ICICI Direct recommended hold rating on Cox and Kings with a target price of Rs 225 in its research report dated August 16, 2018.
ICICI Direct's research report on Cox and Kings
Cox and Kings’ reported a mixed set of numbers. Revenues increased 15.8% YoY to Rs 817.3 crore (vs. I-direct estimate of Rs 813 crore) mainly led by 41.1% YoY growth in the Meininger segment & 22.6% YoY growth in Leisure - international However, EBITDA declined 20.2% YoY to Rs 297.9 crore (below I-direct estimate of Rs 380.8 crore) mainly led by forex loss of Rs 91 crore (vs. forex gain of Rs 35 crore in Q1FY18). Excluding the forex impact, the company reported EBITDA growth of 15% YoY to Rs 389 crore with strong rebound in operating margin of leisure international segment (i.e. up from 20.8% last year to 38.4%) The de-merger process of forex division (asset base: over Rs 200 crore as of FY17, RoA: 13% & RoE: 37%) has entered the last phase.
We expect the company’s domestic leisure revenues to grow at a CAGR of 11% in FY18-20E mainly led by improving domestic spend and higher growth in foreign tourist arrivals. Further, we expect international revenues to grow at a healthy pace mainly led by Meininger. The company plans to increase bed capacity at Meininger at a CAGR of 28% over FY18-22E. Further, de-merger of its forex segment will drive the value for its investors over the long term. Consequently, we remain positive on the stock from a long term perspective. However, increase in working capital requirement is expected to keep debt at elevated levels. Hence, we maintain our HOLD rating on the stock with a target price of Rs 225 (i.e. valuing at 13.5x FY20E EPS & 6x EV/EBITDA).
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