyGram'. TCIL is the principal agent for 'MoneyGram' in India and has tied up with SBI. It has also tied up with 'Xpress Money' - a UAE Exchange offering, to offer its services at TCIL's forex counters. Multi currency pre-paid card - TCIL plans to launch a first of its kind multi currency forex pre-paid card in tie-up with Master Card. The card will support 8 currencies. The expected launch for this product is in Q4CY12. B)Expanding distribution network TCIL has a strong distribution network in India. It is one of the largest integrated travel groups in India with over 215 locations by way of its own branches, and additional presence by way of Preferred Sales Agents (PSAs)(166 nos) and Franchisee Offices (123 nos). The company also has branches in Sri Lanka and Mauritius with sales offices of Travel Corporation India (TCI) in 6 countries. These overseas counters help the company improve its geographical presence and also attract inbound customers. The company offers outbound tour packages consisting of numerous components to ~50 countries. TCIL has a total of 24 airport counters at 6 major airports (Mumbai, Delhi, Chennai, Cochin, Trivandrum and Bengaluru). These counters predominantly provide forex services to travelers. The airport counters are highly visible counters and generate strong business for TCIL. Source: Ministry of Tourism Forex Earnings From Tourism (USD bn) (USDbn) 0 5 1 0 1 5 2 0 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
- 4. 4 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Focus on expansion in Tier- II and III cities Astrong geographical spread is essential to garner business in T&T. TCIL's existing network along with a strong brand image has helped grow its T&T business. To further expand its operations TCIL plans to expand its geographical reach over Tier-II & III cities. Over the next 2-3 years the company plans to enter the top 100 cities in India (currently present in 90). The mode of expansion will be primarily via PSAs and Franchisees where the company does not incur any capex. In CY12 alone, TCIL increased its presence in 28 more locations. In addition, the tie-up with Indian Post will help improve its geographical spread which will augur well for its Forex business. LKP forex acquisition (Feb'2007) - huge fillip to forex business In 2007, TCIL merged its forex operations with LKP Forex Limited. With this, TCIL became the largest and fastest growing company in the retail foreign exchange and bank notes business. Prior to acquisition TCIL had 65 branches in 20 cities, while LKP, though with a smaller market share, had a larger network with 80 branches covering 26 cities. C)Outbound Travel - A key growth driver The travel segment accounts for ~50% of TCIL's total revenue. The outbound segment is expected to grow at a CAGR of 17% over CY11-13E. With the Indian outbound tourism showing a strong growth trend, we expect the outbound segment to be a key growth driver for TCIL. Rising affordability driving domestic and outbound travel in spite of rupee depreciation Despite a weak economy and reduced consumer confidence, attractive deals and increase in discretionary spending due to better affordability have led to 13% growth in the number of departures from India in 2010 which is expected to increase at a CAGR of 12% by 2015. In 2010, the most visited outbound countries were Singapore, Malaysia, the United Arab Emirates and Thailand.Apart from these, Egypt, Indonesia and Italy are the other emerging outbound destinations. USA and Singapore continued to be the top two destinations in terms of outgoing tourist expenditure in 2010, accounting for a combined share of nearly 20% of total outbound expenditure. TCIL's top destinations in terms of revenue are Europe, US and the Far East. The company offers package tours across price points ranging from Rs40,000/package in the budget category to Rs250,000/package in the premium category. Distribution Network CY09 CY10 CY11 CY12 Branches 146 160 163 170 Airport Counters 23 22 20 24 Franchisees (Gold circle partners) 32 72 110 123 PSA 190 184 150 166 Cities 72 72 78 90 Source: Company Outbound Services Air tickets Cruises Rail tickets Airport transfers Hotel accommodation Sightseeing Tour guides Visa Travel Insurance Packages Fully independent Tours Group inclusive Tours Source: Company
