Stock Fundamentals

Cox & Kings: Buy

Anand Kalyanaraman | Updated on January 22, 2018



The recent fall in the stock price adds to the attractiveness of this leading tour operator

The stock of tour operator Cox & Kings has lost nearly 30 per cent since our buy call in May. Muted performance in the June quarter, combined with sharp market volatility over the past few weeks, has dragged down the stock.

The fall though has increased the attractiveness of the stock as a long-term buying opportunity. One, its valuation is attractive.

On an enterprise value-to-operating profit (EV/EBITDA) basis, the stock trades at about five times the trailing 12-month earnings, much lower than the average eight times it traded at in the past three years.

The high price-to-earnings ratio of 46 times is misleading because net profit last year was impacted by amortisation of goodwill pertaining to the camping business sold last year.

Currency impact

Next, the company’s operational performance remains robust. The June quarter performance seems weak; the overall sales and operating profit (excluding camping) grew just 5 per cent and 3 per cent year-on-year, much lower than the double-digit growth in 2014-15.

But this was largely due to the appreciation of the rupee against the euro and the pound, currencies in which Cox & Kings gets much of its income. Also, the high base in the June quarter last year played spoilsport.

Given this, operating profit growth in constant currency terms (single digits to mid teens) across the company’s main businesses — leisure (both India and international), education tours and Meininger (hotel offering) — has been fairly good. The leisure India business, in fact, did very well with sales and profit growing 15-17 per cent.

The overall performance should get better in the coming quarters with the base effect wearing off. Also, it helps that the rupee has lost ground in recent weeks though it still trades stronger than the euro compared to a year ago.


With good potential across its various business segments, the company’s management is optimistic about growing its overall operating profit in double digits in 2015-16.

Bed additions in Meininger (17 per cent of revenue) are planned at a brisk pace, and the education tours business (30 per cent of revenue) is expanding into different geographies.

A unit called PGL, the major contributor to the education tour segment, is already booked nearly 90 per cent for 2015-16. The leisure businesses, both India and international, are seeing higher traffic.

The overall operating profit margin, at close to 50 per cent, remains quite healthy.

Besides, the sharp debt reduction of ₹1,800 crore last year has reduced interest costs significantly and has brought leverage to comfortable levels of about one time.

The company also repaid ₹62 crore in the June quarter and plans to continue paying similar amounts over the coming quarters. This should aid profitability at the net level.

Published on September 13, 2015

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