Hi - This is my first post on VP.
Before starting, i want to thanks this community - Its an awesome place to gather so much of knowledge and make money as well 
Cox & Kings:
Market Cap: Rs. 3,800 cr (at cmp of 226)
Net Debt (Gross debt - Cash): Rs. 2,384 cr (Source: Inv pres as of Sep 2015)c&k-presentation-Q2-fy16.pdf (917.6 KB)
Enterprise value: Rs. 6,184 cr
H1 EBITDA: Rs. 651cr (H2 is generally a lacklustre due to global weather. I would say 35% of EBITDA is generated during H2)
About Company:
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Cox & Kings is the longest established travel company in the world. Its distinguished
history began in 1758 when it was appointed as general agents to the regiment of
Foot Guards in India under the command of Lord Ligonier. -
Today, Cox & Kings is a premium brand in all travel related services in the Indian subcontinent, employing over 5000 trained professionals.
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Its India operations are headquartered in Mumbai and has over 12 fully owned offices in India across key cities such as New Delhi, Chennai, Bangalore, Kolkata, Ahmedabad, Kochi, Hyderabad, Pune, Goa, Nagpur and Jaipur. The worldwide offices are located in UK, USA, Japan, Russia, Singapore and Dubai. It has associate offices in Germany, Italy, Spain, South Africa, Sweden and Australia.
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In September 2011, COX acquired Holidaybreak as a part of its international
operations. HBR is a leading tour operator in Europe focusing on niche categories
like education, adventure and camping. The deal was closed at an equity
consideration of GBP312m (~INR23.4b), valuing the total HBR enterprise at
GBP442m (~INR33.1b). The transaction implied a valuation of 7x FY11 EV/EBITDA for
HBR. -
Camping business sale: Camping business was a part of HBR, which was acquired by COX in September 2011. It provided premium camping holidays to customers in the UK through two
brands, Eurocamp and Keycamp, which were market leaders in the region. These brands enjoy No.1 position in the UK with 60% market share and No.2 and 3 positions in the Netherlands and Germany, respectively. For the period ended FY14, Camping business contributed revenue of INR3.92b (17% of the total revenue) and EBITDA of INR1.6b (18% of the total EBITDA). COX owned ~8,500 accommodation sites (including 7,128 mobile homes). With each mobile home costing ~GBP15,000- 20,000 (useful life of 12 years), it is a relatively capital intensive business.
On June 2, 2014, C&K Group announced the sale of its Camping division to Homair
Vacances, a French leader in the camping market. The deal was valued at all-cash
consideration of GBP89.2m (~INR8.8b). It used the proceeds to pay the debt -
Company had so many one off during last 3 years like loss on sale of business, loss on cancellation of forward contracts (due to debt prepayment), forex losses, restructuring expenses. So ROCE and ROEs need to be calculated adjusting these one offs.
It operates in 4 divsions:
India Leisure, International Leisure, Educational trips, Asset light hotel Meininger
India Leisure: (22% topline in H1 2016)
- COX is a largest player in domestic outbound travel market enjoying 30% market
share with industry highest gross margins of ~20-22%. - India operations are largely driven by retail customers who contribute 70% and the
balance 30% is by corporate customers. - COXK has 12 owned centers and also operates through 156 franchisees across 110
cities in India which contributes 50% of total domestic retail revenues. It plans to add
10-15 franchisees every year which will drive growth. - Cox derives ~40% of the revenue from Tier 2 and 3 cities; which is likely to increase
further going forward
International Leisure: (23% topline in H1 2016)
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Superbreak was acquired in September 2011 as a part of Holidaybreak acquisition.
Superbreak (UK) and Bookit (Netherlands) are 15-year-old brands which provides
domestic short break trips. Superbreak is among the largest operator in UK
providing integrated solution and complete short breaks holiday package. Most tour
operators either provide airlines booking or hotel bookings, thus Superbreak brings
unique value proposition. Hotelbreaks has a tie-up with ~2,000 hotels across Europe
and brings cost synergies in the business, thus driving profitability. -
Superbreak contributes 30% of the international leisure business. Until acquisition, it
was concentrated only in the UK. However, management is planning to increase its
presence pan Europe as well as product portfolio to drive growth. Superbreak is
planning to provide robust airlines and rail connectivity to support its expansion
plan. Its packages are distributed through all the channels: B2B, B2C and Affiliate
marketing. B2C Direct Business (Online + Phone) bookings form 30% of Superbreak revenue. -
Other international leisure business includes product offerings in Dubai, Australia
and US, and outbound tours in the UK. UK contributes ~20% to revenues while US
and Australia contributes ~10% each followed by Dubai operations which contribute
9%, UK business contributes 25%, while balance international business is
contributed by the Japan, Singapore etc.