- 5. 5 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH A highly fragmented industry - Expected to grow at 10% over CY10-20E The Indian T&T Industry is estimated to be around Rs1,689bn (source: WTTC) and expected to grow by 10% CAGR over CY10-20E.According to EuroMonitor, over 2010-2015, Indian inbound tourism is expected to increase by a CAGR of 6%, whereas outbound and domestic tourism are expected to see CAGRs of 12% and 14% respectively. T&T is a highly fragmented industry with the top 5 players accounting for just ~10-12% of the total industry. However, we expect to see consolidation in this space, as smaller players will face significant margin pressures due to falling airline commissions. In spite of the hugely fragmented market, TCIL is well positioned to attract travel customers due to: a) A strong distribution network that spans 90 cities; 2) strong brand name; 3) integrated forex services to address their customers' foreign exchange needs; 4) other ancillary services such as passport & visa, insurance, etc and 5) the company offers outbound tour packages consisting of numerous components to ~50 countries. Providing all these services under one roof puts TCIL (and other such players) in an advantageous position as compared to pure play Travel operators. Strong FTAs to drive Inbound Tourism Foreign TouristArrivals (FTAs) in India during 2011 were 6.29 mn with a growth rate of 8.9% as compared to 5.78 mn with a growth of 11.8% during the year 2010 over 2009. The 8.9% growth rate was much better than UNWTO's projected growth rate of 4% to 5% for the world during the same period. (source:WTTC) We expect the inbound segment to grow at a CAGR of 12% over CY11-13E. Source: Ministry of Tourism No of National Departures from India (mn) Discretionary Spending (Rs bn) Source: Ministry of Tourism 0 4 8 12 16 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (mndepartures) (Rsbn) - 20,000 40,000 60,000 80,000 2005 2006 2007 2008 2009 2010 2011 2012P 2013E 2014E 2015E T&T segment competitors Segment Players Leisure Outbound Thomas Cook Cox & Kings Make My Trip SOTC Leisure Inbound Thomas Cook Cox & Kings SITA Kuoni Mercury Travels Online Players MakeMyTrip Yatra Source: Company Inbound Services Individual tours Group escorted tours MICE Emergency medical assistance Airporttransfers Excursions Source: Company Foreign Tourist Arrivals Region/Country International India's Share International India's Share Tourist Arrivals (%) Tourism Receipts (%) (In mn) (In USD bn) India 6.3 100 17.5 100 World 982.0 0.6 1,030.0 1.7 Emerging Economies 459.0 1.4 367.0 4.8 Asia and the Pacific 217.0 2.9 289.0 6.1 South Asia 12.4 51 23.1 76 Source: WTTC
- 6. 6 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH T&T - an important industry Travel & Tourism continues to be one of the world's largest industries. The total impact of the industry means that in 2011 it contributed 9% of global GDPor a value of over USD6trillion, and accounted for 255 mn jobs. Over the next ten years this industry is expected to grow by an average of 4% annually, taking it to 10% of global GDP, or approximately USD10 trillion. (Source:WTTC) The Indian Context The direct contribution of Travel & Tourism to GDP in India was Rs1,689.8bn (1.9% of total GDP) in 2011, and is forecast to rise by 7.6% in 2012, and to rise by 7.7% pa, from 2012- 2022, to RS3,805.2bn in 2022 (in constant 2011 prices). In 2011 Travel & Tourism directly supported 24,975,000 jobs (5.0% of total employment). This is expected to rise by 3.0% in 2012 and rise by 1.6% pa to 30,198,000 jobs (5.1% of total employment) in 2022. (Source:WTTC) According to EuroMonitor, over 