India Equity Analytics Today: Buy Stock of KPIT Tech
TCIL InitiatingCoverage
1. THOMAS COOK (INDIA)
INITIATE BUY
CMP Rs57
TP Rs70
INITIATINGCOVERAGE
KEY FINANCIALS (Rs mn)
KEY RATIOS
CY10 CY11 CY12E CY13E CY14E
Net Sales 3,180 3,738 4,360 4,947 5,630
YoY Gr (%) 19.9 17.6 16.7 13.4 13.8
Op. Profits 893 1,057 1,185 1,373 1,637
OPM (%) 27.0 27.0 26.6 27.2 28.6
Adj. Net Profit 447 562 585 696 856
YoY Gr (%) 78.9 25.7 4.1 18.9 22.9
EPS (Rs) 2.1 2.7 2.8 3.3 4.0
ROCE (%) 12.2 12.4 11.5 12.7 13.8
RoE (%) 13.9 15.4 14.1 14.8 15.9
PER (x) 25.5 21.4 20.6 17.3 14.1
EV/ Net Sales (x) 3.6 3.1 2.7 2.3 2.1
EV/ EBITDA (x) 13.0 11.0 9.8 8.4 7.1
A Leading Travel and Forex Player
We initiate coverage on Thomas Cook (India) (TCIL) with a BUY rating and TP
of Rs70, (23% upside). We like TCIL for its: 1) leadership position in the Forex
business, 2) Strong distribution network and brand name, 3) expected revenue
CAGR of 15% over CY11-13E with Forex Business and Outbound Travel expected
to grow at CAGR of 11% and 17% respectively, and 4) 152bps expansion in
margin over CY11-14E owing to operational efficiency. Our TP of Rs70 discounts
CY12 and CY13 EPS of Rs2.8 and Rs3.3 by 25.5x and 21.4x respectively.
Forex Business and Outbound travel - Key revenue drivers
TCIL has a strong presence in the highly profitable forex business and derives ~50% of
its consolidated CY11 revenues from this segment. It is currently the only AD-II category
dealer to operate an overseas NOSTRO account and is the single largest exporter of
physical currency notes. We expect the forex business to grow at a CAGR of 11%
over CY11-13E. The outbound segment is expected to grow at a CAGR of 17% over
CY11-13E. We expect revenue to grow at a CAGR of 15% over CY11-13E. TCIL is also
focusing on new growth initiatives such as: 1) Launch of multi-currency prepaid forex
card in tie-up with Master Card, 2) Remittance business - The Company has tied up
with 'MoneyGram' and 'XpressMoney' (UAE Exchange) for its remittance business
and 3) Focus on online travel.
Strong distribution network and Brand Name
TCIL has a strong distribution network in India with nearly 215 locations by way of its
own branches, and additional presence by way of Preferred Sales Agents (PSAs) and
Franchisee Offices. To further expand its operations TCIL plans to expand its
geographical reach over Tier-II & III cities. TCIL will also be able to use the 'Thomas
Cook' Brand for the next 12.5 years allowing it to leverage the strength of the brand.
EBITDA% to show 152bps improvement over CY11-14E
We expect EBITDA margins to improve by 152bps over CY11-14E. Margin growth is
expected to come from improved productivity and further operational efficiencies with
change in ownership. We also expect the Mauritius subsidiary to improve financial
performance going forward. However, with RBI allowing other AD-II Category players to
operate NOSTRO accounts, we expect forex business to see margin pressures.
VALUATIONS AND RECOMMENDATION
TCIL has historically traded in the 1-year forward P/E band of 17x-25x. We assign
a 1-year forward P/E multiple of 18x, considering a premium to the ~17.5x offered for
the recent stake sale, and arrive at a target price of Rs70 for the stock (upside of
23%) based on a 1-year forward EPS of Rs3.9 (CY13E-Rs3.3, CY14E-Rs4.0). At
CMP of Rs57, the stock trades at a 1-year forward P/E multiple of 17.8x. We thus
initiate coverage on the stock with a 'BUY' rating and a target price of Rs70.
