Nostro licence to fetch Rs 2-3cr more per qtr: Cox & Kings

Until now, Thomas Cook has been enjoying its monopoly as the only travel company to have an authorised dealer licence also known as a Nostro licence. Now, other tour operators can use their own foreign currency account held overseas with an MNC bank or with a foreign branch of an Indian bank.

The benefits of having a Nostro Account licence is that tour operators can manage their cash effectively while saving costs on forex transactions.

Peter Kerkar, director, Cox & Kings says it is a USD 2.5 billion market and the advantage is it will give them between Rs 2-3 crore of net profit per quarter through the year in the initial periods as they establish themselves in the market.

Cox & Kings has been recently granted AD II licence by the Reserve Bank.
A Nostro Account will help firms like them to fish for better currency rates, manage exchange rate fluctuations more efficiently, use credits available in the account to make remittances (thereby saving on the rate fluctuation), and issue foreign currency demand drafts or telegraphic transfers on its own.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: What advantage do you get with the Nostro Account approval? We understand it’s you and Thomas Cook now which has this approval in order to run operations. What exactly would this do for the P&L of the company?

A: The Nostro Account has been in a monopolistic situation with banks and one other company who you mentioned, but it’s opened out to authorized dealer II category. So it’s not just the two of us but there are 16 of us in this space just now. But there are only three players in India who have both retail as well as a wholesale presence of which we are one.

The impact that we envision on this - the market is around USD 2.5 billion size. The advantage it gives us is that it allows us to settle directly with banks in foreign currency therefore, not paying any margin on the rates. So we will in effect be able to make overseas remittances for students who would wish to travel or for medial travel directly into our Nostro bank held overseas. This particular advantage we anticipate will give us between Rs 2-3 crore of net profit per quarter through the year in the initial periods as we establish ourselves in the market.

Q: The rupee depreciation would perhaps impact you both ways. Would it mean less outbound travel because it gets a little more expensive for an Indian?

A: If you look at the Indian perspective of our company, we are fortunate in that we travel counter cyclically. So we travel from April to July and hotels particularly in Europe and the rest of the world this is a down season or a low season for them. If you look at real costs that our clients have paid since 2000, we have stayed constant or declined in real terms in terms of our selling price.

We have been able to do that for two reasons - we come in particularly when the businesses need our help and while the euro or the dollar may be more expensive, the actual hotel occupancies have gone down. So they want our business desperately during these shoulder periods. This gives us a very good competitive advantage.

Plus the fact that Cox & Kings has grown at a compounded rate on our outbound travel at the rate of about 30-35% year-on-year (YoY) for 11 years gives us volume mass now where we can actually go to a hotel and take out 80% of its allocations. In real terms, clients will not see any negative effect in terms of the devaluing rupee. In terms of our inbound clients, this is great for the rest of the world because it means India is simply cheaper as a product. From a tourism perspective, it’s good for us and we mitigate both the downside risk as well as have quite an advantage for our incoming clients.

Q: Give us an idea of how growth will be in the current year compared to last year? Do you continue to maintain the 25% revenue or earnings growth?

A: Even in our last quarter demonstrated that we achieved that. We believe that going forward the outbound market has had our best season yet. All early indications show that it will be a bumper year. We anticipate that we should at least match our last year’s performance of 30% plus growth in that space.

Q: There is an expectation that there could be some amount of equity infusion which is required for Holidaybreak. Would that be a correct assumption according to a couple of brokerage reports? If so, what can we expect from the company?

A: That this is misguided impression because when we made the acquisition we had understood and recognised the leverage that we were taking on and we analysed the cash flows of both Holidaybreak and ourselves before we structured our debt. Our debt is structured over a seven-year period with a two-year moratorium on the principle payment.

I would love it if it was interest also, but it is on principle payout and since both the companies throw out around a USD 135-140 million of free cash after capex, we are able to build up quite a large war chest of cash to reduce this debt very aggressively in the next two years. I wish to reiterate that there is no equity raise envisioned in terms of Cox & Kings.

Q: What can we expect in terms of an addition to EPS from Holidaybreak in FY13-14 on a consolidated basis?

A: We would be disappointed if we did not have a minimum of Rs 15 plus going out per share. We will be very disappointed if it wasn’t above that figure.