2010-2015, Indian inbound tourism is expected to increase by a CAGR of 6%, whereas outbound and domestic tourism are expected to see CAGRs of 12% and 14% respectively. Recent Government Initiatives Current regulations and policies allow private sector companies to own and start operations in the tourism sector of India without much difficulty. Foreign Direct Investment is allowed for the development of tourism projects in the country. Hotels and tourism are declared high priority sectors, and FDI up to 100 % under the automatic route is permitted in this sector subject to certain conditions. In fiscal year 2012, the sector received FDI worth Rs40.4bn registering a growth of 188 % year-on-year (y/y). Further, In order to give greater impetus to development and promotion of tourism through public private partnerships (PPP), a National Tourism / Advisory Council has been setup which includes officials of various Ministries and Departments and experts in the field from private industry continues to play an important advisory role. Foreign Direct Investment in Hotel & Tourism SectorYear Number of Projects FDI (Rs bn) Y/Y Change FY09 489 20.98 NA FY10 582 35.66 70% FY11 403 14.05 -61% FY12 (Up to January) 427 40.41 188% Source: Ministry of Tourism
- 7. 7 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH D)Other growth drivers In addition to the basic forex and Travel related services, TCIL also provides other ancillary services such as passport & visa services, insurance, etc. This allows it act as a one stop shop for all travel related services. It also provides MICE related services which is a high growth segment and a focus area for TCIL. In addition, TCIL is also focusing on other growth initiatives such as: - 1) Multi-currency prepaid forex card in tie-up with Master Card 2) Remittance business - The Company has already a tie-up with 'MoneyGram' and 'XpressMoney' (UAE Exchange) for its remittance business. It further plans to tap into this segment and grow its revenue. 3) Focus on online travel - The online travel market size is estimated to be ~Rs250bn and growing at ~25%. TCIL plans to build its online capabilities further and provide all its current services through an online platform. This will help it increase its geographical reach further. The company currently provides services such as Air Tickets and Hotel Bookings via its online platform. Contribution from MICE business to go up TCIL is India's leading MICE player by sales. This business has witnessed a strong growth with key customers coming from pharmaceuticals, consumer durables, automotives and financial services industries. TCIL has corporate arrangements with a number of event management companies which enable it to provide comprehensive MICE solutions to its customers. E) Recent stake sale to have minimum business impact Thomas Cook PLC, UK (TCG) recently sold its entire (77%) stake in TCIL to Fairbridge Capital, Mauritius (Fairbridge). We believe that the recent stake sale should have negligible impact on TCIL's operations since revenue contribution from TCG was minimal Also, TCIL will be able to use the 'Thomas Cook' Brand name for a period of 12.5 years which will help it to continue leveraging the strong 'Thomas Cook' brand name. It can use this brand name in India, Sri Lanka and Mauritius. In other countries, TCIL plans to use the Travel Corporation India (TCI) brand name also to acquire inbound customers.