STOCK DATA
RELATIVE PERFORMANCE
Market Cap (Rs. Bn.) 12.1
Book Value per share (Rs.) 18
Eq Shares O/S (F.V. Rs1) (mn) 213
Free Float (%) 12.9
Avg Traded Value (6 months) Rs43mn
52 week High/Low (Rs.) 77 / 32
Bloomberg Code TCIN
Reuters Code THOM.BO
PERFORMANCE (%)
1M 3M 12M
Absolute (1.6) (10.8) 17.6
Relative (6.6) (20.9) 1.6
Initiating Coverage
Sector: Travel and Tourism
BSE Sensex: 18,753
TOP SHAREHOLDERS
Name % holding
Fairbridge Capital (Mauritius) 87.1
Public Shareholders 12.9
*As on Aug 16, 2012
21 September 2012
Abhishek Kumar +91-22-6618 6624
abhishek.kumar@pinc.co.in
For rating objective and disclaimer, please refer to last page of the report
PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO> 1
20
35
50
65
80
Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
TCIL Sensex Rebased
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
2. 2
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
A) Strong presence in the highly profitable forex business
TCIL has a strong presence in the highly profitable forex business. The company derives
~50%(PINCe) of its consolidated revenues from the forex business. The company is an
authorized AD-II Category dealer and is the single largest exporter of physical currency
notes in India. The company caters to a whole gamut of Authorized Money Changers
(AMCs) which include Banks, FFMCs and RMCs as well as corporate and retail customers.
It provides services such as buying/selling of currency notes, Traveler's cheques, Prepaid
money cards, Pay Orders and Wire transfers. Till recently the company was the only AD-
II category dealer allowed to operate an overseas NOSTRO account. It ships out the surplus
currencies to overseas vendors. This allowed the company to better manage forex risk via
its dealing room and also to offer a wide range of services.
Strong regulations ensure high entry barriers - TCIL largest Indian player
The foreign exchange currency market in India is highly regulated. With RBI tightly governing
the issue of fresh licenses for AMCs, incumbents have a huge advantage. TCIL is one of
the largest exporters of physical currency in the world and handles ~60% of the country's
physical currency shipments. It handles ~1.6mn transactions annually. TCIL, UAE
Exchange, Centrum and Weizmann Forex are the some of the top players in India operating
in the forex space in addition to Banks.
INVESTMENT RATIONALE
Segment Customers Purpose Characteristics of Business
Wholesale
Retail
Corporate
Institutions
(Banks, Full Fledged Money
Changers, Restricted Money
Changers)
Individuals
(Walkins at Shops &
Airports,Agents)
CorporateHouses
(TravellingEmployees)
Bulknoteconsolidation
andbulksale
Leisure, education,
remittances,migration
Business travel
High volume and low margin business
Extremely sensitive to market movements
andpricing
Relatively price inelastic at airports; some
degreeofelasticityatnon-airportoutlets
TypicallycorporatesarefromIT,manufacturing
andfastmovingconsumergoodssectors
Sensitivetoglobaleconomicconditions
Source: Company
National Regional Local
Wholesale
Retail
ThomasCook(India)Ltd.
HDFC Bank
Weizmann
Centrum
UAE Exchange
ThomasCook(India)Ltd.
HDFC Bank
Weizmann
Centrum
UAE Exchange
Cos & Kings
FRR Forex
Axis Bank
ICICI bank
PherozeFramroze
Das Money Changer
LuluInternational
Multi Money
PherozeFramroze
Multi Money
VKC Credit & Forex Services
RRSB Forex
Large number of players who
offloadtolargeexporters
Largenumberofplayers
Source: Company
Forex Competitors
Forex Segments
3. 3
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
Travel and tourism to drive forex business
Travel and tourism (T&T) is a major contributor of foreign exchange via inbound tourists
who bring in forex and also via outbound customers who buy foreign currency. With the
Inbound and Outbound tourism expected to grow at a rate of 6% and 12% respectively over
CY10-15 (source:Euromonitor), we expect a strong growth in the foreign exchange earnings
(FEEs). As a major player in the forex business, we expect TCIL's forex business to grow
at a CAGR of 11% over CY11-13E (8% CAGR over CY09-11-PINCe). However, with the
outbound travel segment expected to grow at a faster clip (~17%) than the forex business,
the forex revenue contribution is expected to come down marginally over CY11-13E.
Focus on Niche segments
Remittance business - The remittance business (inward and outward) is a high growth
business. Inward remittances to India are expected to cross USD70bn in 2012. TCIL has
already entered into this space by tieing up with 'MoneyGram'. TCIL is the principal agent
for 'MoneyGram' in India and has tied up with SBI. It has also tied up with 'Xpress Money'
- a UAE Exchange offering, to offer its services at TCIL's forex counters.
