Consistent show key for Thomas Cook's re-rating

Thomas Cook India posted results broadly in line with expectations with revenues growing five per cent year-on-year in the December quarter while lower advertising costs helped prop up operating and net profit. The travel and foreign exchange services player posted a revenue of Rs 78 crore, while operating and net profit at Rs 25 crore and Rs 9 crore were up 54 per cent and 70 per cent, respectively. Analysts say that a large part of the advertising expenditure was incurred in the first half of CY12. Advertising expenditure fell 36 per cent year-on-year for the quarter.

The company’s Managing Director Madhavan Menon says a part of the sales growth was driven by rising fares, hotel rates, depreciation of the rupee as well as good performance of its travel business segments. This was despite a slowing global economy, he added.

While the company has indicated a 32 per cent rise in group bookings for February, it expects the ensuing months to show a strong upward trend. But analysts are cautiously optimistic and would like to wait and watch as the economy will take time to pick up and this would have a lag effect on the company’s financials.

While inbound travel volume has improved after a weak September quarter, analysts believe growth is likely to come from outbound travel which is expected to grow at 20 per cent. The company gets over 85 per cent of its revenues from India. What is likely to aid this growth is expansion of its distribution network in Tier-II and Tier-III networks and tailor-made offerings for specific regions and languages.

In the December quarter, the company launched travel packages for younger travelers and a multi-currency prepaid forex card in partnership with Mastercard.

According to the management, the card has had a successful run thus far with 10,000 cards with forex loaded to the tune of $25 million.

The stock though has been an underperformer over the last one year as compared to Sensex. While the travel-related services company lost nine per cent, the benchmark index gave a return of seven per cent. The stock remained unchanged at Rs 54.50 in Wednesday’s trading session. It trades at 16 times its CY13 earnings estimates, which is lower than its historic forward multiple between 17-25 times.

Analysts feel the stock may remain an underperformer till the company reports a sustainable good performance like in the recently announced December 2012 quarter.

(With inputs from Priya Kansara Pandya)