Tourism Industry_Initiating_Coverage_Cox _ Kings Thomas Cook by icestar

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									                                                                    Equity | India | Travel & Tourism


Initiating
Coverage
                                                                    Travels & Tourism Industry
                                                                    Exotic package at an attractive price                                                               December 12, 2011


10 year Tourism demand growth                                                          India tourism demand expected to grow 9.2% CAGR, second fastest in the world
                                                                                       India’s Travel and Tourism (T&T) Industry demand is expected to grow by 9.2% CAGR from CY10-20E,
      25
               19.2                                                                    to reach US$432bn, the second fastest growth in the world, and emerge as one of the top 10 T&T
      20
                                                                                       market globally. This growth is expected to be driven by a) 7.8% CAGR in foreign tourist arrivals
      15
                         9.2            9.1             8.9
  %
      10
                                                                       8.5             (FTAs) to 11.9 mn (inbound tourism), b) 14.1% CAGR in outbound traffic to 45.1 mn, and c) 7.7% CAGR
          5                                                                            in leisure spending to $137.1 bn in domestic tourism. We expect India’s T&T industry to flourish led
          0                                                                            by a) the favourable demographics of a burgeoning Indian middle class, b) rising purchasing power
                                                                       Zimbawe




                                                                                       with higher disposable income, and c) better connectivity (land, sea, air) with improvements in
               ST&P




                                        China
                         India




                                                        Lithuania




                                                                                       infrastructure. We believe Cox & Kings (C&K) and Thomas Cook (TCIL), India’s two leading tour
                                                                                       operators, are best placed to capture this growth potential with their integrated business model and
                                                                                       the structural changes in the industry such as the rising market share of organised players.
FTAs in India
                                                                                       Cox & Kings: Best bet in India’s tourism industry with strong global footprint
              14.0                                                     11.9            We believe Cox & Kings (C&K) is best placed to capture the 9.2% CAGR in India’s tourism industry with
              12.0                                                                     its a) Pan-India presence and strong brand recall, b) Integrated business model with diversified
              10.0                                              8.0
                                                                                       product offering (price and destinations), and c) Strong overseas network with presence in India’s key
  mn visits




               8.0                               5.6
               6.0                 3.9                                                 outbound destinations such as Europe, UAE, and the Far East.
               4.0      2.7
               2.0                                                                     The company has quickly emerged as a global tour operator with a series of overseas acquisitions in
               -                                                                       last four years (spread across USA, Europe, UAE and Australia), resulting in a strong set of synergies.
                                                               CY15E

                                                                         CY20E
                        CY00

                                   CY05

                                                 CY10




                                                                                       These includes a) opportunity to capture more travel spend of the customer, b) improve cost
                                                                                       competitiveness through consolidated product sourcing, c) build global distribution network and, d)
                                                                                       de-risked business model with reduction in seasonality impact and low event risk.

Outbound travel from India
                                                                                       With the acquisition of HolidayBreak Plc (HBR), we expect the company to register a PAT CAGR of
                                                                                       23.7% in FY11-FY13E despite the higher interest outflow and lower profits in FY12E.
              50.0                                                     45.1

              40.0
                                                                                       Thomas Cook: stable forex business and strong traction in travel business
                                                                                       Thomas Cook (TCIL) is the largest forex player and one of the top five tour operators, in India. Its
  mn visits




              30.0                                            23.0

              20.0                              12.1                                   forex business, accounts for 60% of consolidated revenues, and is expected to remain one of the
                                   7.2
              10.0      4.4                                                            major growth drivers with strong growth in outbound leisure travel, FTAs in India and global inward
               -                                                                       remittances to India.
                                                               CY15E

                                                                         CY20E
                        CY00

                                   CY05

                                                 CY10




                                                                                       However, the travel business is expected to outperform with 15.7% CAGR in revenues, compared to a
                                                                                       10.3% CAGR in forex revenues in CY10-13E, owing to strong growth in India’s tourism industry.
                                                                                       Consequently, its PAT is expected to witness a steady growth of 11.1% CAGR in CY10-13E.
Leisure spend in India                                                                 The stocks has corrected sharply in the recent past due to its parent company, Thomas Cook Plc
                                                                                       (TCG) being burdened with a huge debt and lowering its guidance thrice in the last 18 months. We
                                                                        128
              140                                                                      believe the concerns for TCIL are over done and expect the stocks to witness a strong recovery in the
              120
              100
                                                                88                     coming months.
               80                               58
    $ bn




               60
                                 30
                                                                                       Valuation and views
                      29
               40
               20                                                                      Historically, C&K and TCIL have traded at 20-25x one year forward earnings multiple driven by strong
                0                                                                      growth visibility. We initiate coverage on Cox and Kings with BUY rating and target price of
                                                              CY15E

                                                                        CY20E
                      CY00

                                 CY05

                                                CY10




                                                                                       `243/share (16.8x FY13E EPS), a 30% discount to its average historical multiples due to a) huge debt,
                                                                                       b) high interest outflow, and c) acquisition integration concerns despite C&Ks strong track record. We
                                                                                       initiate coverage on Thomas Cook with BUY rating and target price of `46.5/share (15.2x CY13E EPS),
                                                                                       a 30% discount to its historical multiples. We believe the concerns of TCG’s debt position and its
                                                                                       impact on TCIL are overdone.




                                 Analyst                                                    +91-22- 6614 2690
                      Sunil Sewhani
                                                                                                                                                          GEPL Capital Research              1
                                                                                 sunilsewhani@geplcapital.com
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                   December 12, 2011




                                                             Index

               Sr. No.     Contents                                                    Page No.
                  1        India’s Travel and Tourism Industry                            3
                           Growth across segments                                         5
                           The Global Travel and Tourism Industry                         9
                           Future outlook                                                11




                  2        Cox & Kings: Investment Rationale                             12
                           Best placed to capture India’s growth in tourism              13
                           Emergence of a Global Tour Operator                           15
                           HolidayBreak Plc- An acquisition worth the wait               20
                           Visa processing and Train tours: Future growth avenues        23
                           Financials                                                    24
                           Key Risks                                                     27
                           Valuations                                                    29
                           Company background                                            30




                  3        Thomas Cook: Investment Rationale                             36
                           Dominance in the forex business in India                      37
                           Focus on outbound segment to drive travel business growth     38
                           Synergy potential from parent company                         40
                           Concerns over parent company debt overdone                    41
                           New growth initiatives                                        42
                           Financials                                                    43
                           Key Risks                                                     46
                           Valuations                                                    48
                           Company background                                            49




GEPL Capital Research | Initiating Coverage                                                                   2
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                  December 12, 2011


                                        India’s Travel and Tourism Industry

                                        The Travel and Tourism (T&T) industry in India contributed 4.5% to our nations GDP and 7.5% to the
                                        total employment in India in CY10 making it is one of the largest service industries. The T&T industry
                                        is also a great foreign exchange earner for the country with foreign exchange earnings (FEE) of
                                        US$14.2 bn in CY10. The industry has strong growth potential, with the World Travel and Tourism
                                        Council (WTTC), projecting 9.2% CAGR in India’s T&T demand over the next decade (CY11E-21E), the
                                        second fastest in the world.

                                        India’s T&T industry is expected to witness an 8.3% CAGR in CY11E-21E in domestic spending, 7.7%
                                        CAGR in leisure spending and 9.4% CAGR in business spending in the same period driven by the
                                        burgeoning Indian middle class, rising disposable income, and increasing consumer awareness, with
                                        various marketing campaigns run by the Indian government, such as “Incredible India!”

                                        India T&T Growth projections (CY11E-21E)
                                          Particulars                                              CY11E       CY21E       Avg 10 yr growth (%)
                                          Direct contribution of T&T to GDP                            1.9           2                      8.1
                                          Total contribution of T&T to GDP                             4.5         4.9                      8.8
                                          Direct contribution of T&T to Employment                       5         5.2                        2
                                          Total contribution of T&T to Employment                      7.5         8.1                      2.3
                                          Visitor Exports                                              3.8         2.1                      7.1
                                          Domestic Spending                                            4.3         4.4                      8.3
                                          Leisure Spending                                             3.7         3.6                      7.7
                                          Business Spending                                            1.5         1.7                      9.4
                                          Capital Investment                                           4.7         4.8                      8.7
                                        Source: WTTC, GEPL Capital Research

                                        Global Positioning
                                        According to the Travel and Tourism Competitiveness Report CY11 by the World Economic Forum,
                                        India is ranked 68th out of 139 countries. It is ranked the 8th best tourist destination for its natural
                                        resources and 24th for its cultural resources, with many World Heritage sites, both natural and
                                        cultural. Moreover, it ranks 28th in the price competitiveness in the T&T industry with a good ground
                                        and air transportation system

                                        Key characteristics
                                        With over 30,000 players spread across India in the form of small, unorganised and localised players,
                                        the industry is highly fragmented. The top five organised players in the country control barely 9% of
                                        the total market share. Niche travel segments such as adventure tourism, cruises, and spa packages
                                        have been gaining in popularity in recent years. As travelers demand custom packages and look for
                                        exotic travel experiences, the Indian travel and tourism industry appears to be showing early signs of
                                        a mature market.
  Highly unorganized T&T Industry in India                                    Structure of T&T Industry in India
                                          9

                                                                                                       Top 5 Players
                                                                                                            9%

                                                                                                  5,000 Regional Players
                                                                                                          1.1%

                                                                                                25,000 Independent Players
                                 91                                                                        89.9%

                           Organised     Unorganised

  Source: WTTC, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                       3
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                                                                                                December 12, 2011


                                                                                 Strong growth potential for India’s T&T Industry
                                                                                 India’s T&T industry is expected to contribute 8.8% to the Country’s GDP by CY21E and contribute
                                                                                 2.3% to the Country’s employment. These figures are much higher than the World averages of 4.1%
                                                                                 and 2.2% respectively. Moreover, India is expected to witness the fourth fastest visitor export
                                                                                 growth in the World- at 7.1% as compared to the World average of 4.3%. All of these factors should
                                                                                 lead to India becoming the second largest investment centre in the world with a CAGR of 8.7%,
                                                                                 highlighting the potential for growth of the T&T industry and the individual players.


  Second largest growth in T&T contribution to GDP by CY21E                                                                           Seventh largest growth in T&T contribution to Employment by
                                                                                                                                      CY21E

      10    9.1                                                                                                                          4.5     4.0
                       8.8
       9                                                                                                                                 4.0
                                    7.5                                                                                                                       3.5
       8                                                                                                                                 3.5
                                               6.7       6.6
       7                                                            6.4                                                                                                  2.9
                                                                                    5.8                                                  3.0                                       2.7           2.6
                                                                                                 5.4                                                                                                          2.5
       6                                                                                                      5.1           5                                                                                               2.3
                                                                                                                                         2.5                                                                                                2.0
    % 5
                                                                                                                                                                                   W orld Average 2.2                                                    1.8
                                                         W orld Average 4.1                                                             % 2.0
      4
                                                                                                                                         1.5
       3
                                                                                                                                                                                                                                                                        0.8
       2                                                                                                                                 1.0

       1                                                                                                                                 0.5
       0                                                                                                                                 0.0
                                                         Vietnam
                                   Thailand




                                                                    Bangladesh
           China


                      India




                                              Cambodia




                                                                                                             Sri Lanka


                                                                                                                         Malaysia




                                                                                                                                                                                                                                                         Vietnam
                                                                                                                                                Thailand




                                                                                                                                                                                   Bangladesh
                                                                                                Pakistan




                                                                                                                                                             Malaysia


                                                                                                                                                                        Cambodia




                                                                                                                                                                                                 China




                                                                                                                                                                                                                            India




                                                                                                                                                                                                                                                                        Sri Lanka
                                                                                    Indonesia




                                                                                                                                                                                                             Pakistan




                                                                                                                                                                                                                                           Indonesia
  Source: WTTC, GEPL Capital Research                                                                                                 Source: WTTC, GEPL Capital Research




  Fourth largest growth in Visitor exports by CY21E                                                                                    Second largest growth in Investments by CY21E

     10    9.2                                                                                                                             10
                                                                                                                                                   8.8          8.7        8.5
      9                                                                                                                                     9
      8               7.4          7.4        7.1                                                                                           8                                          6.9         6.6           6.3
      7                                                   6.1                                                                               7                                                                                 6.2                  6            6
      6                                                              5.3                                                                    6                                                                                                                                5.2
                                                                                     4.9          4.8                                                                                W orld Average 5.4
    % 5                                       W orld Average 4.3                                               3.9                       % 5
      4                                                                                                                                    4
      3                                                                                                                                     3
      2                                                                                                                                     2
                                                                                                                           0.8
      1                                                                                                                                     1
      0                                                                                                                                     0
                                                                                                                                                                                                                                               Vietnam
                                                                                                                                                  Thailand




                                                                                                                                                                                                                              Bangladesh
                                                                                                                                                               India


                                                                                                                                                                          China


                                                                                                                                                                                      Malaysia


                                                                                                                                                                                                  Cambodia




                                                                                                                                                                                                                                                                            Sri Lanka
                                   Vietnam
           Thailand




                                                                                                                                                                                                                 Pakistan
                      Bangladesh




                                                                                                                                                                                                                                                            Indonesia
                                              India


                                                         Cambodia


                                                                    Malaysia


                                                                                    China




                                                                                                                          Sri Lanka
                                                                                                              Pakistan
                                                                                                 Indonesia




  Source: WTTC, GEPL Capital Research                                                                                                  Source: WTTC, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                                                                                                                             4
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                                       December 12, 2011


  Classification of Travel                                      Growth across segments

                                                                The Indian tourism industry can be broadly classified into:

   INBOUND
                                                                1. Inbound tourism: refers to foreign tourist arrivals (FTAs) into India. FTAs in India grew at a CAGR
                                                                   of 7.7% in CY00-10 to 5.6 mn visits and are expected to grow by another 7.8% CAGR in CY10-20E,
                                                                   to 11.9 mn visits.
                           DOMESTIC
                                                                2. Outbound tourism: refers to Indians travelling outside India. Outbound travel from India grew at a
                                                                   CAGR of 10.6% in CY00-10 to 12.1 mn visits and is expected to grow by 14.1% CAGR in CY10-20E, to
                                                                   45.1 mn visits.
                                OUTBOUND
                                                                3. Domestic tourism: refers to the travel within India by both foreigners and Indian nationals. The
                                                                   improvement in disposable income has led to 12.9% CAGR (12.9% CAGR by Indians, 11.7% CAGR by
                                                                   foreigners) in domestic tourism to 758 mn visits (740 mn visits by Indians, 17.9 mn visits by
                                                                   foreigners) in CY99-09.


                                                                A. Inbound tourism: Rise in FTA spending
                                                                Foreign Tourist Arrivals (FTA’s) in India has grown at a 7.7% CAGR in CY00-10 to 5.6 mn visits in CY10
                                                                as compared to 2.65 mn visits in CY00. The inbound tourism has received a major fillip with the
                                                                government taking several steps to promote “Incredible India” as a destination of choice for leisure
                                                                travelers who form the majority of inbound arrivals (62%) with meeting, incentives, conferences and
                                                                exhibitions (MICE) and business making up the rest. In terms of travelers by region In terms of regions
                                                                US, European countries (UK, France, etc) and Australia form a major chunk of the inbound travelers
                                                                to India.

