EQUITY RESEARCH: THOMAS (COOK) INDIA LTD

Summary

Thomas Cook (India) Ltd is an incorporated travel services agency. The Company is engaged in different groups which includes travel and associated offerings, authorized forex dealers, imaging solutions, and imparting complete-service leisure resorts catering to vacation ownership, one-time amusement holidays and conferences, incentives, meetings, and exhibitions. It operates thru two segments: Financial services and Travel and related services. The financial segment includes wholesale and retail buy and sale of foreign currencies and paid files. Travel and related services section consists of tour operations, travel management, visa services and travel coverage and related services. It operates commercial enterprise to clients and business to business brands, consisting of SOTC, TCI, SITA, Asian Trails, Allied T Pro, Luxe Asia, and Kuoni Hong Kong. It offers worldwide tour programs and India and round tour programs. It also presents passport and concierge services.

THOMAS (COOK) INDIA LTD.

ABOUT

The major omnichannel travel company in the nation, Thomas Cook (India) Limited (TCIL), was founded in 1881 and provides a wide range of services, including foreign exchange, corporate travel, MICE, leisure travel, value-added services, and visa services. Leading B2C and B2B brands that are operated by the company include Thomas Cook, SOTC, TCI, SITA, Asian Trails, Allied TPro, Australian Tours Management, Desert Adventures, Travel Circle International Limited (TCI), Sterling Holiday Resorts Limited, Distant Frontiers, TC Tours, Digiphoto Entertainment Imaging (DEI), Go Vacation, and Private Safaris East & South Africa. The Thomas Cook India Group, one of the biggest networks of travel service providers, has its headquarters in the Asia-Pacific area and operates in 28 countries on 5 continents. TCIL is promoted by Fairbridge Capital (Mauritius) Limited, a division of Fairfax Financial Holdings Limited.

Incorporated in 1978, Thomas Cook (India) Limited went public in 1983. With a 141-year history, it is one of the oldest travel-related financial services companies. The company offers a wide range of specialized services that are divided into four verticals: travel and travel-related services, financial services, leisure hospitality, and digital imaging services to cater to the needs of travelers throughout the world.

TCIL has now broadened its service offerings globally, with a particular emphasis on the APAC market. The Thomas Cook group includes 18 brands and operates in 28 nations on five continents.

Travel & Travel-Related Services: The Group's client-centric business approach, driven by innovation and omnichannel presence, delivers distinctive solutions that create a wonderful customer experience. The travel offerings cover domestic and international leisure travel, business travel, MICE, and destination management services for both B2B and B2C customers. TCIL has been creating travel experiences based on the changing demands of the clients in the post-pandemic environment by relying on its size and widespread presence.

Financial Services - With a solid physical distribution network and dependable Digital Forex Center, TCIL is the top omnichannel Forex provider in the nation.

Leisure Hospitality and Resorts: In India, Sterling Holiday Resorts Limited is a top provider of resorts, hotels, and retreats for leisure travelers. With a FIT or hotel vertical and a membership vertical, Sterling has a distinctive hybrid business strategy targeting at several consumer segments.

Digiphoto Entertainment image (DEI): DEI provides the highest caliber imaging services and products.

Subsidiaries of Thomas Cook (India) Limited:

A leading provider of leisure travel through FIT packages, meetings and conferences, weddings, reunions, picnics, and vacations through memberships, Sterling Holiday Resorts Limited, a wholly owned subsidiary of TCIL, operates 37 resorts throughout the nation. Additionally, Sterling Holidays is the owner of "Nature Trails Resorts Private Limited," an enterprise that organizes retreats at four distinctive locations in Maharashtra.

