Thomas Cook (India) . Thomas Cook (India): Book your trip

What’s in a name? Ask the management of travel and forex company Thomas Cook (India) Limited (TCIL). Last week, it was at pains to point out that Thomas Cook (India) was not impacted by the collapse of British tour operator Thomas Cook. It explained that the Thomas Cook (India) Group has been an entirely different entity since August 2012, when Canada-based Fairfax Financial Holdings acquired 77 per cent stake in the former.

This was re-affirmed later in the week by rating agency CRISIL; in a bulletin, it said that the ratings of Thomas Cook (India) remain unaffected as the bankruptcy of Thomas Cook Plc in the UK has no linkage with Thomas Cook India . While Thomas Cook (India) is a brand licensee of the ‘Thomas Cook’ brand in India until November 2024, there is no shareholding or business linkage between the two companies. Thomas Cook (India) is evaluating various options including transitioning to a new brand. CRISIL has retained the rating at AA-/Stable on the long-term bank facilities and A1+ rating on the short-term bank facilities and short-term debt of Thomas Cook (India).

The strengths

The CRISIL bulletin says that the ratings continue to reflect Thomas Cook India’s dominant position in the forex business and strong brand equity in travel-related services, a comfortable capital structure and adequate liquidity. These strengths, the Crisil bulletin said, are partially offset by vulnerability of the travel business to geo-political risks and suboptimal performance of its vacation ownership and resorts business.

This should hopefully clear the air on the business of Thomas Cook (India). It could also mean revival in the fortunes of the Thomas Cook (India) stock, that has been mauled over the past few months over news about the debt woes of Thomas Cook UK. The overall market weakness and a muted performance in the June quarter also pulled down the stock. Since end-June, the TCIL stock has lost close to 40 per cent — from ₹230 to ₹138 currently. This presents a good buying opportunity for investors with a high-risk appetite. The price-to-book value of the stock is about 0.9 times, compared with the average of 2.7 times over the past three years.

On the business front, TCIL seems to be doing fine. The company says that on a comparable basis, its consolidated revenue from operations in FY19 grew about 18 per cent to ₹6,719 crore compared with FY 18, while operating profit (EBITDA) rose about 29 per cent Y-o-Y to ₹197 crore. Comparable profit before tax in FY19 jumped about 11 times to ₹57 crore from ₹5 crore in FY18. This good show was driven by strong revenue growth in the travel business (19 per cent Y-o-Y) and in the retail forex business (14 per cent y-o-y).

This good show on a comparable basis is contrary to the sharp decline in the reported revenue and profit of TCIL for FY19. The company explains this divergence between the comparable and reported results to adjustments in FY18 numbers pertaining to the de-consolidation of Quess Corp — a human resources (HR) company in which TCIL has about 49 per cent stake as portfolio investment.

In the recent June 2019 quarter, TCIL’s revenue from operations rose about 11 per cent Y-o-Y to ₹2,317 crore, but its net profit fell about 68 per cent Y-o-Y to ₹23 crore. The company attributes this weakness to disruptions such as the shutdown of Jet Airways, terrorist attacks in Sri Lanka and the negative accounting impact of Ind AS 116.

Well-positioned

Notwithstanding the weak show in the June 2019 quarter, the company’s long-term prospects seem healthy. As an integrated travel and financial services company with a wide retail presence, TCIL seems well-positioned to benefit from the growing appetite of Indians to travel, both within and outside the country. With strong brands, the company has a good presence across the travel business chain — domestic travel, outbound travel, corporate travel, MICE (meetings, incentives, conferences and events), destination management specialists (India and international), and forex.

The growth over the years has come through both the organic route and through acquisitions of companies such as Kuoni. There are many parts in the business organisation of TCIL (see graphic). Besides its mainstay travel and forex businesses, TCIL also has interests in the vacation ownership business (Sterling Holidays) and in the employee staffing business (Quess Corp). After the de-consolidation of Quess Corp, the chunk of TCIL’s revenue and profit is being contributed by travel and related services, followed by financial services.

The many moving parts in the consolidated business, seemingly complicated re-organisations and major accounting adjustments over the past couple of years, may have contributed to the drag in the stock. While Quess Corp is doing well, the losses in the vacation ownership business haven’t helped. The recent confusion with the namesake UK company added to the pain. With many of these concerns out of the way, and the vacation ownership paring losses, the stock’s prospects should improve. The recent GST cut on hotel tariffs should also aid the travel business.

The company has a strong balance-sheet with a comfortable leverage position and healthy cash and bank balance of ₹1,389 crore as of June 2019.

That said, investors should keep exposure to the stock limited. While long-term prospects seem good, weakness in economic growth, locally and internationally, could keep business growth subdued in the near-term. Also, the TCIL stock is a small-cap with market capitalisation of around ₹5,100 crore. Market volatility could harm such stocks more.

COMMENT NOW