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Thomas Cook: Analyst meet notes

Dec 19, 2003

Thomas Cook reported strong improvement in its performance during its fourth quarter ended October 2003 and this consequently managed to improve the performance of the company for the whole year. In an analyst meet held on Wednesday the company highlighted the key aspects of the travel and tourism industry and the prospects of the company going forward.The company's fourth quarter corresponds with the beginning of the holiday season and to that extent the recovery in its performance in the same was expected. With strong rise in tourist arrivals in the country, the company benefited immensely. In the analyst meet, the management indicated that the Indian tourism industry is likely to grow by 20% CAGR in the coming years as per the World Tourism Organisation (WTO). The management also indicated that the revival in the Indian economic growth (projected between 6%-7%) is further expected to aid strong growth in the travel and tourism industry.

With rising incomes and the emergence of a large middle class, domestic tourism is also likely to get a boost. The management indicated that any further liberalisation in the civil aviation industry might immensely benefit domestic tourism. Further, change in customer preferences and attitudes are likely to benefit integrated travel and tour operators like Thomas Cook. The management indicated that the positive trend in tourist arrivals to the country has been visible in the current year itself where they rose by 15% in 2003.

With most of last year's dampeners like SARS, Iraq war and terrorist attacks behind it, the tourism industry may see a normal tourist season this year. This coupled with the growing acceptance of India as an alternate tourist destination is likely to immensely help the industry. The management also highlighted its increasing reliance on technology to bring down its transaction costs. It plans to spend Rs 200 m in order to implement LAN, WAN and upgrading hardware and software systems.

In the analyst meet the company highlighted the growth prospects of the sector and, what Thomas Cook is doing in order to capture the same. While we feel that the growth rate mentioned by the company may be achievable, it will be a while before the same occurs, as there are still some structural impediments that will slow the whole process. Shortage of world-class hotels and related infrastructure as well as the snail's pace of liberalisation for the civil aviation industry will be the primary impediments to achieving the expected growth rates in tourist arrivals. At Rs 411, the stock is trading at a P/E multiple of 28x its annualised FY04 earnings.

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