SHAREHOLDING PATTERN

BUSINESS OVERVIEW

Forex

• Strong Retail growth: 38% YoY; turnover growth: 60% YoY
• Overseas education segment at 22% YoY
• Launched Study Buddy Card (targeting the overseas education segment) in partnership with Mastercard and Visa
• Collaborated with State Bank of India (SBI) to import and distribute Saudi Riyals (SAR) for Haj travellers
• New Card issuance grew by 61% QoQ; 53% YoY
• Acquired significant large corporates across segments like Retail, Telecom, Consulting, ITES, Infrastructure, Manufacturing, Facility Management 

Travel & Related Services

Corporate Travel:
o Q1FY24: Turnover grew by 25% YoY
o Ticket size grew by 29% YoY
o Acquisition of 13 new accounts across sectors like Automobile, Battery, Footwear & Apparel, Manufacturing, Technology, Banking & Finance, Engineering, Chemicals, etc.
o Over 48% adoption by clients on the corporate self-booking tool 

Leisure Travel:
o Q1 FY24: Significant growth in sales of 208% QoQ; 137% YoY
o Launched India’s Incredible Short Breaks to capitalize on surge in demand for domestic Medications
o Managed large groups for Europe; and several groups for Cherry Blossom season in Japan and South Korea
o Introduced new destinations like Azerbaijan, Georgia, and Kazakhstan; enhanced domestic portfolio and introduced new products for Odisha, Uttar Pradesh and Gujarat
o SOTC launched a website in three regional languages to target India’s viable Regional markets
o Spiritual Journeys/Darshans range expanded
o Given visa challenges for Europe, launched Easy Visa Holidays to a range of destinations
o Released India Holiday Report - reiterating high positive consumer sentiment and strong resurgence of holidays

MICE:
o Q1 FY24: Significant growth of 139% YoY
o Managed over 180 groups - including sizeable movements of between 100 to 1200 delegates across Thailand, Abu Dhabi, Iceland, Switzerland, Maldives, France, Italy, Dubai, Denmark, Australia, Qatar; also, various domestic locations including Lucknow, Pune, Bengaluru
o Empaneled as event partner for India’s G20 meetings and managed over 16 events across 15 cities for the Quarter
o Managed 6,500 customers for Khelo India in May 2023
o Inbound group of over 325 delegates managed - from across 25 countries

Leisure Hospitality (Sterling Resorts)

• Sterling generated the highest PBT ever this quarter; 147% growth QoQ; 27% growth YoY
• 16% growth in EBITDA YoY for Q1 FY24
• Turnover grew by 13% YoY
• On a YoY basis: 8% growth in ARR and 13% growth in F&B spending resulting in a 13% Total Revenue Growth for the company including membership
• Occupancy sustained at 74% for Q1 FY24 Vs Q1 FY23, despite higher capacity due to the addition of 8 resorts
• Guest ratio increased to 62% Vs 55% in Q1 FY23 driven by non-member guests
• New resorts launched in Q1 FY24: Panchgani and Shimla
• Accelerated focus on digitalization: Oracle NetSuite ERP implemented company-wide and Property Management System (PMS) was Implemented in a few resorts in a phased manner
• Healthy growth in revenues and profits also led to free cash flow growth of 24% YoY

Leisure Hospitality & Resorts (Sterling Resorts)

Digiphoto Entertainment Imaging Ltd. (DEI)

• For Q1 FY24, DEI signed 11 new partnerships across various geographies viz. the Rainforest Café and Hard Rock (Canada), Loopagoon (Saudi Arabia), Modesh World (UAE), The Standard Maldives, Kailasha - The Snow Park (India), Van Gogh Event (Singapore), Wahoo Waterpark, Bali Safari, Taman Safari Bogor and Taman Safari Prigen (Indonesia) 
• 5 key partnerships renewed: Aquaria Phuket (Thailand), Holiday Inn Bali (Indonesia), Macau Tower, Mövenpick Maldives, and WonderLa (India)
• 10 partnerships have gone live operationally - Rainforest Café (Canada), Pittsburgh Zoo & Aquarium (USA), Loopagoon (Saudi Arabia), Snow Abu Dhabi, Adrenark and Modesh World (UAE) Maha Tower (Malaysia), Mandai Bird Paradise (Singapore), Trans Studio Makassar and Solo Safari (Indonesia)
• The Dubai Balloon- The Dubai Balloon will be the highest observatory point on The Palm, offering visitors the opportunity to marvel at the complete shape and architecture of The Palm Islands from the skies. This will be a first-of-a-kind tethered helium balloon in the U.A.E.