Multi currency pre-paid card - TCIL plans to launch a first of its kind multi currency forex
pre-paid card in tie-up with Master Card. The card will support 8 currencies. The expected
launch for this product is in Q4CY12.
B)Expanding distribution network
TCIL has a strong distribution network in India. It is one of the largest integrated travel
groups in India with over 215 locations by way of its own branches, and additional presence
by way of Preferred Sales Agents (PSAs)(166 nos) and Franchisee Offices (123 nos).
The company also has branches in Sri Lanka and Mauritius with sales offices of Travel
Corporation India (TCI) in 6 countries. These overseas counters help the company improve
its geographical presence and also attract inbound customers. The company offers outbound
tour packages consisting of numerous components to ~50 countries.
TCIL has a total of 24 airport counters at 6 major airports (Mumbai, Delhi, Chennai, Cochin,
Trivandrum and Bengaluru). These counters predominantly provide forex services to travelers.
The airport counters are highly visible counters and generate strong business for TCIL.
Source: Ministry of Tourism
Forex Earnings From Tourism (USD bn)
(USDbn)
0
5
1 0
1 5
2 0
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
4. 4
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
Focus on expansion in Tier- II and III cities
Astrong geographical spread is essential to garner business in T&T. TCIL's existing network
along with a strong brand image has helped grow its T&T business. To further expand its
operations TCIL plans to expand its geographical reach over Tier-II & III cities. Over the
next 2-3 years the company plans to enter the top 100 cities in India (currently present in
90). The mode of expansion will be primarily via PSAs and Franchisees where the company
does not incur any capex. In CY12 alone, TCIL increased its presence in 28 more locations.
In addition, the tie-up with Indian Post will help improve its geographical spread which will
augur well for its Forex business.
LKP forex acquisition (Feb'2007) - huge fillip to forex business
In 2007, TCIL merged its forex operations with LKP Forex Limited. With this, TCIL became
the largest and fastest growing company in the retail foreign exchange and bank notes
business. Prior to acquisition TCIL had 65 branches in 20 cities, while LKP, though with a
smaller market share, had a larger network with 80 branches covering 26 cities.
C)Outbound Travel - A key growth driver
The travel segment accounts for ~50% of TCIL's total revenue. The outbound segment is
expected to grow at a CAGR of 17% over CY11-13E. With the Indian outbound tourism
showing a strong growth trend, we expect the outbound segment to be a key growth driver
for TCIL.
Rising affordability driving domestic and outbound travel in spite of rupee
depreciation
Despite a weak economy and reduced consumer confidence, attractive deals and increase
in discretionary spending due to better affordability have led to 13% growth in the number
of departures from India in 2010 which is expected to increase at a CAGR of 12% by 2015.
In 2010, the most visited outbound countries were Singapore, Malaysia, the United Arab
Emirates and Thailand.Apart from these, Egypt, Indonesia and Italy are the other emerging
outbound destinations. USA and Singapore continued to be the top two destinations in
terms of outgoing tourist expenditure in 2010, accounting for a combined share of nearly
20% of total outbound expenditure.
TCIL's top destinations in terms of revenue are Europe, US and the Far East. The company
offers package tours across price points ranging from Rs40,000/package in the budget
category to Rs250,000/package in the premium category.
Distribution Network
CY09 CY10 CY11 CY12
Branches 146 160 163 170
Airport Counters 23 22 20 24
Franchisees (Gold circle partners) 32 72 110 123
PSA 190 184 150 166
Cities 72 72 78 90
Source: Company
Outbound Services
Air tickets
Cruises
Rail tickets
Airport transfers
Hotel accommodation
Sightseeing
Tour guides
Visa
Travel Insurance
Packages
Fully independent Tours
Group inclusive Tours
Source: Company
5. 5
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
A highly fragmented industry - Expected to grow at 10% over CY10-20E
The Indian T&T Industry is estimated to be around Rs1,689bn (source: WTTC) and expected
to grow by 10% CAGR over CY10-20E.According to EuroMonitor, over 2010-2015, Indian
inbound tourism is expected to increase by a CAGR of 6%, whereas outbound and domestic
tourism are expected to see CAGRs of 12% and 14% respectively. T&T is a highly fragmented
industry with the top 5 players accounting for just ~10-12% of the total industry. However,
we expect to see consolidation in this space, as smaller players will face significant margin
pressures due to falling airline commissions.
