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Thomas Cook: The right ingredients - Views on News from Equitymaster
 
 
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  • Mar 12, 2002

    Thomas Cook: The right ingredients

    Thomas Cook (India) Ltd., (TCIL) underwent several changes in calendar year 2001. C&N Touristic AG acquired the U.K based parent company, Thomas Cook Holdings in mid-2001 resulting in an indirect change in control of the Indian subsidiary. Although SEBI did grant exemption to C&N Touristic from making an open offer, it was subject to ratification by the minority shareholders. The resolution tabled in the extra-ordinary general meeting (EGM) was defeated, leading to the open offer for an additional 20% stake through Thomas Cook Overseas Ltd.

    (Rs m) 1QFY02 1QFY03 Change
    Net Sales 209 251 20.5%
    Other Income 37 3 -90.6%
    Expenditure 171 139 -18.7%
    Operating Profit (EBDIT) 38 112 198.8%
    Operating Profit Margin (%) 18.0% 44.7%  
    Interest 11 10 -9.4%
    Depreciation 16 14 -14.5%
    Profit before Tax 47 92 95.2%
    Extraordinary items (3) (1) -67.6%
    Tax 19 35 84.0%
    Profit after Tax/(Loss) 25 56 126.2%
    Net profit margin (%) 12.0% 22.4%  
    No. of Shares 15 15  
    Diluted Earnings per share* 6.8 15.5  
    P / E Ratio   16.1  
    *(annualised)      

    Post open offer, parent stake in the company has increased to 60%. TCIL has changed its accounting year from December to October, which is line with the parent's global business. Consequently, the company has announced its first quarter results for the period ending January '02. Full year results for FY02 ending October '01 is for a period of ten months. The preceding twelve months have been challenging for the travel & tourism industry.

    Obstacle course for the industry started with the Gujarat earthquake -- Gujaratis constitute the largest community in outbound travel. This was followed by the stock market scam and UTI imbroglio over April & May '01. The coup-de-grace was the September 11 incidents. And not to miss the general slowdown in the global economy. In light of these challenges, the company has declared impressive results. The company has managed to boost sales by focusing on the premium segment, which is less susceptible to downturns.

    In fact, the company seems to have emerged unscathed from these events. The meteoric rise in operating profits is due to higher sales combined with lower operating expenses. The company has managed to cut expenses across the board. Surprisingly, although advertising costs were slashed by 32% during the concerned quarter, the impact has not reflected on sales. The management undertook an audit to identify top expense heads in the company and attempt to reduce overheads on the same. These efforts seem to be bearing fruit. It also highlights cost consciousness on part of the management.

    The strong operating performance has percolated to the bottomline. The management was ebullient on the future prospects of the business. The recent budget is expected to have a salubrious effect on the industry. Government has extended service tax exemption for an additional year in the hospitality industry, expenditure tax will be imposed only on room tariffs in excess of Rs 3,000, outlay for tourism has been increased by 50% to Rs 2.3 bn. In addition six tourism circuits have been identified for development to international standards. Hampi has been identified as a world heritage site. Besides efforts are also being made to de-bottleneck transportation infrastructure. The Government does seem to be removing the shackles on the industry.

    In addition to benefits accruing from any improvement in the industry, TCIL has kept its sail trim so as to not lose any momentum. The company is offering innovative travel packages, which include reasonably priced weekend get-a-ways to Goa and rail 'yatra' to the pilgrimage sites in India. TCIL is not interested in playing a turnover game but is more interested in profitable business, at the same time offering best of breed services. This has been the guiding factor behind the communication campaign 'Best holidays - Honest prices', which is the value proposition offered by the company.

    At Rs 248, the scrip is trading on a multiple of 16x 1QFY03 annualised earnings. Over the last three years the scrip has been on a decline, as sales stagnated and profits declined. However, results for the concerned quarter seem to be suggesting a turnaround.

     

     

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