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With the benefits from its latest acquisition Holidaybreak PLC (HBR) likely to accrue from next year onwards, the stock of Cox & Kings makes for a good investment bet for the long term. While the domestic travel business has proved resilient to the slowdown, the company also benefits from a strong international presence through earlier acquisitions and its franchise network. Given these, Cox & Kings' valuations appear cheap. At current market price of Rs 174, the stock trades at about 10 times its likely FY13 per share earnings. This leaves sufficient room for growth in the long term, especially since the HBR acquisition promises to be a game changer. The acquisition diversifies C&K's revenue streams both on a product and geographic basis and opens up a wider customer base for both the companies to cross-sell their products and services. It will also help C&K reduce its dependence on leisure travel. While the company will not be able to extract synergies from HBR this year — HBR's capacities are typically booked well in advance — it should enjoy the advantages of bulk booking and capacity management across its businesses from FY13 onwards. In this regard, C&K's track record in successfully integrating operations and extracting synergies from its earlier acquisitions provides confidence.
In the quarter ended December 2011, while contribution from HBR boosted C&K's consolidated income by 163 per cent to Rs 284.6 crore, its seasonality (the acquisition came into effect in HBR's off-season) eclipsed the C&K's profit performance. As a result, C&K reported a consolidated loss of Rs 7.6 crore. HBR is likely to report profits in the June and September quarters. The acquisition, therefore, complements C&K's travel business, as HBR's revenues typically peak in July-August and September as against C&K's business peaks from March to the end of June.
With C&K expected to report robust growth in the domestic as well as rest of the world markets its consolidated financial performance can be expected to improve from FY13 onwards. This should help meet its debt payment obligations comfortably (net debt of Rs 3,200 crore as of December 2011).
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