Educational: (35% topline of H1 2016)
PGL:
- PGL is operating since the last 50 years and it was acquired by HBR in June 2007.
- PGL provides residential outdoor tours for students in the age group of 8-12 years across
schools in the UK. - It is a curriculum-based tour with state-of-art infrastructure and high safety standards. These centers are equipped with facilities including student accommodation, indoor classrooms, meeting rooms, conference halls, swimming pools, football pitches and activity areas.
- The activities are curriculum based, focus on personality development, and conducted by professional and qualified staff from government accredited centers. The trips are conducted during school terms, typically from March to October.
- It offers four to five-day trips to private primary schools across the UK, with
curriculum based agenda and activities for kids. Company is focusing on
consolidating its market leadership position in the UK school market, which
witnessed better-than-industry growth. - PGL has adopted a flexi pricing strategy of GBP100-300 per week depending on the
category of seasons, thus ensuring higher utilization. Currently, it services ~5,500
schools across UK and its presence across multiple price points ensures services to
both small and large schools. - PGL operates 23 centers spread across 50-250 acres in the UK, France and Spain. Of
these, 16 centers are owned and the rest being leased. Of the total ~8,900 beds,
1,500 beds are leased and the balance 7,400 being owned. Education business is a
highly seasonal; with ~70% of revenue being derived from 1Q and 2Q, and balance
quarters are relatively lull due to extreme climatic conditions. Centers remain shut
for a period of two months every year. During 1Q and 2Q weekdays sees ~90%
capacity utilization while weekends have lower capacity utilization. The current
blended capacity utilization stands at c.60% during the business season.
Management is focusing on increasing the utilization by targeting more non-school
revenues. Specifically, by
- Offering centre’s to families, training bodies, football coaching etc on
weekends and during holidays. - Undertaking English language coaching to foreign students which is approved
by the British council. Normally the duration of coaching is around 2-6 weeks. - Recent initiating of national citizenship program by the UK government during
the holiday period.
NST:
- NST is an education group tour for students in secondary school and targeted at the
age group of 11-16 having 60 courses covering history, science, maths, arts, music,
etc. NST was acquired by Holidaybreak in September 2007. It offers domestic and
international education group tours for students across schools and colleges in the
UK and Ireland. It has a strong market share of 32%, a testimony of relationships
with schools and colleges in the UK. NST carries over 100,000 students each year
with tours organized to several domestic and overseas destinations, typically for five
days. Improvement in UK economy is likely to further benefit the growth of this
business.
Meininger (Hotel Business): (16% topline of H1 2016):
- Meininger has 7,340 beds spread across 2,092 rooms, with beds per room varying
from 2-8 depending on the category. It enjoys 70% bed capacity utilization and 90%
room capacity utilisaiton. - All properties are on leased basis, thus reducing stress on balance sheet and making it
an asset light model. - With presence already in 10 cities in Europe, management is planning to open new
properties in Paris, London and Amsterdam, where it does not have a presence which
will drive growth. - Around 50% of the revenue is derived by selling it to schools including PGL and NST
and balance 50% by selling it to outsiders like families etc. - Company has guided to double its capacity from current levels by FY18-19, with about 14 hotels in the pipeline (They have tied up with some REIT to fund this expansion)
Key positives:
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Reasonable growth in next 3-5 years: The growth will largely driven by the expansion of the
Meininger business; contribution from new centers in Educational business viz.
Australia etc and opening of new franchisee domestic leisure business. -
Deleverage Balance Sheet: Strong FCF generation to delever the business
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Currently the return on Capital & Equity are in mess due to various one offs. I think at the current EV of ~6,200 cr, conservative estimate of Rs. 1000 cr EBITDA for FY16, entry EV/EBITDA of 6.2x has good MOS
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Asset light business and stabilization of current businesses can take ROEs north of 18-20% in 2-3 years (I personally believe in spotting something which has poor ROEs but potential of improving alot due to operating leverage play)
Key Risks:
- Forex losses: Very volatile currency in recent times
- Operations more concentrated in UK and Europe
- Any large acquistion may put stress on Balance Sheet
Disclosure: Entered @ 220 (forms 7% of my Stock PF)