In spite of the hugely fragmented market, TCIL is well positioned to attract travel customers
due to: a) A strong distribution network that spans 90 cities; 2) strong brand name;
3) integrated forex services to address their customers' foreign exchange needs; 4) other
ancillary services such as passport & visa, insurance, etc and 5) the company offers
outbound tour packages consisting of numerous components to ~50 countries.
Providing all these services under one roof puts TCIL (and other such players) in an
advantageous position as compared to pure play Travel operators.
Strong FTAs to drive Inbound Tourism
Foreign TouristArrivals (FTAs) in India during 2011 were 6.29 mn with a growth rate of 8.9%
as compared to 5.78 mn with a growth of 11.8% during the year 2010 over 2009. The 8.9%
growth rate was much better than UNWTO's projected growth rate of 4% to 5% for the
world during the same period. (source:WTTC)
We expect the inbound segment to grow at a CAGR of 12% over CY11-13E.
Source: Ministry of Tourism
No of National Departures from India (mn) Discretionary Spending (Rs bn)
Source: Ministry of Tourism
0
4
8
12
16
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(mndepartures)
(Rsbn)
-
20,000
40,000
60,000
80,000
2005
2006
2007
2008
2009
2010
2011
2012P
2013E
2014E
2015E
T&T segment competitors
Segment Players
Leisure Outbound Thomas Cook
Cox & Kings
Make My Trip
SOTC
Leisure Inbound Thomas Cook
Cox & Kings
SITA Kuoni
Mercury Travels
Online Players MakeMyTrip
Yatra
Source: Company
Inbound Services
Individual tours
Group escorted tours
MICE
Emergency medical assistance
Airporttransfers
Excursions
Source: Company
Foreign Tourist Arrivals
Region/Country International India's Share International India's Share
Tourist Arrivals (%) Tourism Receipts (%)
(In mn) (In USD bn)
India 6.3 100 17.5 100
World 982.0 0.6 1,030.0 1.7
Emerging Economies 459.0 1.4 367.0 4.8
Asia and the Pacific 217.0 2.9 289.0 6.1
South Asia 12.4 51 23.1 76
Source: WTTC
6. 6
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
T&T - an important industry
Travel & Tourism continues to be one of the world's largest industries. The total impact of
the industry means that in 2011 it contributed 9% of global GDPor a value of over USD6trillion,
and accounted for 255 mn jobs. Over the next ten years this industry is expected to grow
by an average of 4% annually, taking it to 10% of global GDP, or approximately USD10
trillion. (Source:WTTC)
The Indian Context
The direct contribution of Travel & Tourism to GDP in India was Rs1,689.8bn (1.9% of total
GDP) in 2011, and is forecast to rise by 7.6% in 2012, and to rise by 7.7% pa, from 2012-
2022, to RS3,805.2bn in 2022 (in constant 2011 prices). In 2011 Travel & Tourism directly
supported 24,975,000 jobs (5.0% of total employment). This is expected to rise by 3.0%
in 2012 and rise by 1.6% pa to 30,198,000 jobs (5.1% of total employment) in 2022.
(Source:WTTC)
According to EuroMonitor, over 2010-2015, Indian inbound tourism is expected to increase
by a CAGR of 6%, whereas outbound and domestic tourism are expected to see CAGRs
of 12% and 14% respectively.
Recent Government Initiatives
Current regulations and policies allow private sector companies to own and start operations
in the tourism sector of India without much difficulty. Foreign Direct Investment is allowed
for the development of tourism projects in the country. Hotels and tourism are declared
high priority sectors, and FDI up to 100 % under the automatic route is permitted in this
sector subject to certain conditions. In fiscal year 2012, the sector received FDI worth
Rs40.4bn registering a growth of 188 % year-on-year (y/y).
Further, In order to give greater impetus to development and promotion of tourism through
public private partnerships (PPP), a National Tourism / Advisory Council has been setup
which includes officials of various Ministries and Departments and experts in the field from
private industry continues to play an important advisory role.