- 8. 8 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Revenue expected to grow at CAGR of 15% TCIL's consolidated revenue has shown a CAGR of 19% over CY09-11. Going forward, we expect revenue (excluding Other Income) to grow at a CAGR of 15% over CY11-13E. We expect the forex business and Travel segments, both of which contribute 50% each to overall revenues,togrowat11%and13%respectivelyoverCY11-13E.Consequentially,thecontribution of forex business is expected to come down marginally by CY13. EBITDA% to show 152bps improvement over CY11-14E We expect EBITDAmargins to improve by 152bps over CY11-14E. We expect improvement in margins to come from a) turn around in Mauritius subsidiary operations which will help improve margins (currently -ve 7% PATmargin), b) with the change in ownership, we expect improved operational efficiency. However, we expect the forex business, which contributes almost half of TCIL revenues, to see some margin pressure in the long term with RBI allowing other AD-II players to operate NOSTRO accounts. Key Revenue Growth Assumptions (%) CY12E CY13E CY14E Forex 10.1 11.6 11.9 Leisure Inbound 10.0 14.0 14.0 Leisure Outbound 15.0 20.0 20.0 Corporate 5.0 5.0 5.0 Source: PINC Research Source: PINC Research Revenue growth Source: PINC Research EBITDA Margin to imrove by 152bps over CY11-14E (Rsmn) (%) (Rsmn) FINANCIALS 0 8 16 24 32 CY09 CY10 CY11 CY12E CY13E CY14E EBITDA Margin (%) Net Margin (%) - 2,000 4,000 6,000 8,000 CY09 CY10 CY11 CY12E CY13E CY14E -20 -10 0 10 20 30 Total Revenue (Rs mn) Growth Rate (%) (RHS)
- 9. 9 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH CURRENCY CY12E/ CY13E/ CY12E/ CY13E/ CY12E/ CY13E/ CY12E/ CY13E/ FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E TCIL (PINCe) * INR 222 26.6 27.2 9.8 8.4 20.6 17.3 14.1 14.8 COX AND KINGS LTD INR 312 30.3 32.1 3.7 3.2 7.3 5.4 16.0 18.6 MAHINDRA HOLIDAYS & RESORTS INR 421 22.6 23.6 14.0 11.4 20.6 17.3 18.9 19.9 MAKEMYTRIP LTD USD 564 14.2 15.4 36.4 27.1 70.7 43.4 6.2 8.7 HANA TOUR SERVICE INC KRW 557 14.3 15.8 11.4 8.6 16.3 12.5 24.0 25.3 HUANGSHAN TOURISM DEVELOP-B CNY 872 30.4 31.4 9.4 7.9 10.3 8.9 15.5 15.9 EMEI SHAN TOURISM CO-A CNY 782 30.9 30.2 13.0 11.4 21.6 17.9 18.4 18.5 BEIJING CAPITAL TOURISM CO-A CNY 453 9.7 9.5 10.7 9.6 22.2 17.3 12.9 13.5 KUONI REISEN HLDG-REG(CAT B) CHF 992 3.8 4.0 3.4 3.0 8.3 6.9 9.8 11.7 H I S CO LTD JPY 1,159 3.4 3.3 2.0 2.0 8.3 7.9 12.8 12.2 RoE, RoCE and Asset Turnover to see an improvement With TCIL expanding its reach by way of franchisee, PSAs and online space, which do not require much capital, we expect the asset turnover to improve. Also with improving operational performance and reduced interest cost due to reduction in short term working capital debt we expect RoE and RoCE to improve over CY11-13E. Source: PINC Research Source: Bloomberg; * Dec ending (Rs mn) Q1CY10 Q2CY10 Q3CY10 Q4CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Q2CY12 Revenue 703 835 898 667 821 1,048 1,021 906 867 1,335 Expenditure 569 618 618 612 742 694 638 777 790 832 EBITDA 135 217 280 55 79 354 383 129 78 503 Other income 70 18 165 49 88 53 85 6 22 41 Interest 50 44 57 66 62 49 65 56 50 42 Depreciation 30 34 35 36 32 33 35 39 36 35 PBT 124 258 352 3 73 326 367 40 14 468 Tax 45 104 128 (13) 26 111 117 (10) 6 157 Reported PAT 79 153 225 15 47 215 250 50 8 310 EBITDA margin (%) 19.1 26.0 31.2 8.2 9.7 33.8 37.5 14.2 8.9 37.7 Reported EPS (Rs) 0.37 0.72 1.06 0.07 0.22 1.01 1.18 0.24 0.04 1.46 Source: Company (%) 0 5 10 15 20 CY09 CY10 CY11 CY12E CY13E CY14E RoE (%) RoCE (%) MKT CAP (USD MN) RoE and RoCE to see improvement HISTORICAL QUARTERLY PERFORMANCE GLOBAL PEER COMPERSION EBITDA MARGIN (%) EV/EBITDA (X) P/E (X) ROE (%)
- 10. 10 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH 1. Exchange rate fluctuations The forex business is highly sensitive to exchange rate fluctuation. It is primarily a volume driven business. Hence the depreciation in rupee (v/s USD) (~20%) over the past two years has helped drive up volumes and thus commissions. However, any appreciation in rupee from here on could have a reverse effect. Also, a depreciating rupee increases the cost for outbound travelers while reducing it for inbound tourists. Over the past 2 years, TCIL has been able to grow its passenger numbers by 19% CAGR over CY09-11 in spite of the rupee depreciating by 25% v/s the USD during the same period. 2. 