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The stock of Cox & Kings has gained 29 per cent ever since the company’s board approved de-merger of the foreign exchange business into a separate financial services company on May 30. The stock closed up 5.3 per cent on the NSE on Thursday after hitting a 52-week high of ₹296.
The high interest in the stock is due to value creation for the company’s stakeholders, royalty payment which the company will receive from the newly-formed entity, reduction in the consolidated debt estimated due to the demerger and untapped business opportunity within the forex business.
The demerged company, which will be named Cox & Kings Financial Services Ltd (CKFSL), will be a wholly-owned subsidiary Cox & Kings.
19% stake in CKFSLCox & Kings will hold 19 per cent stake in CKFSL, while the balance 81 per cent would be held by existing shareholders of Cox & Kings on pro-rata basis as of record date. The new company will be listed on the stock exchanges.
CKFSL will use the Cox & Kings branding for a minimum period of five years, for which Cox & Kings will be paid a fixed royalty.
“With the number of outbound travellers from India due to touch 50 million by 2020 from approximately 21 million currently, there is a substantial and unique opportunity for the new company,” it said.
CKFSL is in the process of applying for a license to operate as a non-banking finance company (NBFC) and will add multiple product lines to its suite of offerings aimed primarily at the travel and tourism sector, including holiday finance and overseas student finance .
Low stake caps riskAnalysts estimate the market size of these two businesses at ₹61,000 crore and ₹2.25 lakh crore, respectively, and are largely untapped.
While the business is risky and challenging, the company’s low stake in the new entity caps the risk.
Besides, the company’s tours and travel business, especially on the domestic front is also on a strong footing given the data on robust air passenger traffic and foreign tourist arrivals. The management has also guided for debt reduction every year.
Earlier in June, ICICI Direct had upgraded the stock to ‘buy’ with a target price of ₹275.
Abhijit R Akella, analyst at IIFL sees further upside potential of 34 per cent given the target price of ₹375.
The value of Cox & Kings shares have almost doubled in a year.
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