FINANCIAL

• The Group’s Operating EBITDA grew significantly to Rs. 1,474 Mn for Q1 FY24 against Rs. 555 Mn compared to the same quarter last year. Growth driven primarily by Foreign Exchange & Travel Businesses (Thomas Cook and SOTC); Hospitality (Sterling Holidays)
• Consolidated Operating PBT grew over 27 times in Q1 FY24; at Rs. 914 Mn vs. Rs. 33 Mn in Q1 FY23.
• Standalone Operating EBITDA at Rs. 736 Mn for Q1 FY24 vs. 286 Mn in Q1 FY23, Operating PBT at Rs.574 Mn vs. Rs. 115 Mn in Q1 FY23.
• Sterling Holidays registered EBITDA at Rs. 475 Mn for Q1 FY24 Vs Rs. 411 Mn in Q1 FY23; PBT at Rs. 358 Mn vs. Rs. 283 Mn in Q1 FY23.
• Strong order book, signaling robust forwards for Q2 FY24. Holidays at 116%, MICE 113% Vs Q2 FY23.
• The Group continues to maintain a strong financial position, with Cash and bank balances of Rs. 14,090 Mn as of June 30, 2023 

Key trends & opportunities:

Latent demand for travel: The continuous worldwide immunization campaign, relaxing of travel restrictions, and opening of borders have all increased consumer interest in and willingness to travel.

Increase in outdoor travel - The epidemic has led to the appearance of new locations. Worldwide, the demand for outdoor scenic travel has recovered more quickly. Flexi travel: The booking window, or the period of time between the first search and the intended departure date, has shrunk significantly, which implies that customers are now more likely to book on impulse and for convenience. Non-price factors are gaining popularity and playing a larger role in travel decisions. In response to these shifting consumer behaviors, the company has introduced a number of initiatives, starting with the "Assured Program" and continuing with the "Safe Holiday Helpline" and "Doctor on Call 24x7" to the most recent, the "TravShield" comprehensive safe travel commitment.

Destination Management Specialists (DMS)- Through subsidiaries, t.TCIL engages in B2B DMS business both in India and abroad. The India inbound industry specializes in creating and providing unforgettable travel experiences thanks to its decades of invaluable and deep local knowledge, creativity, and competence. One of the leading and largest businesses in this industry in India, Travel Corporation (India) Limited (TCI) manages TCIL's inbound travel operations. SITA, TCI, and Distant Frontiers are three brands under which it does business. The sector has a network of more than 1,500 partners that serve customers from more than 100 different countries who visit India, Nepal, Bhutan, and Sri Lanka. The main source markets for TCI's inbound business are the UK, Russia, Germany, France, and the USA. The section primarily caters to two market segments: leisure and Goa-based charter businesses. Further divisions of the leisure industry include FIT (Free Independent Travel), group, cruise, incentive, and education travel. The international DMS category, as its name implies, specializes in serving the incoming tourism business in a variety of global locations. The following entities fall under this segment:

MICE- With its established track record and competence, TCIL's MICE division has throughout the years established its dominance in the industry. TCIL is currently working with a wide range of corporations from different industries through its brands TCIL and SOTC and is dedicated to creating unforgettable experiences. With the expansion of travel activities in FY23, MICE climbed 711% YoY, representing an 85% recovery from pre-pandemic levels. The company was chosen as the G20 Summit's event partner, and 23 events were coordinated across 20 cities. In addition to managing the Digital Yoga Exhibition for the Indian government and the event for the opening of the first World Health Organization (WHO) Global Centre for Traditional Medicine, it handled 20,500 clients for Khelo India 2023.

Business Travel- The business travel division of TCIL provides a range of corporate travel solutions built to maximize cost savings through improved travel management. The business seeks to streamline travel requirements and assist in managing any company's strategic approach to travel with its knowledge and booking tools. The company provides goods and services for business travel. Business travel revenue increased by 213% year over year in FY23, exceeding pre-pandemic levels for the quarter. It added 57 new clients from industries including engineering, information technology and systems, manufacturing, media and entertainment, telecommunications, automobiles, banking and finance, consulting, oil and gas, and infrastructure. Additionally, the corporate self-booking option has been used by over 50% of customers.