Foreign Direct Investment in Hotel & Tourism
SectorYear Number of Projects FDI (Rs bn) Y/Y Change
FY09 489 20.98 NA
FY10 582 35.66 70%
FY11 403 14.05 -61%
FY12 (Up to January) 427 40.41 188%
Source: Ministry of Tourism
7. 7
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
D)Other growth drivers
In addition to the basic forex and Travel related services, TCIL also provides other ancillary
services such as passport & visa services, insurance, etc. This allows it act as a one stop
shop for all travel related services. It also provides MICE related services which is a high
growth segment and a focus area for TCIL.
In addition, TCIL is also focusing on other growth initiatives such as: -
1) Multi-currency prepaid forex card in tie-up with Master Card
2) Remittance business - The Company has already a tie-up with 'MoneyGram' and
'XpressMoney' (UAE Exchange) for its remittance business. It further plans to tap into
this segment and grow its revenue.
3) Focus on online travel - The online travel market size is estimated to be ~Rs250bn and
growing at ~25%. TCIL plans to build its online capabilities further and provide all its
current services through an online platform. This will help it increase its geographical
reach further. The company currently provides services such as Air Tickets and Hotel
Bookings via its online platform.
Contribution from MICE business to go up
TCIL is India's leading MICE player by sales. This business has witnessed a strong growth
with key customers coming from pharmaceuticals, consumer durables, automotives and
financial services industries. TCIL has corporate arrangements with a number of event
management companies which enable it to provide comprehensive MICE solutions to its
customers.
E) Recent stake sale to have minimum business impact
Thomas Cook PLC, UK (TCG) recently sold its entire (77%) stake in TCIL to Fairbridge
Capital, Mauritius (Fairbridge). We believe that the recent stake sale should have negligible
impact on TCIL's operations since revenue contribution from TCG was minimal
Also, TCIL will be able to use the 'Thomas Cook' Brand name for a period of 12.5 years
which will help it to continue leveraging the strong 'Thomas Cook' brand name. It can use
this brand name in India, Sri Lanka and Mauritius. In other countries, TCIL plans to use the
Travel Corporation India (TCI) brand name also to acquire inbound customers.
8. 8
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
Revenue expected to grow at CAGR of 15%
TCIL's consolidated revenue has shown a CAGR of 19% over CY09-11. Going forward, we
expect revenue (excluding Other Income) to grow at a CAGR of 15% over CY11-13E. We
expect the forex business and Travel segments, both of which contribute 50% each to overall
revenues,togrowat11%and13%respectivelyoverCY11-13E.Consequentially,thecontribution
of forex business is expected to come down marginally by CY13.
EBITDA% to show 152bps improvement over CY11-14E
We expect EBITDAmargins to improve by 152bps over CY11-14E. We expect improvement in
margins to come from a) turn around in Mauritius subsidiary operations which will help improve
margins (currently -ve 7% PATmargin), b) with the change in ownership, we expect improved
operational efficiency. However, we expect the forex business, which contributes almost half of
TCIL revenues, to see some margin pressure in the long term with RBI allowing other AD-II
players to operate NOSTRO accounts.
