Peter Kerkar, Chief Executive Officer of Cox & Kings, Wednesday said he was bullish on the prospects of his Indian leisure and education businesses, even as its international interests took a bit of a hit in the third quarter.
Speaking to CNBC-TV18, Kerkar said the note ban enforced by the Indian government last November was already having a positive impact on the company as the move had diverted business from the unorganised sector to white economy players such as Cox & Kings.
He said sales for the India leisure business were weaker-than-expected in the third quarter because of the initial effects of demonetisation, but the outlook for the next couple of quarters was robust, while international prospects were set to improve after a blip on fears of terrorism in Europe.
The tours and travel firm reported a 84.81 percent decline in its consolidated net profit at Rs 15.23 crore for the third quarter ended December 2016. Net profit was Rs 100.29 crore in the October-December quarter of the previous fiscal, when it had sold Explore Worldwide Ltd, a subsidiary of Holiday Break Ltd, for a consideration of 25.8 million pounds resulting in goodwill write-off of Rs 59.03 crore and profit on sale of Rs 228.66 crore.
Kekar said the company had only managed to reduce its debt by Rs 30 crore in the quarter due to dollar debt, even as the pound, which accounts for 40 percent of the company’s income, had depreciated. However, the company maintains its target of bringing down debt by Rs 400 crore this fiscal.
He said the education business, which accounts for around 30 percent of revenue, had grown 8 percent over the past year.
Below is the verbatim transcript of Peter Kerkar’s interview to Reema Tendulkar & Nigel D'Souza.
Nigel: Prima facie it appears that there is a dip of 20 percent on the topline. Is that comparable? Was there any kind of subsidiary that you sold on like-to-like basis what should that topline number look like?
A: You have hit the nail on head because last year we still had two subsidiaries in the group which were LateRooms and SuperBreak which we finally sold in the final quarter of last year. So like-for-like it looks far better. Actually, the topline was pretty flat for the quarter, in fact the nine month results last year did a shade over Rs 6,000 crore and this year has been again a shade over Rs 6,000 crore. It is not a real correct like-for-like comparison but in like-for-like terms we have done a pretty flat year for this quarter.
Reema: What was the impact at the margin level and also if you exclude the forex element, if you could tell us what the margins are and what are the sustainable margins going ahead?
A: I think that if you see the EBITDA for the quarter actually last year we made Rs 115 crore and this year we made Rs 117 crore from the existing operations excluding any forex impact. Our EBITDA margins have sustained or slightly gone up because some of the lesser quality businesses were sold in the last quarter that is LateRooms and SuperBreak of last year. Going forward I think that in constant currency terms we have done pretty well, we have actually seen an 8 percent growth in our education business over last year and it is really related to the pound because 40 percent of our income is pound income. However, we believe that the pound is not going to deteriorate much further. If at all we should see some improvement in the coming quarter. So we are guiding our education business going forward between 5 and 8 percent growth in the coming years.
However, if you look at the India business, while the last quarter was slightly weaker than we anticipated, but we think that the demonetisation effect should benefit us going forward and we are seeing pretty robust sales for this quarter as well as the main season in terms of advanced sales.
Nigel: I wanted to ask you what about your debt, what does it stand at because your finance cost has gone down drastically and that is point number one and point number two what is the return on capital employed (RoCe) you are working with and if you could give us some kind of numbers in terms of free cash flow?
A: Actually, in this particular quarter we are at around Rs 3,400 crore of debt. We are sitting on slightly more cash around Rs 1,700 crore because we collect deposits from our clients especially in education at this time. So, while we benefited from the pound depreciating, we also have dollar debt, so overall we only reduced our gross debt by around Rs 13 crore this quarter.
So, this quarter we generated, as a company, around Rs 30-35 crore of free cash. We are still maintaining our target that by year end we should achieve our target of between Rs 400-500 crore of debt coming down as oppose to last year in March where we were at Rs 4,100 plus crore. So, we have seen a significant impact of debt coming down and in fact in this quarter our interest has come down by almost 30 percent.
For entire interview, watch accompanying video.