Make money when people holiday!
Cox and Kings (India) Limited or C&K is coming out with its IPO this week. The company is raising capital by way of fresh issue and an offer for sale by its existing shareholders. The company also has a provision for 30% of its QIB portion or roughly 15% of the total issue being offered to Anchor investors. I believe that this would be done on Tuesday one day before the IPO opens.
| Price Band | Rs. 316 to Rs.330 per Equity Share |
| Issue Size | 584.49 crs to 610.39 crs |
| Market Capitalisation post issue | 1988.36 crs to 2076.45 crs |
| Fresh issue by the Company | 1,54,50,000 Equity Shares |
| Offer for sale by existing shareholders | 30,46,640 Equity Shares |
| Total Issue Size | 1,84,96,640 Equity Shares |
| Reservation for employees | 2,00,000 Equity Shares |
| Net Issue to the Public | 1,82,96,640 Equity Shares |
| QIBs | 91,48,320 Equity Shares |
| Non-Institutional Buyers | 27,44,496 Equity Shares |
| Retail Individual Bidders | 64,03,824 Equity Shares |
| Equity shares outstanding after the Issue | 6,29,22,942 Equity Shares |
| Issue opens on | Wednesday, November 18, 2009 |
| Issue closes on | Friday, November 20, 2009 |
| Book Running Lead Manager | India Infoline Limited |
| Syndicate Member | Axis Bank Limited |
Business
The company is in the business of being a one stop shop for all your travel related needs concerning ticketing, visas and foreign exchange for travel in India, outside India or Into India. C&K provides leisure travel, corporate travel, arranges tours for groups and individuals according to their needs in India and abroad. They offer complete itineraries which include air tickets, local transportation, hotels, sightseeing and meals. For people travelling out of India with special needs such as vegetarian or Jain food this becomes a great help. Similarly such services are provided to people travelling into India. This is not limited to India but somebody from Japan could travel to USA and so on as well.
The Cox and Kings brand is one of the oldest travel brands globally and has evolved over 250 years. C&K has a pan India presence with over 255 touch points in 164 locations. It has a global presence being located in 20 different countries. It has presence in all segments of the travel and tourism industry either directly or through its relationships.
It has started a new business initiative where it processes visa applications for different countries or different missions. In India it processes visa applications for Malaysia and Singapore while outside India it processes visa applications for travel to India in Singapore, Dubai, Athens and Hong Kong. It also processes visas in the UK for travel to France.
Financials
The company presents its financials from the stage of net revenues being effectively gross margins. Net revenues are effectively sales minus cost of sales. The expenses related to personnel, finance costs any other costs and depreciation would then give profit before tax. C&K has shown impressive CAGR over the last three years with revenues growing at 66%, EBITDA growing at 81% and PAT growing at 80%. The company has been on an expansion mode and has made acquisitions consistently. They would continue to look at further acquisitions going forward. The net profit for the last three years has been Rs 29.7 crs, 42.6 crs and 62.8 crs. In the first quarter of the current year 2009-2010 the company has earned a net profit of Rs 40.58 crs which includes a component of gain of roughly Rs 14 crs on account of foreign exchange gain on term loan. If one were to exclude this the net profit would be roughly Rs 26 crs. Historically the company has certain amount of cyclicality in its business with the first half year contributing 45% of profits and the second half 55%.
Extrapolating these numbers it would be fair to assume that the company would earn between 105-115 crs in the current year and adding the exchange fluctuation is likely to end the year with a PAT of anywhere between 120-130 crs.
Objects of issue
| Acquisitions and other strategic initiatives | 150.00 crs |
| Repayment of Loans | 129.60 crs |
| Investments in Overseas Subsidiaries | 62.50 crs |
| Investment in Corporate office and upgrading existing operations | 60.00 crs |
| General Corporate Purposes | – |
| Meeting issue related expenses | – |
| Total | 402.1 crs |
The company would be raising by way of fresh issue at the top end Rs 510 crs.
Comparison
There is very little comparison possible as the only listed entity in a similar business is Thomas Cook which currently quotes at Rs 64.10 for a one rupee paid up share or Rs 641 for a comparable Rs 10 paid up share. The earnings or Pat for the year ended December 2008 were Rs 30.20 crs on an equity of Rs 16.08. This translates into an EPS of Rs 18.78 and a PE multiple of 34 times. Current year the equity has increased to Rs 21.15 crs and the net profit for nine months is Rs 19 crs. This translates into an EPS of Rs 11.98 on the expanded capital on an annualised basis and a PE of 53.52 times.
Comparing with C&K on March 09 earnings the company had a Pat of Rs 62.8 crs and in the first three months of Rs 40.58 crs. Taking our assumption at the lowest end we still assume a profit of Rs 110 crs for the year ended March 2010. On a post issue capital the EPS would be Rs 17.48. At the lower band his would mean a PE of 18.07 and at the higher end 18.87.
Compared to Thomas Cook I believe there is absolutely nothing to choose.
Conclusion
The growth in business is impressive and the industry is by and large immune to recession and different acts whether natural or unnatural. The demand for travel be it leisure or business is growing rapidly and everybody desires a hassle free trip. A player like Cox and Kings certainly has the edge in the same.
Investors should subscribe to the issue with a medium term investment horizon. Lack of comparison in the listed space and non-institutional holding in listed player Thomas Cook is a limited risk. One should not expect any major listing gains in the share.
Sebi disclaimer:- I intend to subscribe to the share issue
