Hold Cox and Kings; target of Rs 95: ICICI Direct

ICICI Direct's research report on Cox and Kings

Cox and Kings reported a positive set of Q4FY19 numbers. Even post adjustment to education division sale related exceptional gains, the company reported PAT higher than our estimates. Revenues came in at Rs 452 crore (broadly in line with I-direct estimate of Rs 457.1 crore), increasing 15.4% YoY on a like-to-like basis. EBITDA margins came in at 42.4% with absolute EBITDA at Rs 191.7 crore (above I-direct estimate of Rs 121.8 crore). During the quarter, the sale of the education division was concluded. The financials comprise an exceptional gain of Rs 1311.7 crore (gross), which is related to the same. Adjusted for exceptional gains, PAT was at Rs 28.3 crore (vs. I-direct estimates of Rs 7.4 crore).

Outlook

We expect leisure revenues to grow at 11% CAGR in FY19-21E mainly led by improving domestic spend and higher growth in foreign tourist arrivals. The company is adding bed capacity at Meininger at 21% CAGR in FY19-22E. This is also expected to drive revenue growth, going forward. However, a slowdown in European regions remains a key concern in the near term, accounting for ~33% of revenues. Hence, we continue to maintain our HOLD rating on the stock with a revised target price of Rs 95/share (i.e. @5x FY21 EPS). Utilisation of sales proceeds of education division remains a key catalyst for stock re-rating, going forward.