A good start to the year has continued into the second quarter for Thomas Cook (India) Ltd. (TCIL). In quarter ended April '02, the company has topped the 21% turnover growth in 1QFY03. Considering the challenging operating environment experienced by the travel industry during the concerned period -- similar to the past 15 months -- 2QFY03 performance of the company is impressive.
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During February '02 the hospitality industry did witness improvement in occupancy, which could indicate better fortune for the travel industry. However, communal riots through March to May '02 and current escalation in border tensions is likely to have sabotaged a recover in the travel & tourism business. Having said that, we reckon domestic and outbound travel is likely to have exhibited more resilience, as the three months, March to May, are holiday season. Much of the company's add campaign was targeted towards outbound packages. As part of company strategy, TCIL primarily caters to the premium segment, which is less susceptible to downturns/shocks.
We had mentioned in our 1QFY03 report that TCIL is not interested in playing a turnover game but is more interested in profitable business. The strategy suggests focus on margins, which is reflected in the results. The company has been able to enhance pricing power by identifying innovative holiday packages to provide greater value for the consumer. Operating margins have also been buoyed by the ongoing cost control initiatives undertaken by the management. Advertising expenses, which had dropped YoY in the preceding quarter, have grown by 27% YoY in 2QFY03. Staff cost showed a YoY decline last quarter largely due to the company providing for a shortfall in gratuity provisions in the previous year.
The travel & tourism industry has been hit by a string of events over the past 15 months. With de-escalation at the border, we reckon, inbound tourism is likely to revive with a lag effect (travel advisory not re-called). However, re-instilled travel confidence in the region will coincide with slack season in the industry from June - September, which could limit upside. Considering the challenging operating environment in the first two quarters of FY03, the company could maintain similar turnover growth going into FY04. The Government -- central and state level -- seem to be making efforts to attract tourism.
At 277 the scrip is trading on a multiple of 18.1x 2QFY03 annualised earnings. Since our last quarterly report the stock has gained 11.7% and had risen to approximately Rs 300 in May '02. Technically, the stock is looking strong with resistance at Rs 280 and at Rs 300 levels. The scrip is trading near to its 3-year lows.
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