Buy Cox & Kings; target of Rs 243: GEPL Capital

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Buy Cox & Kings; target of Rs 243: GEPL Capital

GEPL Capital is bullish on Cox & Kings and has recommended buy rating on the stock with a target of Rs 243 in its February 16, 2012 research report.

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GEPL Capital is bullish on Cox & Kings and has recommended buy rating on the stock with a target of Rs 243 in its February 16, 2012 research report.

"Cox & Kings Ltd. (C&K) witnessed a 162.8% Y-o-Y growth to Rs2.85 led by the acquisition of Holiday break (HBR) Plc in Sept'11. The acquisition led to a sharp spike in net sales while the historically lean season of HBR resulted in the total expenses rising. As a result the EBITDA declined by 411% Y-o-Y to Rs227 mn and the EBITDA margin declined by 2763bps to 8% in Q3FY12 from 35.6% in Q3FY11. The higher other income and extra-ordinary item gains were negated by higher interest and depreciation expenses. Consequently, the EBIT declined by 12.6% Y-o-Y to Rs366 mn. The company reported a net loss of Rs76 mn, slightly better than our expectations."

"Indian revenues grew by 22.5% Y-o-Y to Rs595 mn, in-line with our expectation and contributed 21% to the consolidated revenues. The rise in advertising and staff cost was negated by lower other expenses resulting in the EBITDA margin witnessing a marginal 10bps Y-o-Y decline to 37.5%. The EBITDA grew 22.3% Y-o-Y to Rs223 mn. However, the other income rose to Rs271 mn in Q3FY12 from Rs69 mn in Q4FY11. This resulted in the profits rising by 61.1% Y-o-Y to Rs216 mn.  The company reported a 162.8% Y-o-Y growth in net sales to Rs2.85 bn led by the acquisition of HBR. As a result of the acquisition the staff cost and advertisement cost rose by 295% and 395% Y-o-Y respectively. Consequently, the EBITDA declined by 41.1% Y-o-Y to Rs227 mn and the EBITDA margin declined to 8% in Q3FY12 from 35.6% in Q3FY11. Driven by the historically lean season for HBR, the company reported a net loss of Rs76 mn. The company reported a loss as per our expectations though the numbers were slight better than our estimates led by an extra-ordinary item of Rs275 mn. We believe the company would report a net loss even in the next quarter. However, we expect the company to witness a sharp rebound in FY13E with strong revenue and EBITDA contributions from HBR in H1FY13E."

"C&K is currently trading at 12.6x FY13E EPS of Rs14.5, a 48% discount to its historical one-year forward P/E band of 24x. The stocks has been de-rated over the last two years due to a decline in return ratios with huge cash on the books and the uncertainty of its acquisition integration. However, in view of HBR acquisition and the successful history of integrations of C&K, we expect the company to report a 23.7% PAT CAGR in the next two years. Consequently, we believe there is good potential upside in the stock and value it at a 30% discount to its historical PE due to concerns on its a) huge debt, b) high interest outflow, and c) acquisition integration. We maintain a BUY rating and target price of Rs243 (16.8x FY13E EPS) on C&K," says GEPL Capital research report.

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