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Edelweiss
Cox & Kings (Buy)
CMP: ₹319.75
Target: ₹381
We recently met Cox & Kings’ (C&K) management to get an update on the company’s business. The company has received the final cash proceeds from sale of its camping division, which it utilised to repay ₹850 crore debt. C&K’s current gross debt at ₹4,600 crore is down 15 per cent compared with ₹540 crore in March 2014. Management continues to guide for debt reduction of ₹250 crore and ₹500 crore in FY15 and FY16, respectively. Recent outbound booking trend in India portends significant recovery (of 25 per cent) in FY16.
We anticipate earnings of the company’s India leisure business to surge in FY16 (FY16E EPS growth of 49 per cent). In our view, post sale of the low-growing camping division, C&K’s business profile has improved dramatically — high growing leisure business and recession-free education business. Repayment of debt in FY16 (as guided) has potential to re-rate the stock further. We increase our FY16 earnings to account for lower interest expenses and depreciation.
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