To complete Sterling Holiday deal by year-end: Thomas Cook

IIFL is bullish on the stock and maintains a ‘buy’ rating with a target price of Rs 150 until September 2015.

Below is verbatim transcript of the interview:

Q: The acquisition on the Ikya has been done with quite a bit of success. What are the plans going ahead and how much will it eventually contribute to your revenues as well as the profitability?

A: I think Ikya has worked out as an excellent acquisition. Its numbers have been growing significantly. The number of staff that they have outsourced grows from 42,000 a year ago to 87,000.

Subsequent to the acquisition, they have acquired a unit called Hofincons Infotech & Industrial Services Private based in Chennai, which gave them a foot in the industrial space because most of their exposure so far has been in the service space.

We expect Ikya to continue to grow and especially in light of some of the policy changes that we have witnessed over the last couple of months, I am very confident that Ikya will continue to grow at a fairly fast pace.

You will appreciate that they have not completed a full year in our books, that will happen in the coming quarters but they will increasingly contribute a large amount of our group profitability.

Q: If you are saying that the staff has doubled, can we consider that their revenues will double this year and quadruple next year because the staff is leveraged which normally pays off very well?

A: Absolutely. So they will become a material contributor. I don’t want to get into guidance in terms of the size but you are absolutely correct with the doubling of their staff and quadrupling of their staff and with the acquisitions kicking in even at the Ikya level, I expect that there will be a growth driver in the groups number.

Q: What is their revenue base - when I talk of doubling and quadrupling in what was the last earning from Ikya, the last revenue number full year revenue number?

A: Ikya registered a growth of 27 percent in its revenue in the last quarter. I don’t have specific numbers but a sizeable growth was registered in the last quarter and they have also registered over the last year almost doubling of their revenues.

Q: Can you also tell us about the Sterling acquisition, when will that acquisition get completed? What kind of performance do you expect to see from Sterling in terms of an improvement in occupancy and how you could eventually bring to you on the table?

A: I think Sterling is reviving itself post the acquisition. We have not completed the process. We currently own approximately 51 percent and will complete the merger later this year, we have commenced the process and our expectation is that it is either going to be in the last quarter of 2014 or first quarter of 2015.

As far as the occupancy rates go, we have seen a significant ramp up and that has got a lot to do with the domestic holiday market, which has picked up significantly. We have seen occupancy rates go up from about 47 to around 60 and our expectation is that it will go up to the high 60s by the end of the year.

Q: What about the main bread and butter business, travel and related services at Thomas Cook, what is the anticipation for FY15 itself full year over FY14 and FY16 as well?

A: We saw strong results coming out of Thomas Cook India in the first half. We saw the foreign exchange business kick in significantly and as did the domestic holidays, we saw a bit of a slowdown in the international holidays around the elections but we have seen a pick up in the numbers and we have seen our season, which normally would have ended in August, go all the way through October.

With Diwali and Pooja holidays coming in, we may see an equally good second half of this year as we did in the first half and that is the change in the trend because normally Q3 is a little slow and then it starts picking up only in November and December but we expect that even Q3 will show a significant rise in bookings.