Key Revenue Growth Assumptions (%)
CY12E CY13E CY14E
Forex 10.1 11.6 11.9
Leisure Inbound 10.0 14.0 14.0
Leisure Outbound 15.0 20.0 20.0
Corporate 5.0 5.0 5.0
Source: PINC Research
Source: PINC Research
Revenue growth
Source: PINC Research
EBITDA Margin to imrove by 152bps over CY11-14E
(Rsmn)
(%)
(Rsmn)
FINANCIALS
0
8
16
24
32
CY09 CY10 CY11 CY12E CY13E CY14E
EBITDA Margin (%) Net Margin (%)
-
2,000
4,000
6,000
8,000
CY09 CY10 CY11 CY12E CY13E CY14E
-20
-10
0
10
20
30
Total Revenue (Rs mn) Growth Rate (%) (RHS)
9. 9
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
CURRENCY CY12E/ CY13E/ CY12E/ CY13E/ CY12E/ CY13E/ CY12E/ CY13E/
FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E
TCIL (PINCe) * INR 222 26.6 27.2 9.8 8.4 20.6 17.3 14.1 14.8
COX AND KINGS LTD INR 312 30.3 32.1 3.7 3.2 7.3 5.4 16.0 18.6
MAHINDRA HOLIDAYS & RESORTS INR 421 22.6 23.6 14.0 11.4 20.6 17.3 18.9 19.9
MAKEMYTRIP LTD USD 564 14.2 15.4 36.4 27.1 70.7 43.4 6.2 8.7
HANA TOUR SERVICE INC KRW 557 14.3 15.8 11.4 8.6 16.3 12.5 24.0 25.3
HUANGSHAN TOURISM DEVELOP-B CNY 872 30.4 31.4 9.4 7.9 10.3 8.9 15.5 15.9
EMEI SHAN TOURISM CO-A CNY 782 30.9 30.2 13.0 11.4 21.6 17.9 18.4 18.5
BEIJING CAPITAL TOURISM CO-A CNY 453 9.7 9.5 10.7 9.6 22.2 17.3 12.9 13.5
KUONI REISEN HLDG-REG(CAT B) CHF 992 3.8 4.0 3.4 3.0 8.3 6.9 9.8 11.7
H I S CO LTD JPY 1,159 3.4 3.3 2.0 2.0 8.3 7.9 12.8 12.2
RoE, RoCE and Asset Turnover to see an improvement
With TCIL expanding its reach by way of franchisee, PSAs and online space, which do not
require much capital, we expect the asset turnover to improve. Also with improving
operational performance and reduced interest cost due to reduction in short term working
capital debt we expect RoE and RoCE to improve over CY11-13E.
Source: PINC Research
Source: Bloomberg; * Dec ending
(Rs mn) Q1CY10 Q2CY10 Q3CY10 Q4CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Q2CY12
Revenue 703 835 898 667 821 1,048 1,021 906 867 1,335
Expenditure 569 618 618 612 742 694 638 777 790 832
EBITDA 135 217 280 55 79 354 383 129 78 503
Other income 70 18 165 49 88 53 85 6 22 41
Interest 50 44 57 66 62 49 65 56 50 42
Depreciation 30 34 35 36 32 33 35 39 36 35
PBT 124 258 352 3 73 326 367 40 14 468
Tax 45 104 128 (13) 26 111 117 (10) 6 157
Reported PAT 79 153 225 15 47 215 250 50 8 310
EBITDA margin (%) 19.1 26.0 31.2 8.2 9.7 33.8 37.5 14.2 8.9 37.7
Reported EPS (Rs) 0.37 0.72 1.06 0.07 0.22 1.01 1.18 0.24 0.04 1.46
Source: Company
(%)
0
5
10
15
20
CY09 CY10 CY11 CY12E CY13E CY14E
RoE (%) RoCE (%)
MKT CAP
(USD MN)
RoE and RoCE to see improvement
HISTORICAL QUARTERLY PERFORMANCE
GLOBAL PEER COMPERSION
EBITDA MARGIN (%) EV/EBITDA (X) P/E (X) ROE (%)
10. 10
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
1. Exchange rate fluctuations
The forex business is highly sensitive to exchange rate fluctuation. It is primarily a
volume driven business. Hence the depreciation in rupee (v/s USD) (~20%) over the
past two years has helped drive up volumes and thus commissions. However, any
appreciation in rupee from here on could have a reverse effect. Also, a depreciating
rupee increases the cost for outbound travelers while reducing it for inbound tourists.
Over the past 2 years, TCIL has been able to grow its passenger numbers by 19%
CAGR over CY09-11 in spite of the rupee depreciating by 25% v/s the USD during the
same period.
2. 100% FDI in T&T
With 100% FDI allowed in the Travel and Tourism sector, more players are entering this
space. However, we believe thatTCILis well positioned as compared to other unorganized
players by offering a one stop shop for all travel related services (holiday packages,
forex, visa and passport, MICE, Insurance, etc).
3. AD-II players allowed to operate NOSTRO accounts
In its recentApr-12 circular, RBI has allowed allAD-II categoryAMCs to operate NOSTRO
accounts. We believe that this is a negative for TCIL's forex business as it removes the
essential monopoly (amongst AD-II players) of TCIL in this space. Although, there will
not be any immediate impact on TCIL's business due to its experience and expertise in
managing NOSTRO accounts and dealing room, over the next 2-3 years, competitors
will be able to ramp up their offerings and compete with TCIL for market share.
