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Thomas Cook: Making the right moves...

Feb 26, 2003

Thomas Cook India Limited (TCIL), the travel related financial services major, recently declared results for its first quarter ended January (TCIL is an October year ending company). After consistently posting around 20% growth in revenues during the last 4 quarters in FY03, the company has made a slow start by posting 11% growth YoY for the first quarter. This can be attributed to the sluggishness in the outbound travel.

(Rs m) 1QFY03 1QFY04 % Change
Net Sales 251 278 10.5%
Other Income 3 6 69.9%
Expenditure 140 169 20.4%
Operating Profit (EBDIT) 111 109 -1.9%
Operating Profit Margin (%) 44.3% 39.3%
Interest 10 6 -37.8%
Depreciation 14 12 -10.9%
Profit before Tax 91 97 6.0%
Extraordinary items 0 0
Tax 35 32 -8.3%
Profit after Tax/(Loss) 56 65 14.8%
Net profit margin (%) 22.4% 23.3%
No. of Shares 14.6 14.6
Diluted Earnings per share* 15.4 17.7
P/E ratio 13.0
Annualised

TCILís operating margins slid to 39% levels from 44% a year earlier. This was because the company has been on an aggressive marketing drive, promoting the company not as a moneychanger but as a complete travel advisor. There has been a sharp spurt of 53% YoY in its advertising expenses and its overall expense cost has gone up 20% YoY during the quarter. As a complete travel advisor, The Thomas Cook group has purchased 85 small planes over the last couple of years for boosting its chartered business and is on the look out for acquiring resorts in Goa, Kerala and the Himalayas.

% of revenues 1QFY03 1QFY04
Advertising costs 5.3% 7.3%
staff costs 22.9% 21.8%
Other Exp 27.1% 31.6%
Total cost 55.3% 60.7%

In the outbound travel, there has been 22% growth YoY during the first quarter FY04 as the company has identified new destinations like China for travel. The company sees China, as a tourist destination with immense potential for growth.

The leisure travel business has had very good run during 2002, as there was an increase in the occupancies of the leisure hotels across the industry, while other segments like the business hotels remained under pressure. As a result of this good run for leisure hotels, TCIL also benefited from this upsurge.

Segment snapshot
(Rs m) 1QFY03 1QFY04 % Change
Sales - India 236.6 259.8 9.8%
PBIT 96.9 94.9 -2.1%
PBIT margin 40.9% 36.5%
Sales - Rest of World 14.8 18.1 22.1%
PBIT 4.0 7.8 94.7%
PBIT margin 26.9% 43.0%
Sales - Total 251.4 277.9 10.5%
PBIT 100.9 102.6 1.8%
PBIT margin 40.1% 36.9%

During October-February period the hospitality industry witnessed an improvement in occupancy, which indicates better fortunes for not only the industry, but for TCIL as well. However, the US-Iraq war threat still looms large on the industry. Having said that, we reckon domestic and outbound travel is likely to exhibit more resilience, as the next three months (March - May), are holiday season. Much of the company's ad campaign has been targeted towards outbound packages, which is not surprising given the segmentís higher profitability. As part of company strategy, TCIL primarily caters to the premium segment, which is less susceptible to downturns/shocks.

At Rs 230 the scrip is trading at a multiple of 13x 1QFY04 annualised earnings. With the travel and tourism industry seeing a turnaround after a string of negative events, we believe that the rest of FY04 is likely to see more growth. Though concerns of a possible US-Iraq war continue to temper sentiment in the short term, in the long term, the companyís growth strategy coupled with its strong brand name, make it one of the key benefactors of development in Indiaís hospitality industry.


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