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Hold Thomas Cook (India) Ltd. target Rs 229.0 : Sharekhan

Hold Thomas Cook (India) Ltd. at a price target of Rs 229.0. Time period given is a year.|
Updated: May 26, 2017, 09.02 AM IST
Sharekhan has hold call on Thomas Cook (India) Ltd. with a target price of Rs 229.0. The current market price of Thomas Cook (India) Ltd. is Rs 210.75 Time period given by analyst is year when Thomas Cook (India) Ltd. price can reach defined target.
Revenue grows in double digits; OPM flat; higher tax incidence leads to losses: TCIL’s consolidated revenue for Q4FY2017 grew by 10.4% YoY to Rs2,059.2 crore, driven by a 10.9% YoY revenue growth in the core Travel business (including the consolidation of Kuoni’s Travel businesses), an 11.2% YoY growth in Human Resource (HR) services and a 6.4% YoY growth in the Financial Services business. The Operating Profit Margin (OPM) stood almost flat at 2.5%. Operating profit grew by 14% YoY to Rs51.8 crore. The Interest Cost increased by 7% YoY to Rs35.4 crore due to the higher debt employed for the inorganic initiatives. A higher tax outgo resulted in a loss of Rs6 crore in Q4FY2017 as against a loss of Rs87.5 crore in Q4FY2016.
Travel and HR businesses perform well; Financial Services and Vacation Ownership disappoint: The core Travel business’s revenue grew by ~11% YoY to Rs806.5 crore and posted a PBIT of Rs23.5 crore (a growth of 18.7% YoY). The HR Services business continued to perform well, with its revenue growing by 11.2% YoY (driven by both organic and inorganic initiatives) and PBIT margins improving by 107BPS to 7.3%. The Financial Services business’ revenue declined by 4% YoY and the PBIT contracted by 27.2% YoY. Lower volume experienced in the Vacation Ownership (VO) business resulted in the segment’s revenue growing by a modest pace of 6.4% YoY to Rs62.6 crore. The VO business’s loss before interest & taxes stood at Rs22.7 crore compared to Rs17.9 crore in Q3FY2017.
Outlook – Travel and HR businesses expected to maintain growth momentum; VO to improve: The integration of Kuoni’s domestic business with TCIL’s travel business would help the company in cost savings in the near to medium term, and would aid in improving the margins. The company has recently signed an agreement to acquire Kuoni’s global network of destination management specialists in Asia, Australia, the Middle East, Africa and The Americas, which will further enhance the growth prospects of TCIL’s travel business globally. The HR business is expected to maintain the double-digit revenue growth and would see its margin improve by 50-70BPS per annum. The company has taken relevant measures to revamp the VO business, such as the focus on digital marketing to enhance the membership base, and improve occupancy and average room rentals of the existing room inventory. This will help it to drive growth in the medium to long term.
Downgrade to Hold with unchanged price target of Rs229: FY2017 was a year of integration for TCIL’s Travel and HR businesses. Though the momentum in revenue growth will sustain going forward, the margins are likely to improve in a gradual manner, as the benefit from the integration of recent acquisitions will take some time to fructify. Further, the company is planning to re-brand the VO business and therefore investment in the VO brand will increase. In view of the short-term pressure on margins and the recent run-up in the stock, we downgrade our rating to ‘Hold’ with an unchanged price target of Rs229. However, the long-term growth prospects of the company are intact.

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