4. T&T highly dependent on the economy
The Travel and Tourism Industry is cyclical and sensitive to changes in the economy
and this could have a significant impact on the company's operations and financial
results. The sector may be unfavorably affected by factors such as changes in the
global and domestic economies and changes in local market conditions. If the economic
growth of India slows down there may be a gradual decline in the willingness for people
to travel.
KEY RISKS
11. 11
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
TCIL has historically traded in the 1-year forward P/E band of 17x-25x.The recent stake
sale of 77% at a price of Rs50 implies a 1-year forward P/E of ~17.5x. We assign a 1-year
forward P/E multiple of 18x, considering a premium to the ~17.5x offered for the recent
stake sale, and arrive at a target price of Rs70 for the stock (upside of 20%) based on a 1-
year forward EPS of Rs3.9 (CY12E-Rs3.3, CY13E-Rs4.0). At CMP of Rs57, the stock
trades at a 1-year forward P/E multiple of 17.8x. We thus initiate coverage on the stock
with a 'BUY' rating and a target price of Rs70.
Source: Bloomberg, PINC Research
1-year forward P/E chart with histogram
9.3x
17.0x
24.7x
32.4x
40.1x
Source: Bloomberg, PINC Research
VALUATION & RECOMMENDATON
Source: Bloomberg, PINC Research
1-year forward EV/EBITDA chart with histogram
6.3x
9.0x
11.7x
14.4x
17.1x
Source: Bloomberg, PINC Research
(Weeks)
(Rs)
(Weeks)
(Rsmn)
0
40
80
120
160
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
0
25
50
75
100
125
13.4x 16.5x 20.3x 24.9x 30.6x 37.6x 46.2x 56.8x
0
7,500
15,000
22,500
30,000
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
0
25
50
75
100
5.7x 6.9x 8.3x 10.0x 12.0x 14.4x 17.4x 20.9x
12. 12
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
Thomas Cook (India) Limited (TCIL) started its Indian operations in 1881 and is one of the
largest integrated travel and travel related financial services company in India. It offers a
broad spectrum of services that include:
Leisure Travel (Outbound, Inbound and Domestic)
Meeting, Incentives, Conferences and Exhibitions (MICE)
Corporate Travel Management
Foreign Exchange
Insurance
E-Business
Visa & Passport services
TCIL Foreign Exchange Business
Details of the business have been provided below:
TCIL offers the following products and services:
Segment Customers Purpose Characteristics of Business
Wholesale
Retail
Corporate
Institutions
(Banks, Full Fledged Money
Changers, Restricted Money
Changers)
Individuals
(Walkins at Shops &
Airports,Agents)
CorporateHouses
(TravellingEmployees)
Bulknoteconsolidation
andbulksale
Leisure, education,
remittances,migration
Business travel
High volume and low margin business
Extremely sensitive to market movements
andpricing
Relatively price inelastic at airports; some
degreeofelasticityatnon-airportoutlets
TypicallycorporatesarefromIT,manufacturing
andfastmovingconsumergoodssectors
Sensitivetoglobaleconomicconditions
Source: Company
Forex Segments
COMPANY OVERVIEW
Product Services
Bank Notes Buying / Selling
Export
Services in 26 currencies
TravelerCheques American Express Traveler Cheques
Provided in six currencies: USD, GBP, Euro, JPY, AUD, CAD
Prepaid Cards Re-loadableandacceptableat1millionATMs
Denominated in: USD, GBP, Euro, JPY, AUD, CAD, CHF and SGD
Pay Orders Foreign currency pay orders, payable in eight currencies
WireTransfers Available in 10 currencies
Money Gram Transfers Person-to-personmoneytransferservice
Source: Company
13. 13
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
TCIL Travel Business Overview
TCIL operates in the following segments in the travel and tourism business:
1) Leisure Outbound
2) Leisure Inbound
3) MICE
4) Domestic
5) Corporate
1) Leisure Outbound
TCIL is India's leading outbound tour operator by sales and passengers. The company
offers outbound tour packages consisting of numerous components to ~50 countries. It
also acts as a sales agent for other travel operators.