100% FDI in T&T With 100% FDI allowed in the Travel and Tourism sector, more players are entering this space. However, we believe thatTCILis well positioned as compared to other unorganized players by offering a one stop shop for all travel related services (holiday packages, forex, visa and passport, MICE, Insurance, etc). 3. AD-II players allowed to operate NOSTRO accounts In its recentApr-12 circular, RBI has allowed allAD-II categoryAMCs to operate NOSTRO accounts. We believe that this is a negative for TCIL's forex business as it removes the essential monopoly (amongst AD-II players) of TCIL in this space. Although, there will not be any immediate impact on TCIL's business due to its experience and expertise in managing NOSTRO accounts and dealing room, over the next 2-3 years, competitors will be able to ramp up their offerings and compete with TCIL for market share. 4. T&T highly dependent on the economy The Travel and Tourism Industry is cyclical and sensitive to changes in the economy and this could have a significant impact on the company's operations and financial results. The sector may be unfavorably affected by factors such as changes in the global and domestic economies and changes in local market conditions. If the economic growth of India slows down there may be a gradual decline in the willingness for people to travel. KEY RISKS
- 11. 11 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH TCIL has historically traded in the 1-year forward P/E band of 17x-25x.The recent stake sale of 77% at a price of Rs50 implies a 1-year forward P/E of ~17.5x. We assign a 1-year forward P/E multiple of 18x, considering a premium to the ~17.5x offered for the recent stake sale, and arrive at a target price of Rs70 for the stock (upside of 20%) based on a 1- year forward EPS of Rs3.9 (CY12E-Rs3.3, CY13E-Rs4.0). At CMP of Rs57, the stock trades at a 1-year forward P/E multiple of 17.8x. We thus initiate coverage on the stock with a 'BUY' rating and a target price of Rs70. Source: Bloomberg, PINC Research 1-year forward P/E chart with histogram 9.3x 17.0x 24.7x 32.4x 40.1x Source: Bloomberg, PINC Research VALUATION & RECOMMENDATON Source: Bloomberg, PINC Research 1-year forward EV/EBITDA chart with histogram 6.3x 9.0x 11.7x 14.4x 17.1x Source: Bloomberg, PINC Research (Weeks) (Rs) (Weeks) (Rsmn) 0 40 80 120 160 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 0 25 50 75 100 125 13.4x 16.5x 20.3x 24.9x 30.6x 37.6x 46.2x 56.8x 0 7,500 15,000 22,500 30,000 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 0 25 50 75 100 5.7x 6.9x 8.3x 10.0x 12.0x 14.4x 17.4x 20.9x
- 12. 12 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Thomas Cook (India) Limited (TCIL) started its Indian operations in 1881 and is one of the largest integrated travel and travel related financial services company in India. It offers a broad spectrum of services that include: Leisure Travel (Outbound, Inbound and Domestic) Meeting, Incentives, Conferences and Exhibitions (MICE) Corporate Travel Management Foreign Exchange Insurance E-Business Visa & Passport services TCIL Foreign Exchange Business Details of the business have been provided below: TCIL offers the following products and services: Segment Customers Purpose Characteristics of Business Wholesale Retail Corporate Institutions (Banks, Full Fledged Money Changers, Restricted Money Changers) Individuals (Walkins at Shops & Airports,Agents) CorporateHouses (TravellingEmployees) Bulknoteconsolidation andbulksale Leisure, education, remittances,migration Business travel High volume and low margin business Extremely sensitive to market movements andpricing Relatively price inelastic at airports; some degreeofelasticityatnon-airportoutlets TypicallycorporatesarefromIT,manufacturing andfastmovingconsumergoodssectors Sensitivetoglobaleconomicconditions Source: Company Forex Segments COMPANY OVERVIEW Product Services Bank Notes Buying / Selling Export Services in 26 currencies TravelerCheques American Express Traveler Cheques Provided in six currencies: USD, GBP, Euro, JPY, AUD, CAD Prepaid Cards Re-loadableandacceptableat1millionATMs Denominated in: USD, GBP, Euro, JPY, AUD, CAD, CHF and SGD Pay Orders Foreign currency pay orders, payable in eight currencies WireTransfers Available in 10 currencies Money Gram Transfers Person-to-personmoneytransferservice Source: Company