  India’s Inbound traffic                                                                                     India’s market share in World Arrivals

                                                                                            5.6                   0.65
               6                                                              5.3                  30                                                                                      0.59   0.59
                                                                       5.1           5.2                                                                                   0.57    0.58
                                                                                                   25             0.60
               5                                                4.5                                                                                                 0.53
                                                         3.9                                       20             0.55
                                                                                                                                                             0.49
               4                                  3.5
                                                                                                   15             0.50                                0.45
   mn visits




                                           2.7                                                            %
                   2.7       2.5
               3                    2.4                                                            10          % 0.45
                                                                                                                          0.39                 0.40
                                                                                                   5                             0.37
               2                                                                                                  0.40
                                                                                                                                        0.34
                                                                                                   0
                                                                                                                  0.35
               1
                                                                                                   (5)
                                                                                                                  0.30
               0                                                                                   (10)
                                                                                                                  0.25
                   CY00

                             CY01

                                    CY02

                                           CY03

                                                  CY04

                                                         CY05

                                                                CY06

                                                                       CY07

                                                                              CY08

                                                                                     CY09

                                                                                            CY10




                                                                                                                          CY00

                                                                                                                                 CY01

                                                                                                                                        CY02

                                                                                                                                               CY03

                                                                                                                                                      CY04

                                                                                                                                                             CY05

                                                                                                                                                                    CY06

                                                                                                                                                                           CY07

                                                                                                                                                                                    CY08

                                                                                                                                                                                           CY09

                          International tourist arrivals in India                     YoY growth                                                                                                  CY10

  Source: Ministry of Tourism, GEPL Capital Research                                                          Source: Ministry of Tourism, GEPL Capital Research


                                                                In fact, India has a huge advantage with its strong cultural and natural resources which helps to offer
                                                                a wide category of tourism. These include history tourism, adventure tourism, medical tourism
                                                                (ayurveda and other forms of Indian medicine), spiritual tourism, beach tourism (India has the longest
                                                                coastline in the East), etc. India is one of the world’s most unique and varied countries in terms of its
                                                                flora and fauna with a vast variety of climates (from snow-capped mountains in Kashmir to desserts in
                                                                Rajasthan).




GEPL Capital Research | Initiating Coverage                                                                                                                                                              5
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                                                                        December 12, 2011


                                                             Despite the strong CAGR of 7.7%, the share of India in international tourist arrivals has improved just
                                                             marginally to 0.6% in CY10 from 0.4% in CY00 indicating strong growth potential. With India’s rising
                                                             economic power and government initiatives such as ‘Visa on Arrival’ and the ’Incredible India‘
                                                             campaign, the growth momentum in inbound traffic is expected to continue and FTAs are expected to
                                                             register 7.8% CAGR in CY10-20E and reach 11.9 mn visits.


                                                                Projected growth in India’s Inbound traffic
                                                                            14                                                                                                                     10

                                                                            12                                                                                                  11.0 11.9          9
                                                                                                                                                                                                   8
                                                                                                                                                  9.3            10.1
                                                                            10                                                                                                                     7
                                                                                                                                        8.7
                                                                                                                              8.0                                                                  6
                                                               mn visits




                                                                              8                                         7.4                                                                              %
                                                                                                    6.5     6.9                                                                                    5
                                                                                         6.0
                                                                              6                                                                                                                    4
                                                                              4                                                                                                                    3
                                                                                                                                                                                                   2
                                                                              2
                                                                                                                                                                                                   1
                                                                              0                                                                                                                    0
                                                                                     CY11E

                                                                                                    CY12E

                                                                                                            CY13E

                                                                                                                    CY14E

                                                                                                                              CY15E

                                                                                                                                       CY16E

                                                                                                                                                  CY17E

                                                                                                                                                                 CY18E

                                                                                                                                                                                CY19E

                                                                                                                                                                                          CY20E
                                                                                         International tourist arrivals in India                                                YoY growth

                                                                Source: Ministry of Tourism, GEPL Capital Research

                                                             Spending power by FTAs increasing
                                                             Tourism continues to play an important role in earning foreign exchange for the country. Foreign
                                                             exchange earnings (FEE) from tourism in India have grown at a CAGR of 15.2% from US$3.5 bn in CY00
                                                             to US$14.2 bn CY10, due to a sharp increase in spending by visitors. The spending per foreign visitor
                                                             has witnessed a 6.9% CAGR in CY00-10 to US$2,544. Consequently, India’s share of world tourism
                                                             receipts has also improved from 0.7% in CY00 to 1.54% in CY10. WTTC projects India’s FEE from
                                                             tourism will record an 8.5% CAGR, to US$32.1 bn by CY20E from the current US$14.2 bn.

  Foreign Exchange Earning from T&T in India                                                                                  India’s share of world tourism receipts
              16                                                                                            50                        1.80
                                                                                                    14.2
              14                                                                                                                                                                                                                     1.54
                                                                                                            40
                                                                                                                                      1.60
              12                                                                  11.8 11.4
                                                                                                            30                                                                                                                1.34
                                                                           10.7
                                                                                                                                      1.40                                                                      1.25 1.26
              10                                             8.6                                                                                                                                         1.16
                                                                                                            20      %                                                                             1.10
     US$ bn




              8                                       7.5                                                                             1.20
                                               6.2                                                          10                    %                                                       0.97
              6                                                                                                                       1.00                                         0.84
                   3.5     3.2           4.5                                                                0
              4                                                                                                                                0.73
                                  3.1                                                                                                 0.80                0.69
                                                                                                                                                                     0.64
              2                                                                                             (10)
                                                                                                                                      0.60
              0                                                                                             (20)
                   CY00

                          CY01

                                 CY02

                                        CY03

                                               CY04

                                                      CY05

                                                             CY06

                                                                           CY07

                                                                                  CY08

                                                                                             CY09

                                                                                                     CY10




                                                                                                                                      0.40
                                                                                                                                               CY00

                                                                                                                                                          CY01

                                                                                                                                                                         CY02

                                                                                                                                                                                   CY03

                                                                                                                                                                                           CY04

                                                                                                                                                                                                  CY05

                                                                                                                                                                                                         CY06

                                                                                                                                                                                                                CY07

                                                                                                                                                                                                                       CY08

                                                                                                                                                                                                                              CY09

                                                                                                                                                                                                                                     CY10




                                        Fees                                 YoY growth
  Source: Ministry of Tourism, GEPL Capital Research                                                                          Source: Ministry of Tourism, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                                                                                 6
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                                                                                                                       December 12, 2011


                                                                          B. Outbound tourism: burgeoning middle offers strong growth potential
                                                                           There has been a stark rise in the number of Indians travelling abroad with the outbound segment
                                                                           witnessing a 10.6% CAGR in CY00-CY10 to 12.1 mn visits. A major reason for this rise has also been the
                                                                           significant improvement in the affordability because of the sharp rise in per capita income from
                                                                           `20,685 in CY00 to `54,000 in CY10 clocking a CAGR of 10.1%.

  Share-of-Wallet of Outbound travel across Countries                                                                                                  Rise in per capita income in India
         4.5                                                                                                                                                 60,000                                                                                                                     16
                                                                                                                 3.8      3.9
         4.0                                                                                                                                                                                                                                                                            14
                                                                                                                                                             50,000
         3.5
                                                                                                                                                                                                                                                                                        12
         3.0                                                                                        2.7
                                                                                         2.5                                                                 40,000
                                                                                                                                                                                                                                                                                        10
         2.5                                                                                                                                                                                                                                                                                 %
     %                                                                       2.0
                                                                                                                                                             30,000                                                                                                                     8




                                                                                                                                                        Rs
         2.0                                                  1.5
         1.5                                   1.1                                                                                                                                                                                                                                      6
                              0.9      1.0                                                                                                                   20,000
                0.8
         1.0                                                                                                                                                                                                                                                                            4
         0.5                                                                                                                                                 10,000




                                                                                                                                                                              20,685

                                                                                                                                                                                        21,869

                                                                                                                                                                                                  23,187

                                                                                                                                                                                                            25,309

                                                                                                                                                                                                                      28,090

                                                                                                                                                                                                                               31,583

                                                                                                                                                                                                                                        35,844

                                                                                                                                                                                                                                                  40,889

                                                                                                                                                                                                                                                             46,421

                                                                                                                                                                                                                                                                      49,639

                                                                                                                                                                                                                                                                               54,000
                                                                                                                                                                                                                                                                                        2
         0.0
                                                                                                                                                                        0                                                                                                               0
                                                                             Thailand




                                                                                                                          Phillippines
                                                                                                                 UK
                Japan

                              India




                                                                  China




                                                                                                    Australia
                                               Indonesia




                                                                                         Malaysia
                                       USA




                                                                                                                                                                                                                                                                               CY10E
                                                                                                                                                                              CY00

                                                                                                                                                                                        CY01

                                                                                                                                                                                                  CY02

                                                                                                                                                                                                            CY03

                                                                                                                                                                                                                      CY04

                                                                                                                                                                                                                               CY05

                                                                                                                                                                                                                                        CY06

                                                                                                                                                                                                                                                  CY07

                                                                                                                                                                                                                                                             CY08

                                                                                                                                                                                                                                                                      CY09
                                                                                                                                                                                                         Per capita Income                                 YoY growth

  Source: Euromonitor, GEPL Capital Research                                                                                                           Source: Ministry of Tourism, GEPL Capital Research


                                                                           Despite the sharp rise in per capita income, the burgeoning middle class and aspirations to visit
                                                                           countries outside India, the share of wallet (SoW) in India for T&T is still very low, at 0.9%. While this
                                                                           is in line with developed Nations like USA (1%) and Japan (0.8%), China’s SoW of 1.5%, Australia’s 2.7%
                                                                           and UK’s 3.8% indicate a strong growth potential.
                                                                           Led by the favourable macro-economic environment and the increase in purchasing power of the
                                                                           burgeoning middle class, the UNWTO predicts a multifold rise in outbound visits, from 12.1 mn in
                                                                           CY10, to 45.1 mn by CY20E.

  Projected growth in India’s Outbound traffic

                              50                                                                                                                                                                                                                                 25
                                                                                                                                                                                                                                                 45.1
                                                                                                                                                                                                                                        39.5
                              40                                                                                                                                                                                                                                 20
                                                                                                                                                                                                                               34.5
                                                                                                                                                                                                                     30.0                                                 %
                              30                                                                                                                                                                                                                                 15
                  mn visits




                                                                                                                                                                                                 23.0 26.3
                                                                                                                                                                                       20.0
                              20                                                                                                                                            17.5                                                                                 10
                                                                                                                                                                15.4
                                                                                                                                   13.6
                                                                                                    8.3         9.8 10.9 11.1 12.1
                              10                                                  7.2                                                                                                                                                                            5
                                      4.4 4.6 4.9                         5.4 6.6

                                0                                                                                                                                                                                                                                0
                                                                                                                                                        CY11E

                                                                                                                                                                CY12E

                                                                                                                                                                            CY13E

                                                                                                                                                                                       CY14E

                                                                                                                                                                                                 CY15E

                                                                                                                                                                                                           CY16E

                                                                                                                                                                                                                     CY17E

                                                                                                                                                                                                                               CY18E

                                                                                                                                                                                                                                        CY19E

                                                                                                                                                                                                                                                  CY20E
                                      CY00

                                             CY01

                                                           CY02

                                                                      CY03

                                                                                 CY04

                                                                                          CY05

                                                                                                    CY06

                                                                                                                CY07

                                                                                                                       CY08

                                                                                                                                         CY09

                                                                                                                                                CY10




                                                                                        Outbound travel from India                                                            YoY growth
  Source: Euromonitor, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                                                                                                                                      7
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                                                                                       December 12, 2011


                                                                           C. Domestic tourism: Macro factors to lead to rise
                                                                           Driven by rising incomes, an increased standard of living and improved land, rail and air connectivity,
                                                                           domestic travel has grown from just pilgrimages or visits to friends and relatives, to leisure trips
                                                                           which now forming a major share. Domestic tourism has grown at a CAGR of 12.9% in the last decade,
                                                                           from 226 mn visits in CY00 to 758 mn visits in CY10. This includes 740 mn trips by Indians and 18 mn
                                                                           trips by foreigners. In fact, in CY10 the domestic travel by foreigners saw a sharp bounce back with a
                                                                           24% Y-o-Y growth post a 0.1% Y-o-Y decline in CY09.

                                                                           The growth in the domestic industry is expected to remain strong driven by a) favourable
                                                                           demographics with the sharp increase in working age population (from 56.5% in CY11E to 60% CY21E),
                                                                           b) a change in income class with the increasing size of the middle and upper-middle category, and c)
                                                                           expected strong growth in FTAs. The WTTC projects 8.3% CAGR in CY11E-21E in domestic T&T
                                                                           spending to US$168 bn, 7.7% CAGR in leisure T&T to US$137 bn and 9.4% CAGR in business T&T to
                                                                           US$60.5 bn in the same period.


  Percentage of Working-age population                                                                                          Domestic T&T Spend in India
                                                                                                                                           180                                                                                             168     14
                                                                                                                                                                                                                                   155
              70                                                                                                                           160                                                                           143                       12
                                                                                                                    59.2                                                                                        133
                                                                                                   56.5                                    140                                                         122
              60
                                                                                                                                                                                               112                                                 10
                                                                    46.0           47.2                                                    120                                       104
              50        45.0             43.3         44.3                                                                                                                   95
                                                                                                                                                                    89                                                                             8
                                                                                                                                  US$ bn


                                                                                                                                           100             82                                                                                           %
              40                                                                                                                                   76
    %                                                                                                                                       80                                                                                                     6
              30                                                                                                                            60
                                                                                                                                                                                                                                                   4
              20                                                                                                                            40
                                                                                                                                                                                                                                                   2
              10                                                                                                                            20
                                                                                                                                             0                                                                                                     0
               0
                                                                                                                                                  CY11E

                                                                                                                                                           CY12E

                                                                                                                                                                    CY13E

                                                                                                                                                                             CY14E

                                                                                                                                                                                      CY15E

                                                                                                                                                                                               CY16E

                                                                                                                                                                                                        CY17E

                                                                                                                                                                                                                 CY18E

                                                                                                                                                                                                                          CY19E

                                                                                                                                                                                                                                   CY20E

                                                                                                                                                                                                                                           2021E
                        CY61             CY71         CY81          CY91           CY01            CY11E            CY21E

                                                                                                                                                     Domestic Travel & Tourism Spending                                               YoY growth
  Source: IMF, GEPL Capital Research                                                                                            Source: WTTC, GEPL Capital Research



  Leisure T&T Spend in India                                                                                                     Business T&T Spend in India
               160                                                                                                    14                   70                                                                                                      14
                                                                                                            137                                                                                                                            61
               140                                                                                 128                12
                                                                                           119                                             60                                                                                      55              12
                                                                                   110                                                                                                                                   51
               120                                                                                                                                                                                              46
                                                                           101                                        10                   50                                                                                                      10
                                                                   94                                                                                                                                  42
               100                                         88                                                                                                                                 38
                                           75      82                                                                 8                    40                                                                                                      8
     US$ bn




                                                                                                                                                                                     34
                                                                                                                                  US$ bn




                                 70                                                                                         %                                               31                                                                          %
                   80    65                                                                                                                                        29
                                                                                                                      6                          25       27
                                                                                                                                           30                                                                                                      6
                   60
                                                                                                                      4                    20                                                                                                      4
                   40

                   20                                                                                                 2                    10                                                                                                      2

                    0                                                                                                 0                     0                                                                                                      0
                         CY11E

                                 CY12E

                                           CY13E

                                                   CY14E

                                                           CY15E

                                                                   CY16E

                                                                           CY17E

                                                                                   CY18E

                                                                                           CY19E

                                                                                                    CY20E

                                                                                                            2021E




                                                                                                                                                 CY11E

                                                                                                                                                          CY12E

                                                                                                                                                                   CY13E

                                                                                                                                                                            CY14E

                                                                                                                                                                                     CY15E

                                                                                                                                                                                              CY16E

                                                                                                                                                                                                       CY17E

                                                                                                                                                                                                                CY18E

                                                                                                                                                                                                                         CY19E

                                                                                                                                                                                                                                  CY20E

                                                                                                                                                                                                                                           2021E




                           Leisure Travel & Tourism Spending                                          YoY growth                                    Business Travel & Tourism Spending                                              YoY growth
  Source: WTTC, GEPL Capital Research                                                                                            Source: WTTC, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                                                                                                 8
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                           December 12, 2011


                                               The Global Travel and Tourism Industry
                                               The Global T&T Industry has grown at a rapid pace, with an increasing number of destinations opening
                                               up investment in tourism development. As per the WTTC, the recovery in T&T in CY10 has improved
                                               with the industry’s direct contribution to global GDP increasing by 3.3% to US$1,770 bn. The WTTC
                                               expects the recovery to strengthen further and expects a 4.5% rise to US$1,850 bn, creating an
                                               additional 3 mn direct industry jobs.