2) Leisure Inbound
TCIL is one of the top three inbound player in India by sales. Its key markets are Europe,
USA and Japan. The company operates under two brands:
Thomas Cook
Travel Corporation of India (TCI)
TCIL has a broad network of travel agents and tour operators worldwide with its own offices
in the following international locations:
Germany (Frankfurt)
USA(New York)
Spain (Madrid, Barcelona)
Japan (Tokyo)
UK
Canada
3) MICE
TCIL is India's leading MICE player by sales. This business has witnessed a strong growth
with key customers coming from pharmaceuticals, consumer durables, automotives and
financial services industries. TCIL has corporate arrangements with a number of event
management companies which enable it to provide comprehensive MICE solutions to its
customers.
4) Domestic Travel
This business offers tour packages and individual tour components to domestic travelers.
The company provides special air inclusive fixed departure tours for small and large groups;
innovative weekend packages; travel partner for unique events. It utilizes multiple distribution
channels including - own stores, Franchisees, travel agents, website. Moreover TCIL has
tieups with local agents, hotels and guides to provide a broad range of destination
management services to its customers.
Outbound Services
Air tickets
Cruises
Rail tickets
Airport transfers
Hotel accommodation
Sightseeing
Tour guides
Visa
Travel Insurance
Packages
Fully independent Tours
Group inclusive Tours
Inbound Services
Individual tours
Group escorted tours
MICE
Emergency medical assistance
Airport transfers
Excursions
Source: Company
Source: Company
14. 14
TCIL
RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH
5) Corporate Travel
TCIL is amongst the top three corporate travel players in India. The company provides both
travel products and travel budget management services. The distribution channels for this
business include - own stores, Service Excellence Centre and "implants" (dedicated agents
in client office). TCIL has over 700 corporate clients, predominantly Indian MNCs.
Company History
Change of Ownership
Subsidiaries
The company has the following 100% owned subsidiaries:
Corporate Services
Air tickets
Hotel accommodation
Car rental
Transfers
Meet and assist
Passport and visa services
Foreign exchange services
Insurance
Date Event
1881 First Thomas Cook office established in India
October 1978 Incorporated as Thomas Cook (India) Private Limited
February 1983 IPO on the Bombay Stock Exchange
December 2005 Dubai Financial acquires 100% of TCIM ltd
December 2006 Acquisition of 100% in Travel Corporation (India) Limited
February 2007 Merger with LKP Forex
March 2008 Thomas Cook UK Limited acquires 55.8% in the company
December 2008 TCIL issues 50.7m shares by way of a rights issue
July 2010 TCIL enters into a seven-year agreement with New Delhi International Airport and launches nine
foreign exchange counters
September 2011 Signing of Mastercard agreement (pre-paid money card)
Appointment of SBI as a MoneyGram sub-agent
February 2012 Thomas Cook PLC puts up its ~77% stake in TCIL for sale
May 2012 Sale of Thomas Cook PLC's majority stake in TCIL to Fairbridge Capital (Mauritius) Limited
Source: Company
Date Buyer Seller % stake Price/ share (Rs)
December 2005 Dubai Financial LLC Thomas Cook Group 60.0% 46.2*
March 2008 Thomas Cook Group Dubai Financial LLC 55.8% 107.0
May 2012 Fairbridge Capital Mauritius LLC Thomas Cook Group 77.2% 50.0
Source: Company
* In May 2007 the company had a 10:1 stock split; share price has been adjusted accordingly
Subsidiary Activities
Source: Company
TravelCorporation(India)Limited
TC Visa Services (India) Limited
Thomas Cook Insurance Services (India) Limited
Indian Horizon Travel &Tours Limited
Thomas Cook Lanka (Private) Ltd
ThomasCookToursLimited
Thomas Cook (Mauritius) Holding Company Limited:
Thomas Cook (Mauritius) Holidays Limited
ThomasCook(Mauritius)TravelLimited
ThomasCook(Mauritius)OperationsCoLimited
Tour & travel services in India
Passport, visa and other related services
TravelinsuranceforTCILcustomers
Not YetActivated
ForeignExchange
Not YetActivated
Holding company
Tours &Travel, Foreign exchange
Travel services
ForeignExchange
16. bright thinking
Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211
1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195
Financial Securities Ltd
SMALL WORLD, INFINITE OPPORTUNITIES
Infinity.com
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Large Caps Mid Caps
M.Cap > USD1bn M.Cap <= USD1bn
Return %
Rating
BUY More than 15 More than 20
Accumulate 5 to 15 10 to 20
Reduce (-)5 to +5 0 to 10
Sell Below (-)5 Less than 0
Rating Objective
