Cox & Kings good bet for long-term investors : Udayan

The initial public offering (IPO) of 18,496,640 equity shares of Cox & Kings (India), a provider of all travel and travel related products, has been subscribed 2.7 times.

Commenting on business model of Cox & Kings, Udayan Mukherjee, Managing Editor at CNBC-TV18 says it is more at hand and not like a dream in the bush scenario.” It is a steady business and for long-term investors, they can probably look out without fearing to lose 25% on listing.”

Here is a verbatim transcript of Udayan Mukherjee’s comments on CNBC-TV18. Also see the accompanying video.

It is not those “Give us the money. We will put up a project in seven-years time kind of an IPO.” There is more at hand – it’s not like a ‘dream in the bush’ – Cox & Kings. It is a good business. The way they have been growing for the last few years at 50-60% plus despite some sluggishness in leisure business or the outbound pleasure business. Cox & Kings should certainly grow at 30-40% even on the higher base over the next couple of years. Good margin profile at 40% plus. It is a high return ratio business – return on equity is consistently above the 30% mark.

So there is nothing wrong with the business. The business is growing at a fast pace. It returns good things on equity and on capital employed. The margin profile is fine - good highly profitable business, good established brand. You are getting it at about 15-16 times this current year’s earnings or cheaper on fiscal year 2011 earnings – maybe closer to 12 odd times.

So, it probably is not the Indiabulls Power or that kind of an IPO at all. It’s a reasonable business, is coming at a discount to peer valuation. So unless the market breaks down your chances of losing money having bought it at Rs 330 seem to be quite a bit on the lower side.

So it is not like it will double on listing or anything like that but it is a steady business and for long-term investors they can probably look out without fearing to lose 25% on listing. That will only happen if the market goes for a toss. Otherwise Cox & Kings is reasonably priced and in that it’s probably is a bit of departure to the recent trend of IPOs.