                                               In spite of occasional shocks, international tourist arrivals have shown virtually uninterrupted growth:
                                               from 25 mn visits in CY50, to 438 mn in CY90, and the 940 mn in CY10. As growth has been
                                               particularly fast in the world’s emerging regions, the share in international tourist arrivals received by
                                               emerging and developing countries has steadily risen, from 32% in CY90 to 48% in CY10.

                                                World-wide tourist arrivals
                                                               1,000                                                                                     12
                                                                 900                                                                                     10
                                                                 800                                                                                     8
                                                                 700
                                                                                                                                                         6
                                                                 600
                                                   mn visits




                                                                                                                                                         4     %
                                                                 500
                                                                                                                                                         2
                                                                 400
                                                                                                                                                         0
                                                                 300
                                                                 200                                                                                     (2)
                                                                 100   683 683 703 691 762 803 846 894 917 882 940                                       (4)
                                                                   0                                                                                     (6)
                                                                       CY00

                                                                               CY01

                                                                                      CY02

                                                                                             CY03

                                                                                                    CY04

                                                                                                           CY05

                                                                                                                  CY06

                                                                                                                         CY07

                                                                                                                                 CY08

                                                                                                                                         CY09

                                                                                                                                                CY10
                                                                       International tourist arrivals in World                           YoY growth
                                                Source: WTTC, GEPL Capital Research


                                               Most tourist travel by air and for purpose of leisure
                                               In CY10, leisure and recreation travel accounted for over half of all international tourist arrivals
                                               (57.5% or 446 mn arrivals). Corporate and business travel accounted for 15% of international tourists
                                               while ~27% traveled for specific purposes, such as visiting friends and relatives (VFR), religious
                                               reasons and pilgrimages, health treatment, etc.

                                               Most of the travelers arrived at their destination by air transport (~90%) in CY10, while the remainder
                                               traveled over the surface (9%), whether by road (7%), rail (1%) or over water (1%). The share of air
                                               transport is gradually increasing due to a faster pace of growth when compared to land or sea.
  Purpose of visits in CY10                                                                         Mode of visits in CY10
                                 7.6                           15.1
                          2.2                                                                                                           9.2       1.0


              17.6

                                                                              57.5




                                                                                                                                                               89.8
              Business/ professional             Leisure/ holiday
              Visiting friends and relatives     Medical treatment                                                              Air                    Land           Sea
              Others
  Source: UNWTO, Ministry of Tourism, GEPL Capital Research                                         Source: UNWTO, Ministry of Tourism, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                           9
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                               December 12, 2011


                                     Recovering from the CY09 slowdown
                                     Worldwide international tourism rebounded strongly with international tourist arrivals (ITA) up 6.7%
                                     to 935 mn in CY10, following an exceptional 4% decline in CY09. The increase more than offset the
                                     decline caused by the economic downturn, with 22 mn arrivals more than the previous peak of CY08.
                                     All world regions posted positive growth in ITA over CY09. However, as a reflection of the economic
                                     conditions, recovery was particularly strong in emerging economies, where arrivals grew faster (+8%)
                                     than in advanced economies (+5%).

                                      International tourist arrivals growth rate across regions

                                                    Middle East         -10
                                                                                                                                               14

                                                   North Africa               -9
                                                                                                                       6

                                               Central America                                                                                  15
                                                                                                                                     10

                                                 North America                                     1
                                                                                                                           7
                                                South East Asia                                                                  9
                                                                                                                                          12
                                                North East Asia                                            3
                                                                                                                                               14

                                                Mediterianean                                                      5
                                                                                                           3
                                                 Central Europe                                                                           12
                                                                                                                   5
                                                                                                           3
                                               Western Europe                                              3

                                               Northern Europe                                         2
                                                                                                   1
                                                                                                               4.7
                                                         World                                                             6.6

                                                                  -15     -10      -5          0               5                 10            15    20

                                                                                        CY10           CY11E

                                      Source: UNWTO, GEPL Capital Research

                                     Regional results
                                     Asia and the Pacific: the first region to recover and also witness the fastest growth in CY10, with
                                     international tourist arrivals at a new record of 204 mn in CY10 (growth of 13%). The region saw its
                                     pace slow down (+6%) in the first two months of CY11.

                                     Europe: The effect of the crisis slowly faded away in the hardest hit region, resulting in 3% growth in
                                     CY10. But the closure of its airspace in April and uncertainty about the economy have not helped to
                                     speed up recovery in the region. Outstanding performances of some major destinations like Germany
                                     and Turkey as well as the temporary redistribution of travel from Middle East helped the region clock
                                     a better than expected growth rate (+6%) so far.

                                     Middle East: The region witnessed a rapid growth of 14% in CY10, but on a depressed CY09 figure.
                                     With the slowdown and the crisis in Middle East the region has witnessed a (-10%) de-growth in
                                     tourism demand.

                                     America: Though the region saw a growth of 7% in CY10, currently the rate has slowed down to (+5%)
                                     which is in line with the World average. The increasing regional integration in Central and South
                                     America also favoured the recovery from CY09.

                                     Africa: This region saw 6% growth, which is an increase on the positive results of CY09. However, with
                                     the developments in Africa around its health concerns and epidemic, the North Africa region has
                                     witnessed.

                                     The results so far confirm that the international tourism industry is consolidating, in spite of the
                                     existing challenges by the recent developments in North Africa, Japan (Earthquake and Tsunami) and
                                     the Middle East (crisis). However the overall impact of tourism is expected to be limited to the
                                     destinations directly involved with alternative destinations picking up most of the slack.



GEPL Capital Research | Initiating Coverage                                                                                                                              10
 Equity | India | Travel & Tourism

 Travels & Tourism Industry                                                                                                                                     December 12, 2011


                                                         Future outlook

                                                         Following a year of global recovery in CY10, tourism sector growth is expected to continue in CY11E,
                                                         but at slower pace. UNWTO predicts ITA will grow at 5% in CY11E, slightly above the long-term
                                                         average. However, by CY20E, UNWTO expects international arrivals to reach 1.6bn visits from 935 mn
                                                         visits in CY10 implying a CAGR of 5.3%. Of these worldwide arrivals in CY20E, 1.2bn will be intra-
                                                         regional and 0.4bn will be long-haul travellers.



  Region wise breakup for CY10                                                                   Region wise breakup for CY20E
                                                                    21.8                                                                                          26.6


                                                                                                          45.9
                                                                               5.2

                 50.6
                                                                                                                                                                           4.9
                                                                              6.4
                                                                                                                                                                         4.4
                                                                16.0                                                                               18.1
                                                                                                                 Asia Pacific         Africa                    M iddle East
                        Asia Pacific          Africa                M iddle East
                                                                                                                 America              Europe
                        America               Europe
  Source: UNWTO, GEPL Capital Research                                                           Source: UNWTO, GEPL Capital Research


                                                         In terms of regional outlook, the Asia Pacific region is expected to witness the strongest growth (7.4%
                                                         CAGR), with its share expected to increase to 26.6% from to 21.8% followed by America and Europe at
                                                         6.5% and 4.2%, respectively.

  Region-wise arrivals in CY20E                                                                 Region wise CAGR in CY10-20E
               1,800
               1,600       1,561
                                                                                                M iddle East                1.4
               1,400
               1,200                                                                                 Europe                                          4.2
   mn visits




               1,000    935                                                                           Africa                                           4.6
                800                                                                       717         World                                                     5.3
                600
                                        416                                         473             America                                                                    6.5
                400                                                          282
                                   204
                200                                                    150                      Asia Pacific                                                                          7.4
                                                49 77       60 69
                  0
                                                                                                               0.0    1.0       2.0     3.0    4.0        5.0       6.0         7.0     8.0
                          World        Asia     Africa      Middle America Europe
                                   Pacific                   East                                                                              %

                                                 CY10         CY20E
  Source: UNWTO, GEPL Capital Research                                                          Source: UNWTO, GEPL Capital Research




GEPL Capital Research | Initiating Coverage                                                                                                                                                 11
                                                                             Equity | India | Travel & Tourism


                                                                             Cox & Kings Ltd.
 Initiating                                                                  Pain in FY12E with plenty of gains in FY13E                                                                                        December 12, 2011
 Coverage
                                                                                                                                                                                                                               BUY
                  CMP (`)                                                          Target (`)                                      Investment Rationale
                       182                                                                   243                                   Best placed to capture India’s growth in tourism
  Potential Upside                                                    Absolute Rating                                              We believe Cox & Kings (C&K) is best bet in the growing T&T industry with a 9.2% CAGR in
                      33%                                                                    BUY                                   India’s travel and tourism demand over the next decade (CY11E-21E), the second fastest in the
                                                                                                                                   world. The a) pan-India presence with strong brand recall, b) integrated business model with a
 Market Info (as on 9th December 2011)                                                                                             diversified product offering (price and destinations), and c) strong overseas network with
 BSE Sensex                                                                                                     16,213             presence in key outbound destinations offer it an edge over competitors to gain market share
 Nifty S&P                                                                                                       4,866             and capture a higher pie of the industry growth.

 Stock Detail                                                                                                                      Emergence of a Global Tour Operator
 BSE Group                                                                                                                B        In a short span of four years, C&K has completed seven acquisitions (in the UK, Japan, Australia,
 BSE Code                                                                                                   533114                 India and the USA) to emerge as a global tour operator. With a strong management bandwidth,
 NSE Code                                                                                       COX&KINGS                          synergies from acquisitions led to an improvement in the consolidated EBIDTA margins. We
 Bloomberg Code                                                                                          COXK IN                   believe there is scope for further margin expansion following synergies emanating from: a)
 Market Cap (`bn)                                                                                                24.86             consolidated product sourcing coupled with scale benefits, b) improved product mix (leveraging
 Free Float (%)                                                                                                      45%           the global platform to cross-sell existing products), and c) expansion of captive destination
 52wk Hi/Lo                                                                                            566 / 177                   management services for its various overseas subsidiaries.
 Avg. Daily Volume (NSE)                                                                                        66803
                                                                                                                                   HolidayBreak: an acquisition worth the wait
 Face Value / Div. per share (`)                                                                  5.00 / 0.50
 Shares Outstanding (mn)                                                                                         136.5
                                                                                                                                   The recent acquisition of HolidayBreak Plc (HBR) offers a host of benefits to C&K which include
                                                                                                                                   a) potential to double revenues in the next two years with margin improvement, b) entry into
 Shareholding Pattern                                                                                                              the education and camping markets which should improve the market share and the mind space
   Promoters                                    FIIs                      DII                          Others                      of consumers and led to increasing volumes and value for C&K, and c) utilization of cash on
          58.66                               18.90                       8.18                         14.26                       books which were earlier resulting in a net outflow of 3% for the company.
                                                                                                                                   The HBR acquisition and timing of consolidation may result in lower profitability for the
 Financial Snapshot                                                                                             (`mn)              company in FY12E as H1 is historically loss making for the company with no revenues from the
 Y/E Mar                                     FY10                FY11                  FY12E                     FY13E
                                                                                                                                   camping and adventure segment. However, we expect a sharp rise in revenue contribution in
 Net Sales                             3,992                    4,967                    7,070                  10,963
                                                                                                                                   FY13E with the full year numbers getting consolidated and resulting in an immense growth in
 EBITDA                                1,865                    2,301                    1,509                    5,117
                                                                                                                                   FY13E EPS.
 PAT                                   1,344                    1,291                        (346)                1,973
 EPS                                         11.2                 10.7                        9.5                   (2.5)          Visa processing and Train tours: Future growth avenues
 ROE (%)                                     25.9                 12.8                       (2.9)                    15.7         C&K has also branched out into a) visa processing, where C&K has signed up with six embassies
 ROCE (%)                                    16.3                     9.9                     1.6                         5.1      to process visa applications and expects more than a six-fold increase in volumes in the next
 P/E                                         22.5                 21.9                 (73.0)                         12.8         two years, and b) a foray into rail tourism through the Maharajas’ Express, a luxury train in JV
 EV/EBITDA                                   16.9                 11.8                       38.6                         9.9      with IRCTC. Though these segments contribute less than 8% to the company’s revenues, we
 Share Price Performance                                                                                                           expect the revenue contribution to increase and with higher margins the company should
   110                                                                                                                             benefit on the profit level as well.
   105
   100

   95
                                                                                                                                   Valuation
   90
                                                                                                                                   C&K is currently trading at 12.6x FY13E EPS of `14.5, a 48% discount to its historical one-year
   85
   80                                                                                                                              forward P/E band of 24x. The stocks has been de-rated over the last two years due to a decline
   75
                                                                                                                                   in return ratios with huge cash on the books and the uncertainty of its acquisition integration.
   70
   65                                                                                                                              However, in view of HBR acquisition and the successful history of integrations of C&K, we
   60                                                                                                                              expect the company to report a 23.7% PAT CAGR in the next two years. Consequently, we
                                                                          Jul-11
                  Jan-11

                           Feb-11



                                              Apr-11




                                                                 Jun-11




                                                                                    Aug-11

                                                                                              Sep-11




                                                                                                                 Nov-11
         Dec-10




                                    Mar-11




                                                       May-11




                                                                                                                          Dec-11
                                                                                                       Oct-11




                                                                                                                                   believe there is good potential upside in the stock and value it at a 30% discount to its historical
                                      Cox & Kings Ltd                                 BSE SENSEX                                   PE due to concerns on its a) huge debt, b) high interest outflow, and c) acquisition integration.

