Buy Cox & Kings; target of Rs 395: Sharekhan

Sharekhan report on Cox & Kings

Incorporated in 1939, CKL is one of the oldest and most recognised brands in the travel & tourism industry in India. It has operations in 26 countries around the globe with presence in the leisure holidays and education tourism segment through multiple brands. Prior to FY2012, CKL was predominantly in the leisure travel business with close to 50% of its consolidated revenues coming from India and the balance coming from destinations such as Australia,Japan, the USA, New Zealand and the UK. The company was continuously scouting for strategic acquisitions to improve its growth prospects. In the middle of FY2012 CKL acquired Holidaybreak (HBR) in the UK to de-risk its business model and to venture into niche segments such as education tourism in the global markets. HBR includes iconic brands like PGL, NST, Eurocamp and Keycamp, which cater to segments such as education, camping, adventure and leisure travel. Further, Meininger, CKL’s European hotel chain, which caters to value-seeking travellers such as students, youth travellers and the others, is an exciting business with a high growth trajectory.

An exit from the low-margin camping business and focus on strengthening the balance sheet bode well for CKL from the long-term perspective. The company aims to become one of the largest leisure travel players globally and is also keen to expand its education tourism business in the other geographies. This would result in a stable doubledigit earnings growth and generate better cash flows in the near to medium term. This makes CKL one of the better players in the tourism space. Hence, we recommend a Buy on the stock with a price target of Rs395 (valuing the stock at 9x FY2016E enterprise value [EV]/ earnings before interest, depreciation, tax and amortisation [EBIDTA]). At the current market price the stock is trading at 11x FY2016E earnings per share (EPS) of Rs10.7 and 7.9x FY2016E EV/EBIDTA. The valuations are at a discount to some of the nearest domestic as well as international peers.

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