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Thomas Cook: Hoping for a turnaround - Views on News from Equitymaster
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  • May 23, 2003

    Thomas Cook: Hoping for a turnaround

    Thomas cook India Ltd. (TCIL) announced its April quarter (2QFY04) results yesterday. The company posted a rather expected lackluster performance for the quarter. TCIL’s topline fell by 8% YoY, while the bottomline has taken a severe beating (down 58% YoY). Although, at first glance the figures may look disheartening but with the industry on the verge of a turn around, performance of the company going forward is likely to be on the better side.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Net Sales 255 235 -7.8% 506 513 1.3%
    Other Income 6 7 12.3% 9 12 33.7%
    Expenditure 165 187 13.8% 304 356 17.3%
    Operating Profit (EBDIT) 90 48 -47.3% 203 157 -22.7%
    Operating Profit Margin (%) 35.4% 20.3%   40.0% 30.6%  
    Interest 11 4 -68.3% 21 10 -54.2%
    Depreciation 12 10 -19.6% 26 22 -15.0%
    Profit before Tax 73 41 -44.0% 165 137 -16.8%
    Extraordinary items - -   (2)   -100.0%
    Tax 17 17 2.8% 52 49 -4.7%
    Profit after Tax/(Loss) 56 23 -58.2% 112 88 -21.2%
    Net profit margin (%) 21.8% 9.9%   22.1% 17.2%  
    No. of Shares 15 15   15 15  
    Diluted Earnings per share* 15.3 6.4   15.3 12.1  
    P / E Ratio         16.4  

    As was expected, the January to March period would not have been favourable for the industry, The US-Iraq war had slowed international travel movement. Not only the war but also the SARS virus deterred international tourists from travelling. In order to increase volumes domestic hospitality majors had to resort to alternative methods like inducing domestic travelers to travel within the region (India) and they met with success, although limited.

    TCIL has however does not seem to have been able to cash on the domestic travel during the April quarter as its Indian operations fell by over 8% YoY, which is apparent by the 13% fall in the travel related services segment however a heartening thing is that its other major business division i.e. financial services business has grown by 5% during the quarter. Not only has the topline fallen for its travel related business its operating margins for the segment has also fallen by over 35% YoY. This clearly indicates that the segment faced immense competition from other local players. Not only that, the company had to resort to issuing discount packages in order to increase volumes.

    During the quarter, the operating margins have taken a severe hit, as it is apparent from the table. TCIL has not been able to cut cost as expenses have gone up by 14% YoY. At the start of the year the company had announced that it would aggressively market its products. As a result of which advertising cost as a percentage of sales has gone up from 10% in April 2002 to over 12% during the current quarter. Not only that staff cost and other expenses have also gone up significantly during this period.

    A positive for the company is that the interest expense has gone down by 68% YoY. This is because interest rates have consistently been going down since the year 2001. This has helped the TCIL in not only borrowing at lower interest rates but also to restructure its other high cost debts. Depreciation expenses have also gone down by around 20% during the same period. But these positives have not helped the bottomline. Net profit margins have fallen from 22% to 10% during the current quarter.

    At 198 the scrip is trading on a multiple of 16.4x 2QFY04 annualised earnings. The industry is highly sensitive to any change in the geo-political situation both domestic and internationally. The industry could be seeing a turnaround during the later half of FY04, however in the short term the SARS virus continues to dampen sentiment towards the industry. The company would benefit strongly from the turnaround due to its extensive presence in India. However, in the short term it would be prudent to wait and watch for further developments.



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