  Rel. Perf.                            1Mth                    3 Mths                   6Mths                        1Yr
                                                                                                                                   We initiate the coverage with a BUY rating and target price of `243 (16.8x FY13E EPS).
Cox&Kings(%)                           (18.9)                    (17.1)                      (10.7)              (29.1)
SENSEX (%)                                   (6.6)                   (3.9)                   (11.8)              (15.7)

Source: Company data, GEPL Capital Research

                                             Analyst                                             +91-22- 6614 2690
                                                                                                                                                                                                  GEPL Capital Research              12
                           Sunil Sewhani                                              sunilsewhani@geplcapital.com
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                 December 12, 2011


                                                     Investment Rationale
                                                     Best placed to capture India’s growth in tourism
                                                     Shift towards organized players visible
                                                     India’s T&T industry is highly fragmented with 25,000 independent agents; 5,000 regional
                                                     players and the organized (Top 5) players accounting for a mere 9% of the total retail travel in
                                                     India. While smaller players are usually restricted to the regional front, C&K serves a wider
                                                     array of customers due to its pan-India presence.

                                                     The benefits of its Pan-India presence are multiple folds. Due to it, C&K has been able to
                                                     maintain its advantage over other smaller tour operators by using its brand, penetration and
                                                     scale to negotiate better deals with vendors with bulk and advance buying. This helps it to
                                                     provide better variety of packages at much lower costs. This also enables C&K to increase its
                                                     scale of operations and offers complete travel solutions, acting as a one-stop shop for all travel
                                                     requirements.

  Player’s markets share                                                       Fragmented market share
                                                9%
                   91%                                                           Category                               Players   Market share

                                                                                 Independent agents                     25,000         90%

                                                                                 Regional players                        5,000          1%

                                                                                 Organised players                       Top 5          9%

                                                                               Source: Company data, GEPL Capital Research




                       Organised                un-organised
  Source: Company data, GEPL Capital Research


                                                     Growth intact despite higher internet penetration
                                                     Since C&K is mainly involved across the spectrum and specializes in selling complex packaged
                                                     holidays and creates complex multiple destinations products, hotels and forms of transport;
                                                     even big players like Expedia Worldwide, Makemytrip have not succeeded in really harnessing
                                                     the demand in this sector. Moreover, C&K has an online portal which provides better rates
                                                     compared to peers, a move that, we believe, will help to boost revenues.

                                                     To add to this, the submission of original documentation for visas and part payment for
                                                     packages in foreign currency limit the use of online transaction modes. Thus, we do not expect
                                                     the recent emergence of online tour operators to threaten the business model of C&K.




GEPL Capital Research| Initiating Coverage                                                                                                           13
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                 December 12, 2011


                                       Expansion through the franchisee model
                                       C&K is currently looking at expanding its geographical presence to improve its reach and
                                       capital efficiency. It already has 175 franchises and expects to have 200 franchised outlets
                                       under its belt by the end of the current year. C&K plans to take the total franchisee count to
                                       ~300 by the end of FY13E most of which are expected to be in Tier II and Tier III cities.

                                       C&K also provides training, site development and advertising and marketing support to
                                       franchises. This helps the franchisees grow with minimal investment in premises, equipment
                                       and people. Moreover, a higher number of stores are able to gain an edge over competition and
                                       improve brand visibility and recognition. Such initiatives further insulate C&Ks purchasing
                                       power with increase in bookings, and making room for negotiating rates.

                                       Given the fact that franchise stores require a lower capital outlay (no infrastructure or salary
                                       expenses, except those of the store manager and accountant) on the part of C&K and that
                                       franchisees are remunerated with commissions, margins are expected to improve due to a
                                       higher revenue contribution from franchises in India (15-18% by FY13E to 7% of total revenues
                                       in Q2FY11).

                                        Benefits of franchisee model


                                                                                        Minimal
                                                                                      investments



                                                 Higher                                                            Edge over
                                                presence                                                          competition
                                                                                      Benefits of
                                                                                      Franchisee
                                                                                        model


                                                                    Margin                          Purchasing
                                                                 improvement                          power



                                        Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                           14
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                                                   December 12, 2011


                                                                         Emergence of a Global Tour Operator
                                                                         With the series of successful acquisitions in the past, we believe C&K has emergence as a
                                                                         Global tour operator. Consequently we expect it to be the biggest beneficiary of the strong
                                                                         growth in the T&T sector across countries especially (UK, Australia, Japan, USA and UAE)
                                                                         where it has a significant scale and size of operation.

                                                                         Series of acquisitions in the past
                                                                                     Year           Company                                         Country                        Acquisition price
                                                                                     FY07           C&K                                                UK                          `390 mn (share swap)
                                                                                     FY07           C&K Japan                                        Japan                         `20 mn (share swap)
                                                                                     FY07           Clearmine                                          UK                          `163 mn
                                                                                     FY08           Tempo Holidays                                  Australia                      A$$27 mn
                                                                                     FY09           East India Travels                                USA                          US$22 mn
                                                                                     FY10           Bentours                                        Australia                      Earn out mechanism
                                                                                     FY10           MyPlanet                                        Australia                      Earn out mechanism
                                                                         Source: Company data, GEPL Capital Research


                                                                         US: High margins with concentration on volumes
                                                                         The outbound traffic in USA has witnessed a 1.5% CAGR in CY00-CY10 to 66.5 mn visits despite
                                                                         a decline in CY02-CY04 due to ‘9/11’ followed by a decline in outbound traffic in CY09-CY10
                                                                         due to the global financial turmoil. Considering that USA is the single largest outbound tourist
                                                                         market worldwide and that WTTC expects the leisure travel and tourism spend in to witness a
                                                                         3.7% CAGR in CY11E-21E, from US$666 bn to US$956 bn.


  Outbound visits from USA                                                                                    Leisure spend projections in USA
                68                                                                           66.50 12                    1,200                                                                                           6
                66                                                    64.0 63.6                     10
                                                               63.5                                                      1,000                                                                       956                 5
                64                                                                                  8                                                                                    870 899 929
                                                                                      61.4
                                                                                                                                         691                             814 841
                            61.3                                                                                                                                 788
                62                                      61.8                                        6                     800    666             727 759                                                                 4
                     59.1          59.4                                                                                                                                                                                      %
    mn visits




                                                                                                               US $ bn




                60                        58.1                                                      4     %               600                                                                                            3
                58                               56.3                                               2
                                                                                                                          400                                                                                            2
                56                                                                                  0
                54                                                                                  (2)                   200                                                                                            1
                52                                                                                  (4)
                                                                                                                           -                                                                                             0
                50                                                                                  (6)
                                                                                                                                 CY11E

                                                                                                                                         CY12E

                                                                                                                                                 CY13E

                                                                                                                                                         CY14E

                                                                                                                                                                 CY15E

                                                                                                                                                                         CY16E

                                                                                                                                                                                 CY17E

                                                                                                                                                                                         CY18E

                                                                                                                                                                                                 CY19E

                                                                                                                                                                                                         CY20E

                                                                                                                                                                                                                 2021E
                     CY00

                            CY01

                                   CY02

                                          CY03

                                                 CY04

                                                        CY05

                                                               CY06

                                                                      CY07

                                                                              CY08

                                                                                      CY09

                                                                                             CY10




                             Outbound visitors (mn)                          YoY growth                                                    Leisure spend (US $bn)                                YoY growth

  Source: ITA, GEPL Capital Research                                                                          Source: WTTC, GEPL Capital Research


                                                                      C&K entered the US markets with its US$22 mn East India Travels acquisition in FY09. The
                                                                      acquisition gave C&K entry into the US markets and also provided it with an elite customer base
                                                                      of celebrities and high-net-worth individuals (1,500-1,700 clients per annum).

                                                                      With key destinations like Africa, Latin America, Asia and the Middle East and with a focus on the
                                                                      niche high end segment, commission margins are relatively high at ~40%. Moreover, C&K plans to
                                                                      expand the market share without compromising on margins and hence has launched premium
                                                                      group tour products by leveraging its global platform (similar to those offered by the UK C&K) and
                                                                      hopes to add more than 500 clients over the next two years.




GEPL Capital Research| Initiating Coverage                                                                                                                                                                                       15
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                                           December 12, 2011


                                                                 UK Division: Outbound focus with high end customers to drive revenues and margins
                                                                 While the slowdown in the economy in UK and the uncertainties across the European region, the
                                                                 outbound visits have dropped to a decade low of 54.9 mn visits in CY10 from 69 mn visits in CY08.
                                                                 Due to this the WTTC expects the leisure travel and tourism spend to grow at a mere 3.5% CAGR
                                                                 in CY11E-21E from US$86.5 bn to US$122 bn. However, we expect C&K to continue to gain market
                                                                 share in this segment as most of their clients are high end retired people who take a fixed holiday
                                                                 each year allocating a fixed budget on travel spend.

  Outbound visits from UK                                                                               Leisure spend projections in UK
                80                                                                           10                     140                                                                                           6
                                                        69.5 69.5 69.0                                                                                                                                 127.8
                                                                                                                                                                                                  122.0
                70                        64.2 66.4                                                                 120
                                                                                                                                                                                                                  5
                     58.8 59.4 61.4                                            58.6          5                                                                                    110.9 116.3                     4
                                                                                      54.9                                                                        101.1105.6
                60                                                                                                  100           92.4 89.8 92.2          96.4                                                    3
                                                                                             0                            87.9
                50                                                                                                                                                                                                2
    mn visits




                                                                                                    %               80




                                                                                                          US $ bn
                40                                                                           (5)                                                                                                                  1 %
                                                                                                                    60
                                                                                                                                                                                                                  0
                30
                                                                                             (10)                   40                                                                                            (1)
                20
                                                                                                                                                                                                                  (2)
                                                                                             (15)                   20
                10                                                                                                                                                                                                (3)
                0                                                                            (20)                    0                                                                                            (4)



                                                                                                                          CY11E

                                                                                                                                  CY12E

                                                                                                                                          CY13E

                                                                                                                                                  CY14E

                                                                                                                                                          CY15E

                                                                                                                                                                  CY16E

                                                                                                                                                                          CY17E

                                                                                                                                                                                  CY18E

                                                                                                                                                                                          CY19E

                                                                                                                                                                                                  CY20E

                                                                                                                                                                                                          2021E
                     CY01

                            CY02

                                   CY03

                                          CY04

                                                 CY05

                                                        CY06

                                                               CY07

                                                                        CY08

                                                                               CY09

                                                                                      CY10




                              Outbound visitors (mn)                    YoY growth                                                  Leisure spend (US $bn)                                YoY growth

  Source: Office of National Statistics, GEPL Capital Research                                          Source: WTTC, GEPL Capital Research


                                                                      C&K entered the UK markets in CY06 with the acquisition of ETN Services (ETN) for `156 mn,
                                                                      followed by the acquisition of C&K, UK (CKUK) in FY07 for `390 mn and a share swap. In FY11,
                                                                      these subsidiaries contributed 21% of the consolidated revenues.

                                                                      Both these companies are outbound tour operators catering to the high–end, niche market
                                                                      operators. ETN further provides inbound destination management services (DMS), including
                                                                      comprehensive ground handling services, transportation and sight-seeing services, thereby
                                                                      capturing a larger share of the travel spend per customer.

                                                                      These companies focus on exclusive interest-focused packages in the UK such as: a) guest-
                                                                      lecture-based tour programmes with The Natural History Museum, b) a tour of the gardens of
                                                                      the world in association with the Royal Horticultural Society, c) wine tours for Green bee, a part
                                                                      of the John-Lewis Partnership, and d) as a travel partner for various exhibitions conducted by
                                                                      the Royal Academy of Arts along with the traditional destination-focused packages.

                                                                      UAE: Low base but high growth potential
                                                                      C&K Dubai was incorporated in February CY07, to provide both inbound and outbound services.
                                                                      It offers destination management services for various tours originating from its UK, US,
                                                                      Australia, New Zealand, India and Japan subsidiaries in the inbound segment, while in the
                                                                      outbound segment, it offers tour packages to the large expatriate Indian population in the UAE.

                                                                      In FY11, this region comprised ~8% of international revenues. However, the margins are lower in
                                                                      this segment as C&K operates as a mass market player. According to the WTTC, the leisure
                                                                      travel and tourism spend in the UAE is expected to grow at 5.4% CAGR in CY11E-21E, from
                                                                      US$25.4 bn to US$43 bn.




GEPL Capital Research| Initiating Coverage                                                                                                                                                                              16
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                                          December 12, 2011


                                                                      Australia Division: Series of acquisitions to boost size and scale of operations
                                                                      Australia ranked number one for the number of World Heritage natural sites and fifth for its
                                                                      cultural resources enabling its outbound tourism to witness a 7.6% CAGR in CY00-10 to 7.2 mn
                                                                      visits. As per the WTTC estimates, the leisure travel and tourism spend in Australia is expected
                                                                      to grow at a 4% CAGR in CY11E-21E from US$27.7 bn to US$ 41.2 bn

                                                                      With an A$27 mn acquisition of Tempo Holidays in FY08 and ‘Earn-out-mechanism’ acquisitions
                                                                      of BenTours and MyPlanet in FY09, enabled C&K to get a strong foothold in the Australian
                                                                      region. These companies contributed 12% to the consolidated revenues in FY11 and ~13.5% in
                                                                      H1FY12.

  Outbound visits from Australia                                                                       Leisure spend projections in Australia
                                                                                                                   45                                                           41.2                            7
               8                                                                         7.2    35                                                                    38.6 40.0
                                                                                                                   40                                       35.7 37.1
               7                                                                  6.3           30                                                33.0 34.4                                                     6
                                                                            5.8                                    35                   30.8 31.9
               6                                             4.9
                                                                    5.5
                                                                                                25                      27.7 29.4                                                                               5
                                                      4.8                                                          30
   mn visits




               5                                                                                20 %                                                                                                            4 %
                                               4.37                                                                25




                                                                                                         US $ bn
                   3.49 3.44 3.46 3.39
               4                                                                                15
                                                                                                                   20                                                                                           3
               3                                                                                10
                                                                                                                   15
                                                                                                                                                                                                                2
               2                                                                                5                  10
               1                                                                                0                  5                                                                                            1
               0                                                                                (5)                0                                                                                            0
                   CY00

                          CY01

                                 CY02

                                        CY03

                                               CY04

                                                      CY05

                                                             CY06

                                                                    CY07

                                                                           CY08

                                                                                  CY09

                                                                                         CY10




                                                                                                                        CY11E

                                                                                                                                CY12E

                                                                                                                                        CY13E

                                                                                                                                                CY14E

                                                                                                                                                        CY15E

                                                                                                                                                                CY16E

                                                                                                                                                                        CY17E

                                                                                                                                                                                CY18E

                                                                                                                                                                                        CY19E

                                                                                                                                                                                                CY20E

                                                                                                                                                                                                        2021E
                                 Outbound visitors (mn)                    YoY growth
                                                                                                                                        Leisure spend (US $bn)                           YoY growth

  Source: Australian Bureau of Statistics, GEPL Capital Research                                       Source: WTTC, GEPL Capital Research

                                                                      Tempo Holidays provides C&K with outbound mid-market position catering to the FIT segment
                                                                      with key destinations like Europe (65% of outbound travel to Europe) and the Middle East (15%
                                                                      of business from the Middle East). Similarly, Ben Tours and MyPlanet with focus on Scandinavian
                                                                      countries have helped improve C&K’s outbound share in the continent.

