Why Cox & Kings' stock is a good bet for investors

ET INTELLIGENCE GROUP: The stock of Cox & Kings has lost 15 per cent in the past six months compared with 4 per cent fall in the ET Hospitality index. The underperformance provides an opportunity for investors to consider the travel and tours company’s stock for further research given its focus on reducing debt, expansion of hostels and hotels business, and increased revenue visibility after the recent acquisition of hotels booking player LateRooms.

Within India, Cox & Kings provides various services — tour packages and meetings. Outside India, under its education brands PGL and NST, the company provides educational and learning tours to primary and secondary students in the UK and Europe, and budget hostels and hotels for students and travellers under the brand Meininger.

In 2011, the company acquired UK-based education and travel activity group Holidaybreak for £312 million, which increased its debt to Rs 4,737 crore. In the next four years, the company consolidated the business by selling less profitable camping division to reduce debt by Rs 1,815 crore by FY15.
Anil Khandelwal, CFO, Cox and Kings said: "Through cashflow from operations from leisure and education businesses, we plan to reduce the debt in the range of Rs 800-900 crore by FY17. This should result in interest savings of close to Rs 50 crore." Due to reduced leverage, there will be potential re-rating of the company’s stock.



Through its brand PGL, the company has more than 50 per cent market share in education tours industry in the UK. It has tie-ups with more than 5,000 schools in the UK and at present, it has 9,404 beds. By FY17, the company plans to expand its bed count by 1,500. Through NST, it provides experiential learning tours to secondary students in the UK. The company manages Meininger hotels with long-term lease rentals. In the next three years, the company plans to double bed capacity of Meininger from 7,000 beds.

In the next six months, revenue from the recently acquired LateRoms will improve the topline of Cox & Kings. LateRooms have 1,50,000 properties around the world and has a user base of 3.5 million. It generated net revenue of £50 million (close to Rs 497 crore)in the fiscal ended September 30, 2015.

In the September 2015 quarter, the company’s net revenues fell 21 per cent to Rs 685 crore on a year-on-year comparison while net profit fell 75 per cent to Rs 119 crore. The decline in performance was due to the selling of camping business of Holidaybreak whose contribution was not seen in the September 2015 quarter. On valuation front, considering its FY17 estimated earnings, Cox and Kings trades at EV/EBIDTA (enterprise value relative to operating profit before depreciation) of 4.7, which is lower than its historical average EV/EBIDTA of 7.1.