Vacation Ownership & Resorts Business- In spite of its origins as a timeshare company, Sterling Holiday Resorts Limited, a 100% subsidiary of TCIL, has recorded exceptionally strong performance over the past few quarters. The company recorded impressive year-over-year growth and operational profitability during the past few quarters. A 22% increase in the average room rate (ARR) was the primary factor in the 36% YoY growth in resort revenues. Occupancies increased by 9% YoY to 61%. Sterling kept emphasizing the use of technology to streamline internal operations and support business. Through the use of its proprietary distribution network, Sterling ONE, Channel Partners from all over the nation as well as workers of corporate clients may instantly access Sterling inventory and book reservations at pre-approved rates. With their assistance, TCIL was able to post an EBIT of Rs 79 cr for FY23, an increase of almost 36% YoY and a 6x multiple over the pre-pandemic year of FY20. As of April 30, 2023, Sterling had 2,447 rooms spread among 40 resorts, including 15 resorts that were owned by the company, 10 that were leased, and 15 that were under management contracts. In the upcoming year, Sterling Holidays will keep adding new locations while concentrating on expansion using an asset-light methodology. When existing leases are up for renewal, they will be changed to management contracts. Given the positive prognosis for the Indian tourism business, TCIL expects to add 2-3 hotels per quarter for the next 2 years.

Digital Imaging Solutions (DEI)- 2019 April. TCIL purchased a 51 percent stake in the Dubai-based Digiphoto Entertainment Imaging (DEI) for US $40.6 million (Rs 289 crore). A technology-driven business with operations in Singapore, Dubai, Mumbai, Orlando, Hong Kong, and Kuala Lumpur, Digiphoto Entertainment Imaging was founded in 2004. DEI offers its business partners equipment, software, talent, and operational knowledge consultation with a strong end-to-end turnkey approach that specializes in imaging solutions for the attractions industry.

Key Concerns

• Any economic slowdown will result in less consumer spending on travel and tourism.
• The demand for travel and other services provided by TCIL may be impacted by the recurrence of a pandemic-like crisis or a geopolitical disaster affecting a significant portion of the world.
• Other segments, with the exception of Digiphoto and Leisure & Hospitality, have not yet reached pre-Covid levels, indicating increased competition and/or decreased spending in those segments.
• The organizational structure of TCIL has expanded throughout time to include numerous parts and businesses (67). Over time, it must be rationalized in order to support our focused and lean strategy.
• TCIL appears to be a late adopter of digitization and automation, and it now faces competition from other travel platforms and portals.

Valuation & Recommendation:

Over the years, TCIL has undertaken a series of acquisitions, including Quess, Sterling, Kuoni, and DEI. In FY19, it underwent a restructuring process, which involved the sale of Quess and the consolidation of various entities. However, the full benefits of this reorganization were hindered by the outbreak of the COVID-19 pandemic. Given the nature of its operations, TCIL was among the companies hardest hit by the pandemic's effects. In response to the prolonged impact of the pandemic, the company underwent a significant transformation of its business model. This transformation encompassed workforce reduction (with 600 fewer employees compared to pre-pandemic levels), the integration of backend operations, streamlining of the branch network, and digitalization efforts. Consequently, in FY23, the company achieved cost savings of approximately 370 crore rupees. We anticipate that as the business fully recovers, these cost-saving measures will yield even greater improvements to the bottom line.

TCIL has the potential to create a compelling long-term growth story, driven by the sustained growth of the tourism sector supported by rising disposable incomes, consistent economic expansion, TCIL's strong market leadership, customer-centric approach, historical legacy, and brand recognition. We believe that TCIL is poised for a strong resurgence across all sectors in the coming quarters, following a challenging period due to Covid-related travel restrictions. Historically, Q1 has been one of TCIL's stronger quarters, but the past three summers were exceptionally challenging due to COVID and travel constraints. Consequently, Q1FY24 may present a robust performance. In terms of valuation, our bullish scenario assigns a fair value of Rs. 130.

SOURCE:

-STOCX

-COMPANY WEBSITE