                                                                      As a part of its business strategy to build presence across all consumer segments, C&K plans to
                                                                      launch premium travel products under the Cox & Kings brand in Australia, which will
                                                                      complement the existing Tempo Holidays product portfolio that caters predominantly to the
                                                                      mid-tier segment.




GEPL Capital Research| Initiating Coverage                                                                                                                                                                            17
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                                                    December 12, 2011

                                                                         Japan Division: Earthquake tremors to be felt till FY13E.
                                                                         The inbound tourism growth in Japan has been strong over the last decade witnessing a 6.0%
                                                                         CAGR from 4.8 mn visits in CY00 to 8.6 mn visits in CY10. However, with the Tsunami and
                                                                         Earthquake in CY11, the tourism has been impacted. Consequently, WTTC has revised its leisure
                                                                         travel and tourism spend growth to 2.7% CAGR in CY11E-21E to US$206.6 bn.

  Inbound visits to Japan                                                                                      Leisure spend projections in Japan
               10                                                                                   30                    250                                                                                             5
               9                                                       8.3    8.4           8.6                                                                                                 206.6                     4
                                                                                                                                                                                    196.2 200.2
                                                                                                    20                                                                  187.8 192.0
               8                                                7.3                                                       200                               179.1 183.4
                                                                                                                                                169.9 174.6                                                               4
                                                         6.7                         6.8
               7                                                                                                                158.5 164.6
                                                   6.1                                              10                                                                                                                    3




                                                                                                                US $ bn
               6                                                                                                          150
   mn visits




                           4.8       5.2   5.2                                                                                                                                                                            3
                                                                                                           %                                                                                                                  %
               5    4.8                                                                             0
                                                                                                                                                                                                                          2
               4                                                                                                          100
                                                                                                    (10)                                                                                                                  2
               3
                                                                                                                          50                                                                                              1
               2
                                                                                                    (20)                                                                                                                  1
               1
                                                                                                                           0                                                                                              0
               0                                                                                    (30)




                                                                                                                                CY11E

                                                                                                                                        CY12E

                                                                                                                                                 CY13E

                                                                                                                                                         CY14E

                                                                                                                                                                 CY15E

                                                                                                                                                                         CY16E

                                                                                                                                                                                 CY17E

                                                                                                                                                                                         CY18E

                                                                                                                                                                                                  CY19E

                                                                                                                                                                                                          CY20E

                                                                                                                                                                                                                  2021E
                    CY00

                           CY01

                                    CY02

                                           CY03

                                                  CY04

                                                         CY05

                                                                CY06

                                                                       CY07

                                                                              CY08

                                                                                     CY09

                                                                                             CY10




                                  Inbound visitors (mn)                       YoY growth                                                        Leisure spend (US $bn)                           YoY growth

  Source: Japan Tourism, GEPL Capital Research                                                                 Source: WTTC, GEPL Capital Research

                                                                         C&K acquired C&K Japan (CKJ) in FY07 for `20 mn and a share swap deal giving C&K the status
                                                                         of an outbound wholesaler selling white-label premium overseas tour packages to major tour
                                                                         operators in Japan. CKJ offers destination management services for travelers from Japan to the
                                                                         Indian sub-continent and Europe with most products being FIT in nature.

                                                                         Being a wholesaler, the margins were comparatively low at 9%. With the Earthquake and
                                                                         Tsunami in Japan, we expect the business to be severely impacted in FY12E and de-grow by
                                                                         50%. The FY11 numbers did not see the complete impact as the peak travel season in Japan was
                                                                         over before the earthquake struck.

                                                                         As the revenue contribution from Japan is not very significant (8% of consolidated revenues in
                                                                         FY11), we do not expect any major impact on C&K’s overall profitability. Moreover, the
                                                                         company plans to utilize its Japanese staff to set up base in the Far East (Singapore), which is
                                                                         currently witnessing strong demand.




GEPL Capital Research| Initiating Coverage                                                                                                                                                                                        18
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                   December 12, 2011

                                       Benefits of Inorganic growth
                                       C&K has been able to increase its revenues by 5.5 times in last five years from `891 mn in FY07
                                       to `4.97 bn in FY11. These acquisitions (seven) have helped C&K emerge a global tour
                                       operator. While its outbound travel services involve customers in India, the UK, Australia,
                                       Japan, Dubai and the US; its inbound travel services include destination management services
                                       covering all aspects of ground-tour arrangements, for customers traveling in India, Europe and
                                       Dubai.

                                       Highlighted below are the benefits of the strong integration and inorganic growth by C&K
                                       1. Cross selling of products
                                             The series of acquisition have led to C&K becoming a global integrated service provider of
                                             travel and travel-related products to all customer segments (inbound, outbound and
                                             domestic). This has enabled C&K to cross-sell its existing products by leveraging the global
                                             platform. Through this the company has managed to launch premium travel products in
                                             Australia similar to those offered in the UK to tap the high-end segment.

                                       2. Ready markets to expand
                                             The acquisitions have provided C&K with a ready market to expand existing services. This
                                             includes offering destination management services in Singapore to its various overseas
                                             subsidiaries, similar to those offered in the UAE etc to capture a higher travel spend from
                                             customers. In addition, the acquisitions have enabled C&K to build a strong distribution
                                             network, which is a pre-requisite for customer-base expansion.

                                       3. Better bargaining power
                                             Due to its global presence and increased customer base, C&K enjoys a better bargaining
                                             power. This has enabled them to offer competitive travel packages with significant cost
                                             savings from consolidating buying for air travel, hotel accommodations, car rentals and
                                             ground handling services.

                                       4. Higher margins with Destination Management Services (DMS)
                                             C&K provides inbound destination management services in India, Europe and the UAE along
                                             with services for its subsidiaries in the UK, Australia, New Zealand, Japan, the US, and
                                             Singapore. This helps C&K to: a) improve cost by saving on the commission to be paid to
                                             other local DMSs and earn higher margins for its own DMSs, b) capture a larger share of
                                             travel spend per customer, and c) earn revenues from subsidiaries in the form of inbound
                                             commissions. For example, the India inbound tourism includes 19% business from the Europe
                                             subsidiary, 18% from its USA and AUE subsidiaries and 15% from the UK subsidiary.

                                       5. Reduced seasonality impact
                                             India’s tourism season is counter-cyclical to that of the other Nations, which helps to
                                             mitigate the seasonality impact faced by the travel and tourism industry. Indians generally
                                             travel during the schools’ annual summer holidays which last from in March and extend to
                                             June end. In Europe and the US, the peak holiday season starts in October and lasts until
                                             March while in Australian the peak season starts slightly earlier (July) than that in Europe
                                             and the US and lasts till September. This results in an all year round demand for C&K and
                                             its products.

                                       Series of acquisitions in the past

                                        Region                                              Peak season
                                        India                                               March-June
                                        Australia and Other Nations                         July-September
                                        USA and Europe                                      October- March
                                       Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                             19
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                        December 12, 2011


                                                      HolidayBreak Plc- An acquisition worth the wait
                                                      C&K had `11.7 bn on books in the form of cash and investments by the end of FY11 after raising
                                                      money for acquisitions through a series of debt and GDR issue (in August 2010). Since 50% of
                                                      the cash was outside India (mainly GDR proceeds and foreign currency loans), the yield on
                                                      surplus cash was 470bps lower than the cost of servicing the debt, resulting in a net cash
                                                      outflow. This had led to a negative re-rating of the stock over the last two years. However,
                                                      with the acquisition of HolidayBreak Plc (HBR) the return ratios and revenues prospects are
                                                      expected to improve substantially.

                                                      HBR is an established specialist holiday group operator with a leading market share in the
                                                      outdoor education, camping and short-haul travel market segment. The company generated
                                                      gross revenues of £436 mn and EBIT of £46 mn for the year ended September 2011.

  HolidayBreak Revenues mix (year ended Sept’11)                                 HolidayBreak EBIT mix (year ended Sept’11)

                        23%                            26%                                            27%

                                                                                                                                             44%




                                                                                                   21%
                  30%
                                                          21%
                                                                                                                            8%
                    Education                       Adventure                                       Education                      Adventure
                    Hotel breaks                    Camping                                         Hotel breaks                   Camping
  Source: HolidayBreak Plc, GEPL Capital Research                                Source: HolidayBreak Plc, GEPL Capital Research


                                                     HolidayBreak- A Specialist travel company
                                                     HolidayBreak is a specialist holiday group in Europe with leading market position in

                                                     A)    Education: The education segment accounted for 26% of the gross revenues and 44.5% of
                                                           HBR’s EBIT for year ended Sept CY11. The division provides residential outdoor education
                                                           and adventure trips for school children through the market leading ‘PGL’ brand and
                                                           educational travel tours for schools and further education students through ‘NST and EST’.

                                                           HBR’s started expansion under the Education division with the acquisition of ‘PGL’ in June
                                                           CY07 for £100 mn which operates 28 activity centres across UK, France and Spain with a
                                                           capacity of 9,600 beds. This was followed by the acquisition of UK and Ireland educational
                                                           tour organizer, ‘NST and EST’ in Sept CY07 for £47.2 mn. The company hence became the
                                                           leader in the UK group travel market for schools and colleges and in Dec CY08 acquired a
                                                           50% interest in ‘Meininger’ which provides accommodation for Germany and UK school tours
                                                           and youth groups with centres across Germany, UK and Australia.

                                                     B)    Adventure: The segment accounted for ~21% of the gross revenues and ~7.5% of the EBIT
                                                           for year ended Sept CY11 of HBR. The division comprises of three separately run brans-
                                                           ‘Explore’, ‘Djoser’ and ‘Regal Dive’. While ‘Explore’ is a UK based soft adventure leading
                                                           tour operator, ‘Djoser’ is a Dutch based group with strong local brand recognition. ‘Regal
                                                           Dive’ on the other hand is a leading scuba diving operator.




GEPL Capital Research| Initiating Coverage                                                                                                              20
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                     December 12, 2011


                                      C)     Hotel Breaks: This division accounted for ~30% of the gross revenues and 21% of HBR’s EBIT
                                             for year ended Sept CY11. The division operates under ‘Superbreak’ in UK and ‘Bookit’
                                             brand in Netherlands and specialises in packaging short trips. The division witnessed a 35%
                                             decline in gross revenues led by the impact of extreme winter weather.


                                      D) Camping: This division accounted for ~23% of the gross revenues and 27% of HBR’s EBIT for
                                         year ended Sept CY11. This division offers self-catering mobile-homes and tents on third
                                         party pre-site camps. The division has its presence across 200 sites and is a cyclical business
                                         as people prefer not to camp during the winter season. However, the management believes
                                         this that the business model is stable as customers down trade from hotels to mobile homes
                                         during adverse economic conditions. Since the camping and education divisions are asset
                                         heavy models (contrary to C&K’s model), one can expect higher depreciation in the next
                                         couple of years. The camping business is highly cyclical with negligible revenues in October-
                                         March due to the winter season in Europe.

                                      Benefits of HolidayBreak acquisition
                                      We believe that there is a significant strategic rationale for combining the business of C&K and
                                      HBR. We expect the revenues of C&K to double over the next two years with the integration the
                                      acquisition and the benefits attached with it.
                                      1.     Acquisition in-line with company strategy
                                             The acquisition is in line with C&K’s strategy to expand its business through selected
                                             acquisitions. The series of acquisition in the past (seven in four years) have helped C&K
                                             emerge a global tour operator. This has led to a 5.5 times growth in revenues, from `890
                                             mn FY07 to `4.97 bn in FY11.
                                      2.     Utilisation of funds
                                             Through the acquisition, C&K will be able to utilize the funds that they have raised over the
                                             last two years. In view of the management’s successful record of acquisitions, we believe
                                             this strategy could substantially improve returns on capital, especially with the huge
                                             surplus cash on the balance sheet currently yielding only 3%.
                                      3.     Increase volume and value size for C&K
                                             HBR is led by a dynamic management team and operates in differentiated markets. The
                                             acquisition represents a transformational step for C&K. It will enable C&K to maximize its
                                             offerings to a larger customer base and help expansion in adjacent business areas. The UK
                                             and European markets in particular could benefit with a greater access to certain markets
                                             and customers.
                                      4.     Further diversify C&K’s revenues stream
                                             Its global presence helps C&K to mitigate the seasonality impact faced by the travel and
                                             tourism industry. India’s tourism season is counter-cyclical to that of most of the world as
                                             Indians generally travel during the schools’ annual summer holidays.
                                      5.     Accelerate HolidayBreak business
                                             Being a niche operator, the business areas of HolidayBreak are complementary to C&K, and
                                             shall help offer a unique range of leisure activities to its existing clientele. HBR itself has
                                             growth through a series of acquisitions in the past and given the scale and skill benefit of
                                             C&K, we expect the company to receive a platform to expand internationally.
                                       




GEPL Capital Research| Initiating Coverage                                                                                                21
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                          December 12, 2011


                                                                Impact of HolidayBreak on Financials
                                                                The HBR business is highly cyclical in nature with the Oct-Mar period accounting for a mere
                                                                ~31% of the annual revenues. This period (H1 for HBR earlier which will now become H2 due to
                                                                consolidation with C&K) also witnesses a sharp decline in sales from the education and camping
                                                                business. This is due to the severe winter season during which the education business witnesses
                                                                a 30% decline and the camping revenues plunge by nearly 99%.

  Education division half yearly revenues                                                     Camping division half yearly revenues

           7.0                                                                                         10,000
                                6.1                                                                                              8,677
                  5.8                                                                                               8,297
           6.0                                    5.4             5.3           5.4                                                                7,516             7,441         7,627
                                                                                                        8,000
           5.0
           4.0                                                                                          6,000




                                                                                               Rs bn
   Rs bn




                         3.3           3.3               2.9             2.9           2.9
           3.0                                                                                          4,000
           2.0
                                                                                                        2,000
           1.0
                                                                                                                            22            15                7                5             5
           0.0                                                                                                 0
                   FY09          FY10              FY11            FY12E         FY13E                                   FY09          FY10              FY11          FY12E        FY13E

                                         H1                H2                                                                                 H1                H2


  Source: HolidayBreak Plc, GEPL Capital Research                                             Source: HolidayBreak Plc, GEPL Capital Research

                                                                With a) ~55% decline in revenues in the Sept-March quarters, and b) stagnant expenditure on
                                                                salaries, rentals etc; the company usually reports an operating loss in the Sept-March period.
                                                                Hence in FY12E, we expect C&K to report a loss led by a) the `1.0 bn operating loss of HBR
                                                                which will get consolidated into the parent company’s account, and b) the higher interest
                                                                outflow driven by the sharp rise in debt. However, the full impact of the acquisition and the
                                                                peak season numbers would only reflect in FY13E. We hence expect the revenues and operating
                                                                profits to rise sharply in FY13E.

