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Thomas Cook: Moving ahead

Jun 24, 2003

The hospitality sector has been in doldrums for the last couple of years. But now that the worst is probably over, the industry can look forward for better times. Compared to the historically low levels of 60% in FY02, occupancy rates have touched 75% levels in the last quarter. This is good news for not only the hoteliers but also for travel agencies. Thomas Cook India Limited (TCIL) is one such company, which stands to benefit. Let us take a look at the companyís various businesses and the profits generated from it. TCIL has been a provider of travel related services, both for domestic and foreign tourists. Apart from this, the company is also involved in the foreign exchange market. The company has also started travel insurance services during FY03, which makes it a one-stop travel shop.

% of total sales FY02 FY03
Financial services 19.4% 28.1%
Travel & related businesses 76.7% 71.9%
Others 4.0% 0.0%
Total sales 754 981
PBIT margin (%) 26.8% 33.5%
Regionwise breakup
India 95.6% 94.9%
Rest of the world 3.8% 5.1%

Coming to its core business i.e. travel related services, this segment in FY03 contributed to over 71% of its total revenues. This segment largely caters to issuing tickets, hotel bookings and arranging for local travel. However, this divisionís contribution has come down from 80% in FY01. This was mainly due to the geo-political events, which stumped not only international, but also domestic travel. However, even in these tough conditions, the PBIT margin for this segment has gone up from 29% in FY02 to 34% in FY03.

Financial services, as a percentage of net sales, contributed to 28% in FY03. This segment caters to the foreign exchange conversions and PBIT margin of this segment has also increased from 59% in FY02 to 62% in FY03. This is largely due to the appreciation of the Rupee as against the Dollar during the last few months and the Euro becoming stronger to the Dollar. As a result of the volatility in the conversion market, TCIL was able to extract bigger commissions and improve efficiencies.

Apart from these businesses, the company in FY03 added the insurance business giving the impression that it is looking at diversifying its business focus. The company became the first corporate agent for Tata AIG by providing non-life insurance. The insurance business is carried out through its fully owned subsidiary, Thomas Cook Insurance services (India) Limited.

Now that the industry is likely to move upwards, Thomas Cook would be one of the top beneficiaries as it already has its presence in over 16 cities in India and also a presence in all continents. Increased competition could create a dent in the operations of the company but given the expertise that TCIL exhorts, it seems to be in a better position to capitalize on any upturn. Currently the stock trades at Rs 210 at a P/E multiple of 16x its FY03 earnings. The stock has recovered over the last few weeks on the back of recovery in tourist arrivals. Though the risk profile of the stock is on the higher side owing to vulnerability to external factors, TCIL has an edge over competition. Perhaps the area of apprehension could be the planned diversification into hotel and insurance sector.


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