Akash Jain
We are structurally positive on Thomas Cook and expect strong contribution from Sterling Holidays in coming years which would lead to likely rerarting of the stock and may trade at premium multiples.
We can expect a target of Rs 350 by FY19 end. The company reported robust Q3FY18 results with the travel services business showing a good growth. It continued growth in the margin; Q3 is an investment quarter for business. Talking about passenger growth, the management is looking at forward bookings for both Thomas Cook and SOTC. It stands currently at 35 percent growth over the previous year.
On Quess Corp front, the company received over Rs 641 crore from Quess Corp stake sale. The company will be debt free post this. We expect srong performance in coming years from Sterling Holidays division as most properties under Sterling Holidays have been refurbished.
To give more insight, Sterling was a loss-making company for overadecade with huge debt. It was also burdened with, large number of litigations, poorly maintained resorts and lacked leadership. Since 2011 (before TCIL acquired Sterling in 2014), several strategic growth initiatives were taken under the leadership of Ramesh Ramanathan (erstwhile MD of Mahindra Holidays) that have borne results and Sterling is expected to be EBITDA positive in FY18.
The company’s board has approved corporate restructuring, subject to regulatory approvals, through composite scheme of arrangement and amalgamation, aimed at streamlining its businesses into four key verticals. The verticals include, travel (outbound, domestic, business travel and MICE), foreign exchange, destination management services and portfolio investments such as Sterling Holiday Resorts. The restructuring also involves the consolidating of the human resource services business into Quess Corp.
Pursuant to the composite scheme, Thomas Cook (India) shareholders will receive 1,889 equity shares of Quess of Rs 10 each, for every 10,000 equity shares of Rs 1 each held in TCIL.
In its current structure, TCIL along with its subsidiaries and associate companies such as SOTC, TCI, TC Travel and Sterling Holidays are engaged in various travel and travel related financial services, vacation ownership and resorts.
While Quess Corp is engaged in human resource and business related services such as industrial asset management, integrated facility management, human resource services and technology solutions. This proposed restructuring with the realignment of the travel businesses of TCIL and consolidation of the human resource services business into Quess Corp, will simplify the group structure, enabling both to grow independently and consolidate their positions in their segments with far greater clarity of focus," said Madhavan Menon, chairman and managing director, TCIL.
Post this proposed restructuring, TCIL will a travel focused company, while Quess charts its own growth trajectory in the high growth opportunity space of human capital and allied services, the release said.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