  HolidayBreak half yearly revenues                                                           HolidayBreak half yearly operating profit

           30.0                                                                                        5.0         4.3
                  24.7          24.9                                                                                                               3.6               3.6           3.7
           25.0                                                                                        4.0
                                                  21.8            21.1          21.4
                                                                                                       3.0                       2.4
           20.0
                                                                                                       2.0
                                                                                               Rs bn
   Rs bn




           15.0
                         11.3          11.1              10.0            10.4          11.0            1.0
           10.0
                                                                                                       0.0
            5.0                                                                                        (1.0)
                                                                                                                         (1.0)          (0.9)                                            (1.0)
                                                                                                                                                          (1.0)            (1.0)
            0.0                                                                                        (2.0)
                    FY09          FY10              FY11           FY12E         FY13E                              FY09          FY10               FY11              FY12E        FY13E
                                             H1            H2                                                                                   H1                H2


  Source: HolidayBreak Plc, GEPL Capital Research                                             Source: HolidayBreak Plc, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                                                       22
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                    December 12, 2011


                                      Visa processing and Train tours: Future growth avenues
                                      Visa processing: the next high-growth business vertical
                                      C&K entered visa processing service business with the acquisition of Quoprro in CY09. Quoprro
                                      functions independently as a separate business unit, with the parent group providing the senior
                                      members of the team, though it’s part of the C&K group. C&K have six embassies for services
                                      from Greece, Germany, Singapore, Hong Kong, India and the UK.
                                      The company has also started visa processing services in Dubai through a 100% subsidiary called
                                      Cox & Kings Global Services (CKGS). The company provides Dubai Visa services in India for
                                      passengers arriving and departing at Dubai International Airport. The company has formed C&K
                                      Marhaba Dubai Visa (CNKMDV) for the same.
                                      C&K requires low working capital in this business because it already has established software
                                      and a team that can set up the visa facilitation services. Though the visa processing business
                                      contributes less than 2% of C&K’s total revenues in FY11, we see a huge growth potential and
                                      expect annual processing to cross 2.5 mn in FY13E as compared to the current ~350,000.

                                      Foray into rail tourism: the Maharajas’ Express
                                      C&K started the Maharajas’ Express, a luxury train, in March CY10 in a 50:50 JV with the IRCTC,
                                      called Royale Indian Rail Tours. The train has a capacity of 86 passengers in 23 coaches, offers
                                      four different itineraries, and features five carriages for deluxe cabins, six for junior suites, two
                                      for suites and one for a grand presidential suite. The all-inclusive costs begin at US$895
                                      (`40,000) per person per day, going up to US$2,500 (`125,000) per person per day. With 45%
                                      occupancy currently, the Maharajas’ Express seems to have garnered great interest in its first
                                      year of operations.
                                      We expect the venture to become profitable for C&K at above 55% occupancy. However,
                                      although we expect a significant upside in this business with over 40% margins, we have not
                                      factored in the growth from this business in our estimates.




GEPL Capital Research| Initiating Coverage                                                                                               23
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                                           December 12, 2011


                                                       Financials
                                                       Consolidated commission revenues to grow at 48.6% CAGR in FY11-FY13E
                                                       We expect C&K’s consolidated commission revenues to grow at 48.6% CAGR in FY11-13E to
                                                       `10.96 bn, driven by a 27.2% CAGR in Indian operations, a 15.2% CAGR in its overseas
                                                       subsidiaries (Rest of the World - RoW) and the inclusion of HBR into the consolidated numbers.
                                                       FY12E should reflect only H2 numbers which historically account for 33% of the annual revenues
                                                       while the full year revenue impact will be seen in FY13E. Due to the big ticket acquisition of
                                                       HBR, the revenue mix is expected undergo a major change, with India’s contribution at ~35%,
                                                       HolidayBreak’s contribution at 33.5% RoW contribution at ~31% in FY13E.
                                                       We expect India’s blended commission margin to improve by 40bps from 16.3% in FY11 to 16.7%
                                                       in FY13E and RoW margins to improve 120bps to 20.6% in FY13E led by a stronger product mix.
                                                       We believe the commission margin in India’s leisure business is sustainable due to: a) a strong
                                                       brand and robust distribution network, b) a sharp improvement in cost competitiveness through
                                                       consolidated product sourcing and c) the better distribution of fixed overheads due to increased
                                                       scale of operations (major expansion in India via the franchisee route). In overseas operations,
                                                       we expect the blended commission margin to marginally improve led by the improvement in the
                                                       product-mix in USA and Australia.

  Commission revenues                                                               Geographical margin

          12                                                              60               45.0      40.0
                                                                                           40.0             35.0
          10                                                              50               35.0
                                                                3.68
           8                                                              40               30.0
                                                                                           25.0
                                                      1.18
  Rs bn




           6                                                              30          %                                17.5 17.0 16.7
                                                                3.43            %          20.0
                                                      2.80                                                                                               12.3
           4                                                              20               15.0                                                                     10.0
                                             2.58                                                                                                                           9.0
                                                                                                                                                                                     7.5
                                   2.23                                                    10.0
           2         1.32                                       3.86      10                                                                                                                      3.5
                                             2.38     3.09                                  5.0
                     1.47          1.76
           0                                                              0                 0.0
                                                                                                                                   Australia




                                                                                                                                                         Camping




                                                                                                                                                                                                  Adventure
                                                                                                                                                                            UAE
                                                                                                                                                 India
                                                                                                     USA




                                                                                                                                                                                    Hotel break
                                                                                                             UK




                                                                                                                                                                    Japan
                                                                                                                       Education




                     FY09          FY10      FY11     FY12E    FY13E

                            India revenues            RoW revenues
                            Holidaybreak              YoY growth

  Source: Company data, GEPL Capital Research                                       Source: Company data, GEPL Capital Research



  Revenue mix in FY11                                                               Revenue mix in FY13E

                              4%   2%                                                                      10%                                                              India
                                                              India                                                                        34%
                12%                             48%                                             6%                                                                          USA
                                                              USA                         3%                                                                                UK
     8%
                                                              UK                                                                                                            Japan
                                                                                                                                                                            Australia
                                                              Japan
                                                                                     14%                                                                                    UAE
                                                              Australia                                                                                                     Visa Processing
                                                                                          2%                                                                                Education
                                                              UAE                                                                                              4%
               21%                                                                                                                                                          Adventure
                                    5%                                                     3%          9%
                                                              Visa Processing                                     3%                           12%                          Hotel break
                                                                                                                                                                            Camping

  Source: Company data, GEPL Capital Research                                       Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                                                                    24
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                 December 12, 2011


                                       The margins for HBR however are expected to decline by 10bps despite a margin improvement
                                       in education and the camping division. We expect the adventure division and the hotel division
                                       to witness a decline in margins.
                                       Moreover, with a higher contribution of HBR to the consolidated revenues and a lower margin
                                       (10.4%) as compared to the India operations (16.7%), the consolidated blended margins for C&K
                                       are expected to decline by 320bps in FY11-FY13E to 14.6%.

                                       EBITDA margin to grow at 49.1% CAGR in FY11-FY13E
                                       We expect this growth despite a 34% decline in EBITDA in FY12E to `1.5 bn led by a)
                                       consolidation of HBR’s half year revenue into the FY12E results, b) losses of HBR in October-
                                       March with negligible revenues from the camping and education business led by the winter
                                       season across Europe and c) higher expenses of HBR in the period. Consequently we expect the
                                       EBITDA margin to decline sharply in FY12E to 21.3% from 46.3% in FY11.

                                       However, with the full year numbers being reported in FY13E, we expect to see a sharp rise in
                                       margins and the EBITDA to double in FY13E as compared to the previous year. Margin are
                                       expect to bounce back driven by a) overseas operations based on the improved product mix,
                                       resulting in an increase in blended commission rates, scale benefits with consolidated product
                                       sourcing, and the expansion of captive destination management services, b) operating
                                       efficiencies in India, with major additional expansion through the franchisee route, and c) full
                                       reflection of HBR numbers hence negating the seasonal impact which will be seen in FY12E.

                                       Consequently, we the EBITDA to witness a 49.1% CAGR In FY11-FY13E to `5.12 bn and the
                                       margins to improve by 40bps to 46.7% in the same period.

                                        EBITDA and EBITDA margin
                                                     6000                                             50.0

                                                     5000                                     5,117   40.0
                                                     4000
                                                                                                      30.0
                                             Rs mn




                                                     3000                                                    %
                                                                              2,301
                                                                      1,865                           20.0
                                                     2000                             1,509
                                                            1,213
                                                     1000                                             10.0

                                                       0                                              0.0
                                                            FY09      FY10    FY11    FY12E   FY13E

                                                                    EBIDTA        EBITDA margin

                                        Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                           25
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                                   December 12, 2011


                                                   PAT to witness a 23.7% CAGR in FY11-FY13E
                                                   However, since HBR is an asset heave model, the consolidation of its balance sheet should
                                                   result in depreciation charges rising to as high as `1.48 bn in FY13E compared to `186 mn in
                                                   FY11. Moreover, interest charges are expected to rise `1.15 bn in FY13E as compared to `544
                                                   mn in FY11. Led by a sharp rise in depreciation and interest charges and a constant other
                                                   income component, the Profit before tax is expected to witness a 21.4% CAGR in FY11-13E to
                                                   `2.85 bn. However, the effective tax rate for the company is expected to come down over the
                                                   next two years (31% vs 33% earlier). With a current 22% tax rate for HolidayBreak which is
                                                   expected to come down to 19% due to the interest payments, the consolidated tax rate should
                                                   drop to 30%.
                                                   We hence expect the PAT to witness a 23.7% CAGR in FY11-13E to `1.97 bn.

                                                    Net Profit

                                                              2500
                                                                                                                                  1,973
                                                              2000
                                                                                    1,344             1,291
                                                              1500
                                                      Rs mn




                                                              1000
                                                                              628
                                                              500

                                                                0

                                                              -500                                                  (346)
                                                                          FY09       FY10             FY11          FY12E         FY13E
                                                    Source: Company data, GEPL Capital Research


                                                   Working capital is expected to improve
                                                   C&K’s working-capital requirement is mainly driven by the corporate segment where average
                                                   receivables are 30-45 days. In the retail (leisure) segment, C&K enjoys a negative working
                                                   capital cycle as customers pay upfront and vendors are paid later. As the growth in the leisure
                                                   segment (27.5% CAGR) is expected to be higher than in the corporate segment (20% CAGR), we
                                                   expect the working-capital cycle to improve in the future.

  Retail working cycle                                                              Corporate working cycle
         100,000                                                     80,000                100,000                                                80,000    80,000
                                                 70,000                                                                             70,000
          50,000                                                                            50,000        30,000        30,000
                         0           10,000
                0                                                                                 0
                      (10,000)
    Rs




                                                                                                         (10,000)
                                                                                      Rs




          (50,000)                                                                          (50,000)
                                                                                                                       (45,000)
         (100,000)                                                                         (100,000)                                (70,000)     (70,000)
                                     (100,000)   (100,000)       (100,000)                                                                                  (100,000)
         (150,000)                                                                         (150,000)
                      60 days        30 days      0 days       15 days after                              45 days       30 days     15 days       15 days   30 days
                      before         before                                                               before        before       before        after     after


                             Customer deposits     Vendor payments                                                  Customer deposits          Vendor payments

  Source: Company data, GEPL Capital Research                                       Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                              26
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                    December 12, 2011


                                       Key Risks
                                       Company Specific concerns
                                       •     Concerns about investment in Ezeego One and Tulip Hotels
                                             C&K owns 14.99% in Ezeego One Travel & Tours (Ezeego1), through a `100 mn investment
                                             in FY10 and owns 30.42% in Tulip Group of Hotels. Though Ezeego1 is making losses, the
                                             management claims that these losses are reducing every year and the investment is a
                                             strategic one.
                                             Currently the company does not require publishing results as the stake is below 15% (below
                                             threshold limit). However, C&K has invested in FCD (Fully Convertible Debentures), the
                                             conversion of which could raise its effective stake to over 20%, making it an associate, and
                                             hence, would require consolidation. The C&K management claims to be reducing its
                                             exposure to Ezeego1 while the exposure to debtors and advances has reduced from the
                                             earlier `800 mn.

                                       •     Pending arbitration against V Hotels Ltd (VHL)
                                             C&K holds 15% in V-Hotels who had filled litigation against Siddhivinayak Realties Private
                                             Limited (SRPL) due to nonpayment of purchase price. In March 2005, SRPL had agreed to
                                             buy Tulip Star Hotel (owned by V Hotels) for a sum of ~3 bn and paid a deposit of `750 mn
                                             for the same. As per the verdict, the dispute between the two parties has been settled
                                             and the contract has been repudiated. However, SRPL has filed an arbitration petition in
                                             the high court.
                                             Since Cox & Kings owns 15% in V-hotels through Tulip Star Hotels Ltd (Tulip has a 50% stake
                                             in V-Hotels and C&K holds 30.4% in Tulip Star Hotels ltd), we believe the case judgment is
                                             positive for C&K even with the appeal by SRPL due to the property appreciation and a
                                             favourable judgment in the High Court. According to the management, the exposure will
                                             be fully recovered, irrespective of the case’s outcome.

                                       •     Integration risk from acquired companies and the ability to grow
                                             C&K has made rapid acquisitions in the last few years which have helped its revenues grow
                                             multi-fold. Unsuccessful integration of any acquisition can result in revenues declining or a
                                             downfall in brand perception and lead to mounting losses. However, given the successful
                                             track record of the C&K management over the last few years we do not believe the
                                             integration risk to be a major threat for the company.

                                       •     Fluctuating currency could affect reported earnings
                                             Having presence and revenue contribution from various countries can impact its
                                             consolidated numbers. The company may grow in the local currency but when converted
                                             the results may indicate a decline or lower growth depending on the currency movement.
                                             However, we expect the company to meet its EPS targets despite currency fluctuations
                                             due to its complete global exposure. Moreover, the expenditure in local currencies acts as
                                             a natural hedge for the company.




GEPL Capital Research| Initiating Coverage                                                                                              27
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                  December 12, 2011


                                       Industry related concerns
                                       •     Fluctuating exchange rates
                                             Any fluctuation in the foreign exchange rates can impact business as most regulations of
                                             most countries require tour operators to fix and quote prices on brochures throughout the
                                             offer period. This can pose a risk if the currency fluctuates and if operator’s over/under-
                                             book tours.

                                       •     Brand building
                                             Being a fragmented industry, continued investments are needed to maintain a high brand
                                             recall and retain traveler, supplier and advertiser’s mind share. A past bad experience can
                                             impact future earnings for the company.

                                       •     Negotiating favourable rates with travel suppliers
                                             It is important for the company and other industry players to maintain and improve
                                             margins by enhancing relations with suppliers and GDS partners and try and achieve
                                             maximum scale benefits.

                                       •     Employee retention and satisfaction
                                             Being a highly service-oriented industry, people are the most important resources for the
                                             industry and hence a faster than expected attrition rate can lead to de-motivated
                                             employees and hence impact the business.

