Loss-making Japanese biz to recover by FY13: Cox & Kings

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Loss-making Japanese biz to recover by FY13: Cox & Kings

CNBC-TV18 catches up with the management of Cox & Kings to discuss the quarterly earnings of the company and get a perspective on the way forward for the company.

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CNBC-TV18 catches up with the management of Cox & Kings to discuss the quarterly earnings of the company and get a perspective on the way forward for the company. Peter Kerkar, director, Cox and Kings (India) says that even though performance has been decent this quarter, margins should remain around 40% going ahead. "Margins have come down this time mainly due to the on-time currency exchange loss," he says.

The Japanese business of the company saw significanth decline in revenue this quarter, reporting a loss of nearly Rs 25 crore. On that Kerkar says, "We expect the Japanese business to recover by FY13."

Below is the edited transcript of the interview. Also watch the accompanying video. 

Q: Could you tell us what is the outlook with respect to Japan because you have seen a significant decline in revenues from there?

A: I think Japan will probably recover not by end of FY12, but certainly by beginning of FY13 because there has been a concerted attempt by the government to stimulate the chosen sector. Fortunately for us, the impact on margins has not really been significant because we still posted a fairly healthy year-on-year increase in profits before tax margin. We think that this stimulus should help, but we do not think any change in the next two quarters coming out of Japan in terms of additional revenues.

But I think this is being compensated but both our other operations worldwide and the very strong growth in India, particularly both in the topline and bottomline.

Q: This quarter has also seen completion of your acquisition of Holiday Break, what are the models you are bringing to India and how is the integration progressing?

A: The Holiday Break buy has been transformational for us because their EBITDA margins as well as their gross operating profit are almost 1.5 times ours in terms of internal absolute numbers. The integration process, we expect, will take a period of about 12-18 months. Before that happens, we will look at some of the immediate synergies that we Indians travel counter-cyclically to the rest of the world. So if we can put some of our clients, starting in first quarter of FY13, into their assets, then they should have an immediate effect in both the combined revenues.

Q: Any ballpark figure of what the contribution of Holiday Break will be in the second half of the year and when do you expect a turnaround at operating level for it to contribute?

A: You must appreciate that in the West you have two cycles; so first half of the year is actually their high season, so they always make money in terms of our first half of the year. The second half of the year, because of the way that the markets work, they will always be negative. So while the entire year will be highly profitable for company, the way school holidays work overseas means that the second half of the year is negative. We can only bring down that loss because we will have our Indians travelling into their asset, but I don't think that cycle will ever be eliminated completely. All we would see is by the combined synergies that we will reduce this operating loss only for the second half, the first half is obviously highly profitable.

Q: You have seen couple of acquisitions, so will you see bump up in your ad spend going forward?

A: I think now globally we have incredibly strong proposition in terms of both, print and television media. So I don't think we are going to actually advertise more. Our brand recognition is very strong. We do a lot of combined offerings and we support charities like UNICEF. So I think we have a very strong proposition going forward.

Q: Given that the company is still investing a lot in expanding operations particularly in the US etc are the margins likely to shrink further?

A: I don't think the margins will shrink, the margin shrink has really happened primarily because of Japan and one exceptional item on exchange gains which we do not anticipate having in the following season because we have now fixed the exchange gain or loss in our Australian operation. So we feel our operating margins should remain in the high 40% and possibly even go up to over 50%.

Q: What will FY12 look like by way of revenues, any kind of growth figures that you would like to give us?

A: Traditionally we don't give forward looking figures, but we can only look at how we performed in the last quarter and as usual, India has been incredibly robust. As a consolidated group, we grew in revenue terms over 28%. We feel that this strong growth is demonstrated both in our overseas operations as well as in India. So we believe that we should be able to continue this going forward, at least for the next two quarters.