Cox and Kings - Looks a great turn around

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 :stuck_out_tongue:

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:

  • 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.

  • 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.

  • 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

  • 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)

  • 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 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
  1. Offering centre’s to families, training bodies, football coaching etc on
    weekends and during holidays.
  2. Undertaking English language coaching to foreign students which is approved
    by the British council. Normally the duration of coaching is around 2-6 weeks.
  3. Recent initiating of national citizenship program by the UK government during
    the holiday period.


  • 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

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:

  • 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

  • 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

  • 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)


Sources used: Annual reports, Investor presentations, publicly available broker reports and credit ratings report

Good work varun.
Seems a nice company.

Great work Varun - my concern is that the Company seems to be an aggregation of several businesses (much like Jubilant Life Sciences). It would be susceptible to the several one off events that you mentioned and also becomes difficult to track. Any solution?

I completely agree with you. Probably that’s the reason a asset light ( though capital went for acquisitions) business involved in discretionary spending business (skew towards b2c) is available at 6x ev/ebitda. Fy16e Ebitda being ~1000cr

I m believing that if the company comes out with 4-6 qtrs with reasonable growth and develarages further with the operational cash flows. This can be a good compounder

Biggest risk being one offs (acquisitions, forex losses) which I think are priced in

Also margin of safety is moderate (I wouldn’t say great) at these valuations

Also, it would be of great help if members of vp have any market intel on promoters integrity (no matter how great your horse is, it’s jockey who has to be in with right intentions)

Also, the one thing I really like about VP is the kind of red flags one can get to know before putting up any capital towards businesses. So please help with any intel on any possible red flags

This is an opportunistic bet for short term based on valuation.

My assumptions for Fy18

  • EPS = 20 to 22
  • Ebitda = 860 cr (75% of total ebitda of 1150)
  • Gross debt = Around 2000 cr
  • Ebitda = 860 cr
  • EV = 4300 cr to 5160(Ev/Ebitda of 5 to 6 times)
  • Market cap= 2300 to 3160 cr
  • Shares = 17.65 cr
  • Price ( Based on Ev/ebitda)= 130 to 176
  • Price (Based on PE of 8) = 160 to 176


  • Top Brand / Leader in Leisure - India. This is the only Plus point which makes me interested in this stock
    *Ebitda Margin is 40%
  • Undemanding Valuations for (partially) B2c company.
  • Not asset heavy


  • Topline growth is dependent on European countries as indian operation contributes less than one fourth. So Topline growth will not exceed 12 to 15% unless acquisitions are done as managment’s optimistic commentary itself is only 15% even for india
  • Bottom line growth for next 2 years will be very minimal as Fy16 has lot of exceptional items
  • Terrorism seems like weather now adays , so Predictability of earnings is not high
  • Current Ebitda margin at 40% seem to be too high. This restricts further ebitda margin growth
  • Present in too many verticals. so one -offs are possibility most of the time
  • Company has not created wealth in recent past even though Management (peter) is young, dynamic and been in the field for more than a decade
  • Gross debt is too high arund 4000 crore. Not sure of the reason for having 1700 crore in cash.
  • Minority Interest is the real irritant as we cannot be sure of the exact % of net profit every year ( Atleast i am not)
  • ROE/Roce are pathetic

The company seems to have reported a huge loss…Is this a one off? and if so, what were the reasons?

They have sold a couple of businesses. The loss is due to the associated goodwill writedown. So yes it’s a one off.

Recently, ET has article about P-Notes. Due to p-notes price went down. Price down may be a guess but p-notes can have an impact. Is that p-notes part over? I don’t know.

Recently, Govt has made rule that p-note investor need to be KYC compliant.

Let us check - the promoters have purchased 1 lakh shares from open market after raising funds by increasing their pledged share holding. Detailed available at BSE site. Certainly very interesting. I hope my reading of BSE filing is correct.

Disclosure: invested since their IPO. Lost more money than gained. Unable to understand their business due unpredictable / unanticipated events.

Promoter buy is one thing but those who own it through p-note many have more shares than what promoter has bought.
So, you need to find out what percentage of p-notes shares are with FPI. It cannot be more than what FPI holds!

Cox & Kings Forex Arm demerger impact on Cox & Kings ?
Would it be value unlocking for investors for long term ?

Anybody having/tracking positing in this counter ?

Good Q2 numbers.

e7f90bf0-f3c8-4fd0-b7ec-6bc28052495d.pdf (1.6 MB)

Does anyone have idea when Forex arm would be listed ?

Came across a thesis on ETMarket that Debt level of cox and Kings are now at sustainable level and can become a turnaround from here.

In my assessment the 9m FY18 performance has been pretty good. Revenue growth of ~9% and EBITDA margin of ~42%, and net profit margin ~22%. It think the market still seems to be uncomfortable with the debt and if they walk the talk by reducing the debt by Rs. 200cr this year, then we may see higher levels in the stock.
Disc: Invested


Balance Sheet is not available for 9m FY18 but if we go by Balance Sheet as 30.09.2017, debt has actually increased. Around Rs. 150cr increase in long term debt and Rs 500cr increase in short term debt. What can be the reason for increase in Goodwill. Fixed Assets increased further which can keep its RoA low and these can be reasons for consistent lower valuation by market despite good performance profit wise.

Disc: Not Invested but started tracking recently.

I came across this research report from ICICI Securities. I was surprised that they considered the standalone financials, instead of consolidated financials for their analysis. Is there a particular reason for doing so?

Anyone has any report on Analyst/Investors meet held

Cox & Kings sells 11.58% stake in education and hotels arm for Rs 4.5 bn