                                       •     Competition
                                             The industry is intensely competitive, with the unorganised sector forming over 70% of the
                                             tourism market. Moreover, the fragmented nature of the business can lead to revenue
                                             losses.

                                       •     Unforeseen conditions and the industry’s cyclical nature
                                             The industry is cyclical; hence, any changes in economic or political stability may
                                             adversely affect the industry. Events such as natural calamities (the Japanese
                                             earthquake), terrorist attacks (Mumbai 2008), and economic downturns, political
                                             disturbances (Egypt, Bahrain, and Libya) may lead to reduced demand for such products
                                             and services. Tourism is the first to be hit if an economy slows down.




GEPL Capital Research| Initiating Coverage                                                                                            28
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                    December 12, 2011


                                       Valuations
                                           C&K is currently trading at 12.6x FY13E EPS of `14.5. This works out to a 48% discount to its
                                           historical one-year forward P/E band of 24x. The stocks has been de-rated over the last one
                                           year due to a) the decline in return ratios with a huge cash on the books, b) the huge debt
                                           position and the interest outflow with the acquisition of HBR, c) uncertainty with respect to
                                           the impact of HBR’s acquisitions on the company’s future earnings, and d) expectations of a
                                           net loss in FY12E with the consolidation of HBR’s Sept-March quarter which historically reports
                                           an operating loss.
                                       However, in view of a) the strong demand visibility with 23.7% PAT CAGR in the next two years,
                                       and b) the strong probability of an improvement in return on capital in view of successful track
                                       record of past acquisitions, we believe there is good potential upside in the stock. With
                                       concerns on its a) huge debt, b) high interest outflow, and c) acquisition integration we value
                                       C&K at a 16.8x P/E, a 30% discount to its historical one-year forward P/E band of 24x. We
                                       initiate the coverage with a Buy rating and target price of `243 (16.8x FY13E EPS).
                                        


                                            1 year forward P/E
                                             400

                                             350

                                             300

                                             250

                                             200

                                             150

                                             100

                                              50

                                               0
                                                    Jul-10




                                                    Jul-11
                                                   Jan-10
                                                   Feb-10

                                                   Apr-10

                                                   Jun-10

                                                   Aug-10

                                                   Oct-10


                                                   Jan-11
                                                   Feb-11

                                                   Apr-11
                                                   Dec-09




                                                   Dec-10




                                                   Jun-11

                                                   Aug-11

                                                   Oct-11
                                                   Mar-10




                                                   Nov-10
                                                   May-10




                                                   Sep-10




                                                   Mar-11

                                                   May-11



                                                   Sep-11

                                                   Nov-11

                                                           Price     20.0x      25.0x    30.0x     35.0x

                                            Source: Bloomberg, GEPL Capital Research


                                            1 year forward EV/EBITDA
                                             900
                                             800
                                             700
                                             600
                                             500
                                             400
                                             300
                                             200
                                             100
                                                0
                                                     Jul-10




                                                     Jul-11
                                                    Dec-09
                                                    Jan-10
                                                    Feb-10

                                                    Apr-10

                                                    Jun-10

                                                    Aug-10

                                                    Oct-10

                                                    Dec-10
                                                    Jan-11
                                                    Feb-11

                                                    Apr-11

                                                    Jun-11

                                                    Aug-11

                                                    Oct-11
                                                    Mar-10

                                                    May-10



                                                    Sep-10

                                                    Nov-10



                                                    Mar-11

                                                    May-11



                                                    Sep-11

                                                    Nov-11




                                                          Price     5.0x       15.0x    25.0x      35.0x

                                            Source: Bloomberg, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                              29
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                     December 12, 2011


                                          Company Background

                                          Cox & Kings (C&K) is one of the oldest and largest T&T companies in India. It has its operations
                                          spread across 20 countries and 164 cities, with significant presence in India, the UK, Australia,
                                          Dubai, Japan and the US. C&K’s broad distribution network and global reach offer an array of
                                          products and services and a comprehensive travel and tourism solutions for individuals and
                                          group leisure travelers. Its Indian operations accounted for ~48% of the total sales (leisure 46%
                                          and corporate 2%) in FY11. Other subsidiaries together brought in 52% of revenues in FY11 with
                                          UK (21%) and Australia (12%) having the maximum contribution.


                                          Geographical Diversification




  The company would further combine
  HolidayBreak’s local UK customer base
  with the strength of C&K’s outbound
  travel agency network.




                                          Source: Company data, GEPL Capital Research


                                           Revenue mix in FY11


                                                                                                                                    8



                                                                                                        21

                                               48                                          52
                                                                                                                                        12




                                                                                                                 5              4
                                                                                                                        2


                                                    India       USA         UK & EU      Japan   Australia     UAE          Visa Processing
                                           Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                    30
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                     December 12, 2011


                                       Company Structure

                                                                                     COX & KINGS



                                                                                                                OTHER
                                                           INDIA
                                                                                                              COUNTRIES




                                                Leisure                   Outbound                 Outbound                 Inbound


                                               Corporate                   Inbound                      UK                       UK


                                             Visa Processing              Domestic                   Australia                  UAE

                                                Foreign
                                                                         Train tours                  Japan
                                               Exchange


                                                                                                        US


                                                                                                       UAE

                                       Source: Company data, GEPL Capital Research

                                       Indian Operations
                                       C&K’s India (domestic business) consists of a mix of 14 branch sales offices, 150 franchised
                                       sales shops (spread across 20 states covering 70 cities), and 175 general sales agents (GSAs),
                                       and preferred sales agents (PSAs).

                                       C&K’s domestic business is organized under the following four main service offerings:
                                       1.    Leisure travel
                                       Leisure travel is the core business (accounted for 46% of the consolidated revenues in FY11)
                                       through which C&K provides outbound, inbound, domestic (both foreigners and Indians) travels
                                       and train tours.
                                        a)     Outbound travel: refers to sales of tour packages to customers traveling to destinations
                                               outside their home country. The outbound segment accounted for ~63% of Indian
                                               revenues in FY11. Outbound travel can be further classified into: free independent
                                               traveler (FIT) and group individual traveler (GIT). C&K sells travel-related products under
                                               the brands ‘Flexihol’ and ‘Duniya Dekho’ to these sub-segments, respectively.

                                        b)     Inbound travel: refers to foreign tourists arriving (FTA’s) in India. C&K caters to high end
                                               customers in this segment for whom they provide destination management services to
                                               both subsidiaries as well as other tour operators in this segment. Inbound leisure travel
                                               comprised ~14 5% of consolidated revenues in FY11.
                                                               .



                                               MICE (Meeting, Incentives, Conferences, and Exhibitions): is another concept which is fast
                                               picking up and C&K has taken great care to enhance its presence in this segment by
                                               catering to various corporate aspects like organisation conferences, arranging business
                                               meetings, managing events, setting up seminars and exhibitions.

                                        c)     Domestic travel: refers to travel within the country of origin (India). C&K’s domestic
                                               travelers can be further divided into FIT and GIT. C&K sells domestic-travel-related
                                               products under the brand ‘Bharat Dekho’. C&K’s NRI division caters to travelers primarily
                                               from the Middle East, Europe, US, Australia, Sri Lanka and Hong Kong. Domestic travel
                                               comprised 4% of Indian revenues in FY10.



GEPL Capital Research| Initiating Coverage                                                                                               31
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                          December 12, 2011

                                           d)    Train tours: refers to C&K’s 50:50 JV with the Indian Railways Catering and Tourism
                                                 Corporation Ltd (IRCTC) called Royale Indian Rail Tours. The trains started in March CY10
                                                 by launching its luxury train, the Maharajas’ Express. The train has a capacity of 86
                                                 passengers in 23 coaches and offers four different itineraries.

                                           Segmental revenues in India
                                                100%
                                                          13          14                        12        10
                                                90%                              17
                                                80%                                             20        19
                                                          24          22         21
                                                70%                                                        8
                                                                                                8
                                                60%        8          8           8
                                                50%
                                                40%
                                                30%                                             60        63
                                                          55          56         54
                                                20%
                                                10%
                                                   0%
                                                         FY07       FY08        FY09        FY10         FY11
                                                    Outbound       Domestic           Inbound        Non-lesiure

                                           Source: Company data, GEPL Capital Research
                                       .



                                       2. Corporate travel
                                       Corporate travel formed 2% of FY11 consolidated revenues and involves providing organisation
                                       business travel solutions to corporate clients and to over 200 companies through a team of
                                       dedicated relationship managers. The segment provides good brand value for C&K and helps to
                                       create a strategic partnership by organisation the total travel budget for a firm and yet
                                       maintaining service standards.

                                       3. Visa processing
                                       C&K provides visa processing services as an outsourced business solution to diplomatic missions
                                       in various countries, including Germany, Greece, Hong Kong, the UK and Singapore. The
                                       company has also started visa processing services in Dubai through a 100% subsidiary called Cox
                                       & Kings Global Services (CKGS). The company provides Dubai Visa services in India for
                                       passengers arriving and departing at Dubai International Airport. The company has formed C&K
                                       Marhaba Dubai Visa (CNKMDV) for the same.
                                       Visa services by C&K
                                           Country of operation            Services
                                           Singapore                       Visa and passport services to India from Singapore
                                           UK                              Visa to France from UK
                                           Greece                          Visa to India from Greece
                                           India                           Visa services to Malaysia from India
                                           India                           Visa services to Singapore from India
                                           Hong Kong                       Visa to India from Hong Kong
                                           Dubai                           Visa services to India from Dubai
                                           Germany                         Visa services to India from Germany
                                       Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                32
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                December 12, 2011

                                                4.     Foreign exchange:
                                                C&K is a licensed Authorised Dealer-Category II under the new licensing regime and provides
                                                foreign exchange services either as a part of its leisure travel and corporate travel packages, or
                                                by itself. C&K is among the leading retail forex dealers in India.

                                                The enhanced status (from FFMC to Authorised Dealer-Category II) helps it transact outward
                                                remittance requirements. Remittances or other exchange facilities for students pursuing
                                                studies abroad, medical treatment overseas, migrant travelers, salary and wages for crews on
                                                ships visiting India, and subscriptions to overseas publications, seminars, organisation
                                                memberships are some possible business avenues that can lead to growth in this segment.


                                                International operations
                                                C&K has operations across 20 Nations with significant presence in UK, Australia, UAE (visa
                                                processing), Japan, and USA, due to its subsidiaries. The company started its Singapore
                                                operations a year back and has seen a strong traction in the outbound segment.

                                                C&K’s international operations have grown over the last few years due a series of acquisitions
                                                which has increased its presence across the value chain. The outbound business for C&K
                                                remains its core focus area (especially Europe and USA) while the inbound segment has not
                                                currently seen a sharp destinations additions.

                                                The International operations accounted for 52% of the total revenues in FY11 and with the
                                                integration of its new foreign acquisition (HolidayBreak Plc) we expect the revenue
                                                contribution from the foreign business to rise to ~65% by FY13E.


  Growth in International Revenues                                         International revenue contribution in FY11

            3,000                                                                                            4%          10%
                                                             2,600                                  8%

            2,500                               2,233

            2,000                                                                       23%
    Rs mn




            1,500                    1,318

                                                                                                                                   40%
            1,000      645

             500                                                                                    15%
              -                                                                               USA                          UK & EU
                                                                                              Japan                        Australia
                      FY08            FY09      FY10          FY11                            UAE                          Visa Processing
  Source: Company data, GEPL Capital Research                              Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                      33
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                   December 12, 2011

 Operational Highlights
  Subsidiary                                              Operational Highlights
                                                          Premium long-haul outbound tour operator,
  Cox & Kings UK Ltd, UK                                  Target segments: wealthy retirees,
                                                          Key destinations: India, Latin America etc.

                                                          Provides destination management services in Europe,
  C&K Destination Management Services
                                                          Mid-market to premium positioning,
  (Earlier ETN Services Ltd., UK)
                                                          Services to group companies and other tour operators

                                                          Outbound wholesaler selling white-label packages to other tour operators,
  Cox & Kings Japan Ltd., Japan                           Caters to business delegations and leisure travelers, Provides destination
                                                          management services to Japanese travelers


                                                          Outbound; mass-market-oriented travel packages, Synergies with ETN and
  Tempo Holidays Pty Ltd, Australia;
                                                          C&K Dubai as key tourist destinations are Europe and the Middle East,
  Tempo Holidays NZ Ltd, New Zealand
                                                          Uniquely positioned as one of the few large independent tour operators


  MyPlanet Australia Pty Ltd, Australia;                  Specialist in outbound travel, Serves tourists from Australia and New
  Bentours International Pty Ltd., Australia              Zealand, Leading outbound tour and travel operator to Scandinavia


                                                          Inbound: Service provider to a tourists from Cox & Kings India, Outbound:
  Cox & Kings Tours LLC, UAE                              Initially tapped expat Indian population; subsequently also became a local
                                                          tours operator

                                                          Premium outbound luxury packages for celebrity clientele,
  East India Travel Company Inc., USA
                                                          Outbound tours to Africa, Latin America, Asia and the Middle East

  Quoprro Global Services Pte. Ltd., Singapore;
  Quoprro Global Services Pvt. Ltd., Hongkong;
                                                          Provides visa processing services
  Cox & Kings Gmbh, Germany; Cox & Kings Hellas, Greece
  Cox & Kings Global Services Pvt. Ltd., India

                                                          Education & Adventure:
                                                          Provides residential outdoor education and adventure trips for school
                                                          children as well as worldwide adventure tours, language travel and gap year
                                                          trips;
  HolidayBreak Plc
                                                          Camping:
                                                          Provides outdoor family holidays on third-party owned camp-sites in Europe;
                                                          Hotel Breaks:
                                                          Provides domestic short break trips in the UK and the Netherlands
 Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                              34
 Equity | India | Travel & Tourism

 Cox & Kings Ltd.                                                                                                                            December 12, 2011

