Do not see significant downside to margins: Thomas Cook

With Thomas Cook's new promoter Fairbridge Capital holding 87% stake, Madhavan Menon, MD, Thomas Cook India informed that there have been no discussions yet with the new promoters regarding reducing stake. He added that there is a three-month cooling period followed by an open offer.

According to him, Fairfax group, being a listed company does not have a problem owning a listed company. Menon said that the company has had a good summer season with a growth of 20-25%. 

Menon added that margins will remain steady for the current with increase in volumes. In his view, average spends are higher with number of passengers flying being higher this year.

Furthermore, Menon said the company is geared in anticipation of a potential slowdown. "We are evaluating our products and trying to ensure that the customer gets value for what he wants to buy. Having said that I must mention that holidays are no longer a low priority. Families who have decided on going on a holiday will definitely go on a holiday. It is only that we expect them to cut the holiday down to meet their budget requirements," he said.

Also read: Thomas Cook concludes stake sale of India operations

Here is the edited transcript of the intetrview on CNBC-TV18.

Q: Your new promoter Fairbridge Capital has an 87% stake in your company that makes it a possible divestment candidate. Did your new owners discuss anything on these lines with you?

A: There are a lot of regulations that govern this entire process starting with the three-month cooling period and the necessity to bring it down to 75% and whatever follows thereafter. Right now, we are focussed on following the process. There has been no discussion about this so far. It is something that we will look at down the road.

Q: Are there any plans to bring the stake down to 75%, if so, when do you see it happening? Is divestment just something that promoters are thinking about?

A: I think our priority is to abide by the regulations. Time schedules are still to be worked out. I think we will wait for the deadline of November 11 to pass when the cooling period is over. It’s only after that that we will look at what options are available to us. I don’t believe the investor is in a hurry to do any of this at the moment.

Q: Is it safe to guess that perhaps delisting is not something that the new promoters are looking at?

A: That will be speculative at this point of time. My belief is that we will address this issue in the coming months whether we want to stay listed or delist. I must also add that the Fairfax Group is itself a listed company and has got several investments in listed companies. So, they are very comfortable dealing with a listed company. I don't think that's a constraint in any way.

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Q: Coming back to your business, we have seen an economic slowdown, discretionary spending has come down; people have started spending less on consumer products. Have you faced any slowdown in travel whether it’s for corporate or luxury travel for retailers?

A: Going back to the summer season, the travel season for 2012 is divided into two parts; we have summer, which is over and we had a good season. We saw good growth in the range of 22-25% over the previous year.

Now we come to the next season, it is a bit early to talk about it because as you are well aware, Diwali falls into middle of November. Given that most of the travel is into South East Asia during this season and visas are much easier to procure, the first signs of any slowdown will only be evident to us possibly in the middle of October.

We have geared ourselves to anticipate a potential slowdown. We are evaluating our products and trying to ensure that the customer gets value for what he wants to buy. Having said that I must mention that holidays are no longer a low priority. Families who have decided on going on a holiday will definitely go on a holiday. It is only that we expect them to cut the holiday down to meet their budget requirements.

Q: Your total income was up 27% in the last quarter. Your margins were at a healthy 37-38%. How might both those shape up for the full year?

A: My expectation is that we will do well for the full year. It's very difficult to project at this point of time where we will be off that number that you quoted just now. But we will definitely protect margins. I don't think there is an issue around the margins at this point of time.

Q: Is there any kind of indication on the volume of business?

A: My expectation is that the volumes will increase. It may not increase by the kind of growth numbers that we have seen over the last couple of years, but that is to be expected in the current environment because people are being more careful. All consumption companies are facing some constraints and I don't expect that we will be any different from that aspect.

Q: Your international business was flat in the last quarter, we have seen foreign exchange fluctuation, and the rupee depreciation is not making it easy for international travel. Are you expecting degrowth?

A: We did not see any effect of it in summer because the foreign exchange off take was good. When we looked at the number of passengers that had traveled, it was better. The average spends this year were better.

I don’t believe that summer is an indication of what is to come. So I am being a bit conservative although I am not sure of the extent of the slowdown. We are taking actions to tweak our products to make it more value friendly from the customer's perspective.