- 13. 13 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH TCIL Travel Business Overview TCIL operates in the following segments in the travel and tourism business: 1) Leisure Outbound 2) Leisure Inbound 3) MICE 4) Domestic 5) Corporate 1) Leisure Outbound TCIL is India's leading outbound tour operator by sales and passengers. The company offers outbound tour packages consisting of numerous components to ~50 countries. It also acts as a sales agent for other travel operators. 2) Leisure Inbound TCIL is one of the top three inbound player in India by sales. Its key markets are Europe, USA and Japan. The company operates under two brands: Thomas Cook Travel Corporation of India (TCI) TCIL has a broad network of travel agents and tour operators worldwide with its own offices in the following international locations: Germany (Frankfurt) USA(New York) Spain (Madrid, Barcelona) Japan (Tokyo) UK Canada 3) MICE TCIL is India's leading MICE player by sales. This business has witnessed a strong growth with key customers coming from pharmaceuticals, consumer durables, automotives and financial services industries. TCIL has corporate arrangements with a number of event management companies which enable it to provide comprehensive MICE solutions to its customers. 4) Domestic Travel This business offers tour packages and individual tour components to domestic travelers. The company provides special air inclusive fixed departure tours for small and large groups; innovative weekend packages; travel partner for unique events. It utilizes multiple distribution channels including - own stores, Franchisees, travel agents, website. Moreover TCIL has tieups with local agents, hotels and guides to provide a broad range of destination management services to its customers. Outbound Services Air tickets Cruises Rail tickets Airport transfers Hotel accommodation Sightseeing Tour guides Visa Travel Insurance Packages Fully independent Tours Group inclusive Tours Inbound Services Individual tours Group escorted tours MICE Emergency medical assistance Airport transfers Excursions Source: Company Source: Company
- 14. 14 TCIL RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH 5) Corporate Travel TCIL is amongst the top three corporate travel players in India. The company provides both travel products and travel budget management services. The distribution channels for this business include - own stores, Service Excellence Centre and "implants" (dedicated agents in client office). TCIL has over 700 corporate clients, predominantly Indian MNCs. Company History Change of Ownership Subsidiaries The company has the following 100% owned subsidiaries: Corporate Services Air tickets Hotel accommodation Car rental Transfers Meet and assist Passport and visa services Foreign exchange services Insurance Date Event 1881 First Thomas Cook office established in India October 1978 Incorporated as Thomas Cook (India) Private Limited February 1983 IPO on the Bombay Stock Exchange December 2005 Dubai Financial acquires 100% of TCIM ltd December 2006 Acquisition of 100% in Travel Corporation (India) Limited February 2007 Merger with LKP Forex March 2008 Thomas Cook UK Limited acquires 55.8% in the company December 2008 TCIL issues 50.7m shares by way of a rights issue July 2010 TCIL enters into a seven-year agreement with New Delhi International Airport and launches nine foreign exchange counters September 2011 Signing of Mastercard agreement (pre-paid money card) Appointment of SBI as a MoneyGram sub-agent February 2012 Thomas Cook PLC puts up its ~77% stake in TCIL for sale May 2012 Sale of Thomas Cook PLC's majority stake in TCIL to Fairbridge Capital (Mauritius) Limited Source: Company Date Buyer Seller % stake Price/ share (Rs) December 2005 Dubai Financial LLC Thomas Cook Group 60.0% 46.2* March 2008 Thomas Cook Group Dubai Financial LLC 55.8% 107.0 May 2012 Fairbridge Capital Mauritius LLC Thomas Cook Group 77.2% 50.0 Source: Company * In May 2007 the company had a 10:1 stock split; share price has been adjusted accordingly Subsidiary Activities Source: Company TravelCorporation(India)Limited TC Visa Services (India) Limited Thomas Cook Insurance Services (India) Limited Indian Horizon Travel &Tours Limited Thomas Cook Lanka (Private) Ltd ThomasCookToursLimited Thomas Cook (Mauritius) Holding Company Limited: Thomas Cook (Mauritius) Holidays Limited ThomasCook(Mauritius)TravelLimited ThomasCook(Mauritius)OperationsCoLimited Tour & travel services in India Passport, visa and other related services TravelinsuranceforTCILcustomers Not YetActivated ForeignExchange Not YetActivated Holding company Tours &Travel, Foreign exchange Travel services ForeignExchange
- 15. Year Ended Dec. (Figures in Rs mn) Income Statement CY10 CY11 CY12E CY13E CY14E Balance Sheet CY10 CY11 CY12E CY13E CY14E Cash Flow Statement CY10 CY11 CY12E CY13E CY14E Key Ratios CY10 CY11 CY12E CY13E CY14E Net Revenues 3,180 3,738 4,360 4,947 5,630 Growth (%) 19.9 17.6 16.7 13.4 13.8 Other Operating Income 130 170 100 100 100 Employee Expenses 1,290 1,540 1,744 1,929 2,139 EBITDA 893 1,057 1,185 1,373 1,637 Growth (%) 22.9 18.4 12.1 15.8 19.2 Depreciation & amortisation 135 139 156 174 194 EBIT 758 918 1,029 1,199 1,442 Interest exp 222 235 181 176 165 Other income 176 124 - - - PBT 736 806 848 1,024 1,277 Income taxes 265 244 263 328 421 Exceptional items 24 - - - - Reported net income 472 562 585 696 856 Adjusted net income 447 562 585 696 856 Growth (%) 78.9 25.7 4.1 18.9 22.9 Adjusted EPS (Rs) 2.1 2.7 2.8 3.3 4.0 Growth (%) 78.6 25.6 3.7 18.9 22.9 Pre-tax profit 736 806 848 1,024 1,277 Depreciation & Amortisation 135 139 156 174 194 Total Tax Paid (149) (31) (263) (328) (421) Chg in working capital (720) 293 191 139 (52) Other operating activities 81 252 181 176 165 Cash flow from oper (a) 82 1,460 1,114 1,185 1,163 Capital Expenditure (397) (188) (191) (260) (270) Net Chg in Investments 214 (227) (99) (300) (300) Other investing activities 191 115 - - - Cash flow from inv.(b) 8 (300) (290) (560) (570) Free cash flow (a+b) 90 1,160 824 625 593 Equity raised/(repaid) 14 6 1 - - Debt raised/(repaid) 300 270 (561) (50) (100) Dividend (incl. Tax) (93) (92) (93) (93) (93) Other financing activities (203) (234) (181) (176) (165) Cash flow from fin (c) 18 (50) (834) (318) (358) Forex Fluctuation (9) 24 - - - Net chg in cash (a+b+c) 100 1,134 (11) 306 235 Equity Share Capital 212 212 213 213 213 Reserves & surplus 3,196 3,711 4,203 4,807 5,570 Shareholders' funds 3,407 3,923 4,416 5,020 5,783 Total Debt 2,016 2,286 1,725 1,675 1,575 Capital Employed 5,423 6,209 6,141 6,695 7,358 Net fixed assets 901 889 946 1,053 1,149 Cash & Cash Eq. 1,601 2,735 2,724 3,030 3,265 Net Other current assets 1,268 651 460 320 373 Investments 156 383 482 782 1,082 Other Assets 1,574 1,602 1,580 1,559 1,539 Net Deferred tax Assets (76) (50) (50) (50) (50) Total Assets 5,423 6,209 6,141 6,695 7,358 EBITDA (%) 27.0 27.0 26.6 27.2 28.6 Net Margin (%) 14.8 15.0 13.4 14.1 15.2 Dividend Yield (%) 0.7 0.7 0.7 0.7 0.7 Current Ratio (x) 2.2 2.1 1.9 1.8 1.8 Total Debt/equity (x) 0.6 0.6 0.4 0.3 0.3 Interest coverage ratio (x) 3.4 3.9 5.7 6.8 8.7 RoCE (%) 12.2 12.4 11.5 12.7 13.8 RoE (%) 13.9 15.4 14.1 14.8 15.9 EV/Net Sales (x) 3.6 3.1 2.7 2.3 2.1 EV/EBITDA (x) 13.0 11.0 9.8 8.4 7.1 P/E (x) 25.5 21.4 20.6 17.3 14.1 P/BV (x) 3.5 3.1 2.7 2.4 2.1 15 1-yr forward P/E Band 1-yr forward EV/EBIDTA (Rs) (Rsmn) TCIL 9.3x 17.0x 24.7x 32.4x 40.1x 6.3x 9.0x 11.7x 14.4x 17.1x RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH 0 7,500 15,000 22,500 30,000 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 0 40 80 120 160 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
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