Cox & Kings Ltd., India’s biggest tour operator by market value, aims to slash its debt by almost 80 percent in five years as Prime Minister Narendra Modi’s easy visa rules to lure more visitors boost cash flow.
The Mumbai-based company will use at least 5 billion rupees ($79 million) of its cash annually to cut debt that stood at 31.8 billion rupees as of Sept. 30, Chief Financial Officer Anil Khandelwal said in an interview. Cox & Kings raised 10 billion rupees last month selling shares to select investors and will use the proceeds to pare the obligations.
“At that pace, the company will have negligible debt by 2019 and will work on better dividend payouts,” Khandelwal said. “With the economic uptrend coupled with the government’s focus on promoting tourism, improving business climate and investor sentiment, we are poised to gain.”
Cox & Kings, which sold its camping unit in September, is gearing up for more travelers as an economic recovery at home and abroad boosts inbound, outbound and domestic tourism. Shares of the company, whose origin dates back to the British colonial era, have more than doubled this year as Modi cut redtape and allowed visas on arrival for U.S. tourists.
India received about 7 million travelers from abroad last year, 5.9 percent more than in 2012, earning about $18.4 billion, according to data provided by the Ministry of Tourism. About 16.6 million Indians visited foreign countries, 11 percent more, while domestic tourism saw an almost 10 percent growth with 1.1 billion travelers.
Outbound tourists account for more than 65 percent of Cox & Kings’ sales from India, as the company taps rising income in the world’s second-most populous country. Steps taken by Modi’s administration to make India a preferred destination are also set to benefit the company.
The government has budgeted $81 million for the year ending March 31 to develop five theme-based tourist areas. Buddhist circuits including Bodh Gaya, the place where Buddha is believed to have attained enlightenment, will be developed to attract visitors from Japan, China, South Korea and Southeast Asia.
Inbound tourism could rise by as much as 12 percent next year if such steps are actually implemented, Khandelwal said. That would be still slower than the more than 25 percent outbound growth the company expects in the financial years through March 2016 and 2017, according to Peter Kerkar, who now controls the company and is non-executive director.
“We are hopeful that with tourism being one of the seven main priorities of the government, it could be a game changer for our inbound business,” Kerkar said in an earnings conference call in November.
Shares of the company surged 11 percent on Sept. 29, the biggest gain in nine months, after Modi, at an event in New York’s Madison Square Garden, said U.S. tourists to India will be issued visas on arrival, while rules for people of Indian origin will be eased.
“India is becoming an attractive investment destination for tourism as government takes steps such as visa on arrival,” said Sumant Kumar, an analyst at Mumbai-based Elara Securities India Pvt. “Leisure tourism will likely drive the growth of travel companies in the coming years as people have more dispensable income in their kitty.”
He expects the growth in inbound travelers to outpace increase in outbound travelers and recommends buying Cox & Kings stock, with a one-year price target of 411 rupees.
Shares of the company have more than doubled this year to 295.25 rupees, five times the advance made by the benchmark S&P BSE Sensex. Rival Thomas Cook (India) Ltd.’s shares have risen 85 percent.
Group sales, excluding the camping business, increased 21 percent in the six months through September compared with the same period a year earlier, the company said in a statement on Nov. 14. Earnings before interest, taxes, depreciation and amortization also rose 21 percent in the same period.
Geopolitical tensions, volatility in international currencies and any slowdown in global economies such as Europe are the major risks to tour operators which have exposure to overseas market, according to Tushar Pendharkar, an analyst at Right Horizons Financial Services Pvt. He recommends buying the stock with a 12-month target of 560 rupees.
Cox & Kings’ history dates back to 1758 and its evolution was closely tied to the fortunes of the British empire, making it the oldest established travel agent. By 1878, according to the company’s website, it became agent for most British regiments posted overseas.
After buying it in 1923, Lloyds Bank Ltd. sold it in 1960 to National & Grindlays Bank Ltd., which in turn sold the travel and non-banking businesses to Anthony B.M. Good and John Norman Romney Barber in 1980.
For 24 years since, Ajay Ajit Peter Kerkar, his sister Urrshila Kerkar and Liz Investments Pvt. bought and raised their holdings through 2005 to become majority shareholders. Good is chairman, with about 3.6 percent holding.
The modern-day Cox & Kings, which listed on the Indian bourses in December 2009, employs more than 5,000 people with offices in India, U.K., U.S., Japan, Russia, Singapore and Dubai.
In September, the company sold unit Holidaybreak Ltd.’s camping business, which consumed about half of its capital expenditure, for 89.2 million pounds ($139 million).
“Given the fact that we could not cherry pick our assets in the Holidaybreak acquisition, our plan always was to sell camping and use the proceeds to deleverage,” Khandelwal said.
The decision to sell the unit may help increase cash from operations, which according to data compiled by Bloomberg, turned positive with 5 billion rupees in the financial year ended March 31, compared with a negative 1.17 billion a year earlier.
The company’s reduced interest costs will further free cash flows, allowing it to cut debt at a faster pace, according to Khandelwal. Cox & Kings’ annual capex now stands reduced to 1.25 billion rupees after the sale of the unit.
The tour operator’s leisure business sales rose 10 percent to 5.73 billion rupees in the six months through September, contributing almost 46 percent to the total. The education trip and holiday business sales jumped 23 percent to 4.52 billion rupees compared with previous year, accounting for 36 percent of total, according to an investor presentation last month.
Ebitda may rise almost 15 percent annually for the next five years as the company cuts finance costs, Khandelwal said.
The tour operator expects group sales and Ebitda to rise as much as 18 percent in the current financial year, Khandelwal said. That surpasses the 5 percent sales and 8 percent Ebitda growth estimated by analysts, according to a Bloomberg survey.
Cox & Kings doesn’t plan acquisition or sell stake in any of its units, Khandelwal said.
“It’s simple,” he said. “We are focusing only on our business and organic growth now.”
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