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Thomas Cook: Off-season blues - Views on News from Equitymaster
 
 
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  • Aug 27, 2003

    Thomas Cook: Off-season blues

    Thomas Cook, India’s largest foreign exchange changer recently declared its 3QFY04 results. The company has posted lackluster numbers for the quarter ending July 31st 2003 (year ending October). Has the off-season caught up with the company or is there some other reason? Let’s delve deeper into the numbers.

    (Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
    Net Sales 258 267 3.3% 765 780 2.0%
    Other Income 5 7 44.2% 14 19 37.1%
    Expenditure 153 165 8.0% 456 521 14.2%
    Operating Profit (EBDIT) 106 102 -3.5% 308 259 -16.1%
    Operating Profit Margin (%) 40.9% 38.2%   40.3% 33.2%  
    Interest 4 1 -85.5% 25 10 -59.0%
    Depreciation 15 11 -27.3% 41 33 -19.5%
    Profit before Tax 91 97 6.2% 256 234 -8.6%
    Tax 35 35 2.5% 88 85 -4.0%
    Profit after Tax/(Loss) 57 62 8.4% 168 150 -11.0%
    Net profit margin (%) 22.0% 23.1%   22.0% 19.2%  
    No. of Shares 14.6 14.6   14.6 14.6  
    Diluted Earnings per share* 15.6 16.9   15.4 13.7  
    P / E Ratio   13.8     17.0  
    *(annualised)            

    As is apparent from the table above Thomas Cook has posted a 3% growth in topline on a YoY basis while the bottomline for the quarter has risen by 8%. Considering the fact that most hospitality majors have reported better numbers and are hopeful of a good FY04, Thomas Cook’s lacklustre performance is surprising. There has been an increase in tourist arrivals to the country during this period over the previous year. This has been confirmed by the department of Tourism, GOI. However, as the period between April-September has traditionally been the off-season period, it would not be appropriate to draw conclusions on the company’s prospects based on the present quarter performance.

    Business wise Breakup
    (Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
    Financial Services
    Sales 53.5 59.2 10.8% 224.9 241.7 7.5%
    % of Sales 20.7% 22.2%   29.4% 31.0%  
    PBIT 28.1 33.2 18.5% 141.0 149.8 6.2%
    PBIT margin 52.5% 56.1%   62.7% 62.0%  
    Travel & related business
    Sales 204.9 207.7 1.4% 539.7 538.1 -0.3%
    % of Sales 79.3% 77.8%   70.6% 69.0%  
    PBIT 111.0 104.1 -6.2% 248.7 227.0 -8.7%
    PBIT margin 54.2% 50.1%   46.1% 42.2%  
    Total
    Sales 258.3 267.0 3.3% 764.5 779.8 2.0%
    Less: Comman Expenditure 44.3 39.7 -10.3% 248.7 227.0 -8.7%
    PBIT 94.8 97.6 3.0% 141.0 149.8 6.2%
    PBIT margin 36.7% 36.6%   18.4% 19.2%  

    Thomas Cook already has a stranglehold in states like Goa and Kerala. It has also ventured into the northern and eastern regions by providing attractive holiday packages to tourists both domestic as well as international. The increase in regional coverage would definitely become a growth driver, going forward.

    During the quarter, revenues from the Financial Services segment went up by 11% YoY. The segment contributed 22% of total sales (up from 21% in 3QFY03). Travel & Related Business grew marginally (1% YoY) and formed the rest 78%, which has gone down from 79.3% in July 2002. The pressure on the topline was largely due to this segment.

    On the operations front, Thomas Cook’s operating margin has gone down by 270 basis points. This is largely due to an overall increase in expenses. Total expenses as a percentage of sales have gone up from 59% in 3QFY03 to 62% in the present quarter. This is largely due to the increase in the advertising and staff costs. This indicates that the company is trying to maintain an edge over the competition even in this off-season period.

    Even though the operating profits have taken a slight dip, net profits for the quarter have gone up which is largely due to the decrease in the interest and depreciation expenses. However, during the nine-month period (November 2002 – July 2003) net profits have also taken hit.

    At Rs 233 the scrip is trading on a multiple of 17x 9mFY04 annualised earnings. The scrip has reverted back to its previous year levels and is facing resistance at Rs 240 levels. Compared to last season, which was a complete wash out for the travel industry, the oncoming inbound season is likely to bring much-awaited respite to the travel and hospitality industry. We reiterate the next quarter would also remain subdued as that would also come towards the end of the slack season. Taking into consideration the volatility of the sector, caution at present levels should continue to be the mantra.

     

     

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