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Thomas Cook: 'Slack season' effect - Views on News from Equitymaster
 
 
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  • Aug 27, 2002

    Thomas Cook: 'Slack season' effect

    Thomas Cook (India) Ltd. (TCIL), recently reported third quarter performance for FY03. In the previous calendar year, the parent, Thomas Cook Holdings, was acquired by C&N Touristic AG. Consequently, TCIL changed the accounting year to November-October to align with the new parent company's financial reporting schedule.

    (Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
    Net Sales 233 258 11.0% 645 765 18.5%
    Other Income 5 5 -14.9% 45 14 -69.3%
    Expenditure 164 153 -7.0% 488 456 -6.6%
    Operating Profit (EBDIT) 69 106 54.0% 157 308 96.8%
    Operating Profit Margin (%) 29.5% 40.9%   24.3% 40.3%  
    Interest 1 4 631.4% 17 25 47.0%
    Depreciation 13 15 14.1% 45 41 -7.8%
    Profit before Tax 60 91 51.8% 140 256 82.8%
    Extraordinary items (3) (0) -86.1% (9) (2) -79.3%
    Tax 22 35 53.9% 49 88 80.3%
    Profit after Tax/(Loss) 35 56 61.9% 82 166 102.5%
    Net profit margin (%) 15.0% 21.8%   12.7% 21.7%  
    No. of Shares 14.6 14.6   14.6 14.6  
    Diluted Earnings per share* 9.6 15.5   7.5 15.2  
    P / E Ratio         16.0  
    *(annualised)            

    Over the past two quarters, YoY, TCIL has reported increasing turnover growth at above 20%. Third quarter topline performance could raise doubts among investors on future growth prospects. Having said that, one must note that the third quarter coincides with slack season (June-September) in the travel industry. The domestic outbound season ends towards May and inbound travel season commences towards the end of September, resulting in a vacuum in the interim. We reckon, business growth during this period is likely to be more challenging compared to peak season.

    As stated in our earlier TCIL quarterly reports, the company has indicated a focus on profitability. Operating margins, year-to-date (YTD), in FY03 have increased considerably and have remained firm in quarter ended July '02, which has lifted operating profits. TCIL could have managed to expand margins by introducing innovative holiday packages providing greater value for the consumer. And, by exercising a stringent control over costs. In the last fiscal, the management undertook an audit to identify top expense heads in the company with attempts to reduce overheads on the same. With the slack season, it seems, the company has adopted a strategy to reduce communication, as efficacy of the same could be limited. Advertising expense is down 70% YoY for the concerned quarter.

    We mentioned that upside to growth could be limited in the third quarter. Much of the fourth quarter, approximately two-thirds, will fall in the slack season. In an interview with Equitymaster, the management indicated that FY03 inbound travel season is not likely to be affected by events over March - June '02. To meet peak season demand, TCIL operates inbound charter flights -- approximately one everyday of the week -- with Goa and Kerala as top destinations. Recently, as per reports, considering the captive market, the company is contemplating acquiring hotels in Goa to get hold off gains along the travel value chain.

    At Rs 243, the scrip is trading on a multiple of 16x 3QFY03 annualised earnings. The scrip has recovered from Rs 230 levels and faces some resistance at Rs 245 levels. The scrip trading near to it's three lows and has underperformed the benchmark indices during this period. Compared to last season, which was a wash out for the travel industry, the oncoming inbound season is likely to bring much-awaited respite to the travel & hospitality industry.

     

     

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