Income Statement                                                                      Balance Sheet
  Y/E march (`mn)          FY09(A)       FY10(A)     FY11(A)    FY12(E)    FY13(E)     Y/E March (`mn)                 FY09      FY10     FY11P      FY12E      FY13E
                                                                                       Equity capital                   279        629        683       683        683
 Total net revenues           2,869        3,992       4,967      7,070     10,963
                                                                                       Reserves & Surplus             1,994     7,472     11,396     11,018     12,832
 COGS                              0            0          0          0          0     Preference Capital                 0          0          0         0          0
                                                                                       Net worth                      2,274     8,101    12,079     11,700     13,515
 Gross Profit                 2,869        3,992       4,967      7,070     10,963
                                                                                       Minority interest                  0          0          0         0          0
 Employee Cost                  791           994      1,296      2,591      2,721     Deffed tax liability              17       (14)       (79)      (79)       (79)
 Advertising Expenses           333           357        423      1,237      1,316     Total debt                     3,542     5,043      8,443     45,443     38,443
                                                                                       Total Liabilities & Equity     5,815    13,144    20,522     57,144     51,958
 Other Expenditure              532           776        948      1,732      1,809     Net block                        715        722     1,021     19,057     18,081
 EBITDA                       1,213        1,865       2,301      1,509      5,117     Capital WIP                      103        204        641     1,641      2,141
                                                                                       Total fixed assets             1,928     3,101      3,837     47,928     47,452
 EBITDA Margin (%)               42            47         46         21         47
                                                                                       Investments                      457     2,584      2,112      2,112      2,112
 Depreciation                    96           151        186        964      1,476     Goodwill                       1,110     2,175      2,175     27,230     27,230
                                                                                       Current Assets                 5,613     9,565    17,666     21,899     26,295
 Other Income                    67           426        359        346        360
                                                                                       Inventories                       35         83         86       194        751
 Interest (Net)                 201           270        544      1,363      1,153     Debtors                        2,322     3,021      4,142      4,842      6,007
 PBT                            983        1,870       1,931      (472)      2,848     Cash & bank                      634     3,747      9,613     12,408     13,080
                                                                                       Loans & advances               2,622     2,715      3,825      4,455      6,457
 PBT Margin (%)                  34            47         39        (7)         26     Other Current Assets               0          0          0         0          0
 Tax                            349           517        625      (146)        854     Current Liab. & Prov.          2,199     2,113      3,031    14,733     23,839
                                                                                       Creditors                        688        980        961    12,978     20,123
 Minority Interest                 6           10         15         20         20
                                                                                       Other liabilities              1,147        790     1,721      1,743      2,703
 Adjusted Pat after
                                628        1,344       1,291      (346)      1,973     Provisions                       364        344        350        13      1,013
 Minority Interest
                                                                                       Net Working capital                0          0          0         0          0
 Extraordinary /excep.             0            0          0          0          0
                                                                                       Miscellaneous Exp                  0         21         17        17         17
 Reported PAT                   628        1,344       1,291      (346)      1,973     Total Assets                   5,815    13,144    20,522     57,144     51,958


Key Ratio                                                                             Cash Flow
 Y/E (`mn)                      FY09       FY10       FY11P      FY12E      FY13E      Y/E March, (`mn)                FY09      FY10     FY11P      FY12E      FY13E
 Per Share Ratios                                                                      PBT                              983      1,870     1,931       (472)     2,848
 Fully diluted E P S              11.2        10.7        9.5      (2.5)      14.5     Add: Depreciation                 96       151        186        964      1,476
 Book Value                        5.8         3.7        2.3        2.2       1.9     Add: Interest expense            201       270        544      1,363      1,153
 Dividend per share                0.1         0.5        0.5        1.0       1.0
                                                                                       Less: Other Income               (67)     (426)     (359)       (346)     (360)
 per share FCFO                  (2.3)         0.4        0.3       17.5      14.1
                                                                                       Other Adjustments                 (1)     (155)     (135)          0         0
 Valuation Ratio
 P/E                             21.1         22.5       21.9     (73.0)      12.8     Change in working capital     (1,495)     (926)   (1,317)     10,264      5,382
 P/BV                             5.8          3.7        2.3        2.2       1.9     Taxes paid                       349       517        625       (146)      854
 EV/EBITDA                       13.3         16.9       11.8       38.6       9.9     CF from operations             (631)       267       224     11,920      9,645
 EV/Sales                         5.6          7.9        5.4        8.2       4.6     Change in fixed assets        (1,368)   (1,324)     (922)    (45,055)   (1,000)
 Price/ FCFO per share           11.2         10.7        9.5      (2.5)      14.5     Changes in Intangible Asset        0         0          0          0         0
 Growth Ratios
                                                                                       Change in investments              8    (2,127)       471          0         0
 Sales Growth                    57.5         39.1       24.4       42.3       55.1
                                                                                       Other income                      67       426        359        346       360
 EBITDA Growth                   66.2         53.7       23.4     (34.4)      239.1
 Net Profit Growth               49.4       114.1       (4.0)    (126.8)    (670.6)    CF from investing acti.       (1,294)   (3,025)      (91)    (44,709)    (640)
 EPS Growth                      49.4        (5.0)     (11.5)        NM         NM     Change in debt                  2,245     1,502     3,400     37,000    (7,000)
 Common size Ratios                                                                    Change in Equity capital           0      4,712     2,901          0         0
 Gross Margin                     0.0          0.0        0.0        0.0       0.0     Changes in Pref. capital           0         0          0          0         0
 EBITDA Margin                   42.3         46.7       46.3       21.3      46.7     Dividend & dividend tax           (7)      (73)      (79)       (159)     (159)
 PAT Margin                      21.9         33.7       26.0      (4.9)      18.0
                                                                                       Interest paid                   (201)     (270)     (544)     (1,363)   (1,153)
 Employee Cost                   27.6         24.9       26.1       36.7      24.8
                                                                                       Other Adjustments                (33)       30         66         (0)       (0)
 S&G Expenses                    88.4         91.1       91.5       82.5      88.0
 Return ratios                                                                         CF from financing acti.        2,004     5,901     5,744     35,478     (8,312)
 RoAE                            32.0         25.9       12.8      (2.9)      15.7     Change in cash                    73      3,113     5,866      2,669       672
 RoACE                           17.4         16.3        9.9        1.6       5.1     Opening cash                     561       634      3,747      9,613    12,408
 Turnover ratios (days)                                                                Closing cash                     634      3,747     9,613     12,408    13,080
 Debtors ( Days)                261.3       244.3       263.2     231.9       180.6
 Creditors ( Days)               91.3        76.3        71.3     359.8       551.0   Du-Pont Analysis
 Inventory (Days)                 4.8         5.4         6.2        7.2       15.7   (%)                            FY09A     FY10A     FY11E       FY12E     FY13E
 Net working capital            258.6       296.5       320.6      (5.7)    (264.1)    Net Profit Margin                21.9      33.7      26.0       (4.9)      18.0
 Solvency Ratios                                                                       Asset Turnover                    0.5       0.3       0.2         0.1       0.2
 Total Debt/Equity                1.6          0.6        0.7       3.9        2.8     Leverage                          2.6       1.6       1.7         4.9       3.8
 Interest coverage                3.8          5.7        3.1       0.5        2.4     ROE                              32.0      25.9      12.8       (2.9)      15.7


Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                         35
                                                                                Equity | India | Travel & Tourism


                                                                                Thomas Cook India Ltd.
 Initiating                                                                     Parent company concerns overdone…                                                                                                December 12, 2011
 Coverage
                                                                                                                                                                                                                                BUY
                 CMP (`)                                                            Target (`)                                       Investment Rationale
                  38.75                                                                       46.5                                   Dominance in the forex business in India
  Potential Upside                                                        Absolute Rating                                            Thomas Cook India Ltd (TCIL) is derives 60% of its revenues from the forex business (in CY10)
                          20%                                                                 BUY                                    and is a market leader in forex-related services. TCIL also has the largest distribution network in
                                                                                                                                     India among forex players, comprising 172 locations in 72 cities mainly driven by the acquisition
 Market Info (as on 9th December 2011)                                                                                               of LKP Forex in CY06. Leisure travelers, those traveling for migration, employment and medical
 BSE Sensex                                                                                                      16,213              treatment, banks, non-bank retailers, and money-changers are its important customers.
 Nifty S&P                                                                                                        4,866              We expect this segment to witness a 10% CAGR in CY10-13E and remain the major growth driver
                                                                                                                                     for the company with a 55% share of consolidated revenues in CY13E.
 Stock Detail
 BSE Group                                                                                                                   B       Focus on outbound segment to drive travel business growth
 BSE Code                                                                                                        500413              TCIL is amongst the top five outbound-travel operators in India and has a strong presence in
 NSE Code                                                                                     THOMASCOOK                             Europe and USA, both of which constitute over 25% of India’s outbound travel. We thus expect it
 Bloomberg Code                                                                                                   TC IN              to benefit from the growing T&T industry in India and find its outbound segment poised to
 Market Cap (`bn)                                                                                                    8.21            witness a 25.9% CAGR in CY10-13E. Moreover, a 12.9% CAGR in inbound travel and 8.2% CAGR in
 Free Float (%)                                                                                                        25%           corporate travel in the same period should help the travel segment to grow by 17.3% in CY10-
 52wk Hi/Lo                                                                                                      64 / 36             13E. Consequently, its share of travel-related business is expected to increase from 40% in CY10
 Avg. Daily Volume (NSE)                                                                                         429932              to 45% in CY13E.
 Face Value / Div. per share (`)                                                                    1.00 / 0.37
                                                                                                                                     Synergy potential from the parent company
                                                                                                                                     .
 Shares Outstanding (mn)                                                                                          211.9
                                                                                                                                     TCIL is part of the UK based Thomas Cook Plc which creates a huge potential for synergies to
 Shareholding Pattern (in %)                                                                                                         improve margins by increasing the cost competitiveness. a) Consolidated product sourcing, b)
   Promoters                                     FIIs                        DII                        Others                       Cross-selling of products leading to an improved product mix, c) Leveraging of its global
          77.13                                 1.78                       1.51                         19.58                        platform to reduce advertising and marketing spend, and d) Handling tours originating from its
                                                                                                                                     parent company which in turn strengthens its inbound business are some of the benefits of a
 Financial Snapshot                                                                                              (`mn)               strong parent company. To this end, TCIL’s management appointed an executive to the Board
 Y/E Mar                             FY10                       FY11                   FY12E                      FY13E              from its parent company, in November 2008, whose sole responsibility is to integrate the Indian
 Net Sales                          3,180                       3,601                   3,973                      4,533             business with the global one and derive synergy benefits in the process by using existing
 EBITDA                                  763                     830                          959                  1,157             resources.
 PAT                                     447                     531                          539                          646
 EPS                                         2.2                  2.5                          2.5                         3.0       Concerns over parent company debt overdone
 ROE (%)                              14.7                       14.7                         13.3                     14.2          Thomas Cook Group Plc (TCG) is currently facing a cash crunch and has an outstanding debt of
 ROCE (%)                             11.6                       12.1                         11.2                     12.2          €1.6 bn. The cash crunch, slowdown in economy has impacted sales by 25% and has resulted in
 P/E                                  27.7                       14.8                         14.5                     12.1          the company taking serious measures like grounding part of its fleet. TCIL has performed much
 EV/EBITDA                            17.7                        9.0                          7.8                         6.3       better than TCG given the fact that India is the fastest growing outbound travel market in the
                                                                                                                                     World. TCIL has managed to deliver strong profits despite TCG lowering its guidance thrice in
 Share Price Performance
  130
                                                                                                                                     the last 18 months. Moreover, TCIL’s debt-equity ratio stood at 0.59x in CY10 and hence we
  120
                                                                                                                                     believe the parent company concerns are overdone.
  110
                                                                                                                                     Valuation
  100

   90
                                                                                                                                     TCIL is currently trading at 15.2x CY12E EPS and 12.7x CY13E EPS, a 33% and 44% discount
   80
                                                                                                                                     respectively to its historical one-year forward P/E band of 22.7x. The stock has witnessed a 20%
   70                                                                                                                                drop over the last two months on concerns of the high debt position (€1.6 bn) of its parent
   60
                                                                                                                                     company, TCG. Given TCIL’s outperformance over TCG and its current debt-equity ratio of 0.59x
                                                                                                                                     we believe the parent company concerns are overdone.
                                                                           Jul-11
                 Jan-11

                           Feb-11



                                              Apr-11




                                                                 Jun-11




                                                                                     Aug-11

                                                                                               Sep-11




                                                                                                                  Nov-11
        Dec-10




                                    Mar-11




                                                       May-11




                                                                                                                            Dec-11
                                                                                                        Oct-11




                                    Thomas Cook (India)                                   BSE SENSEX
                                                                                                                                     We initiate the coverage with a BUY rating and target price of `46.5 (15.2x CY13E EPS). We see
                                                                                                                                     great value for the company even at its lowest one-year forward P/E since 2003 of 15.2x.
   Rel. Perf.                                1Mth                3 Mths                       6Mths                        1Yr
 Thomas C (%)                                (20.1)                  (20.9)                   (25.0)                 (27.4)
 SENSEX (%)                                   (6.6)                       (3.9)               (11.8)               (15.7)
Source: Company data, GEPL Capital Research


                                             Analyst                                            +91-22- 6614 2690
                                                                                     sunilsewhani@geplcapital.com
                                                                                                                                                                                                   GEPL Capital Research              36
                          Sunil Sewhani
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                            December 12, 2011


                                      Investment Rationale
                                      Dominance in the forex business in India
                                      TCIL is one of India’s largest foreign-exchange dealers and one of largest exporters in the world
                                      for bank notes and handles close to 60% of India’s foreign currency bank notes. It offers
                                      currency exchange, money transfer, remittance, travelers’ cheques, pay orders, wire transfers
                                      and pre-paid cards services and caters to the forex needs of various customer segments such as
                                      leisure travelers, those traveling for migration, employment and medical treatment, banks,
                                      non-bank retailers, and money-changers.

                                      Acquisition and tie-up have strengthened distribution network
                                      TCIL plans to further expand its reach through new outlets, franchisees and tie-ups. It
                                      strengthens its presence in forex business in CY06 with the merger of LKP Forex Ltd, the second
                                      largest player. The merger gave TCIL access to a network of 85 branches across 55 cities and a
                                      country-wide network of over 250 franchisees.
                                      TCIL also has a presence in Sri Lanka and Mauritius, through wholly owned subsidiaries, to cater
                                      to the forex needs of tourists. The company has also tied up with a) Apollo and Fortis hospitals
                                      to have counters inside the hospitals’ premises and b) the Indian postal department to open
                                      forex and travel related service counters. Moreover, it has been awarded contracts to set up
                                      and operate counters at the Delhi (seven years) and Cochin (five years) international airports.

                                      To continue dominating in the forex-related services
                                      The forex market is the biggest revenue contributor for TCIL (60% of consolidated revenues in
                                      CY10). TCIL is the market leader in this high volume, low-margin business and has blended
                                      commission margin of ~1.3%. We expect the forex business to witness a 10.3% CAGR in CY10-13E
                                      to `2.55 bn driven by the strong growth in outbound travel, FTA, and global inward remittances
                                      to India. Consequently, we expect the revenue share of the forex business to reduce to ~56% in
                                      CY13E from ~60% in CY10 and expect the blended commission margin to stabilise at 1.2%.

                                       Forex Revenues
                                                     3,000                                              14
                                                                                                2,551
                                                     2,500                                              12
                                                                                        2,288
                                                                                2,138
                                                                                                        10
                                                     2,000             1,900
                                                             1,725
                                                                                                        8    %
                                             Rs mn




                                                     1,500
                                                                                                        6
                                                     1,000
                                                                                                        4
                                                      500                                               2

                                                       -                                                0

                                                             CY09       CY10    CY11E   CY12E   CY13E

                                                                     Forex Revenues       YoY growth

                                       Source: Company data, GEPL Capital Research

                                      Plans to have a separate money-transfer vertical
                                      Global remittances into India have grown at 17.6% CAGR in the last five years. TCIL plans to
                                      have a separate money-transfer vertical. The vertical accounts for 5% of the overall profitability
                                      in its foreign exchange business. TCIL is also a principal agent in India for ‘MoneyGram’ and and
                                      has entered into a strategic tie-up with Xpress Money, a service offering of the UAE Exchange &
                                      Financial Services Ltd. TCIL is an agent for Xpress Money and offers services through its 180
                                      locations, over 72 cities in India. This service provides opportunity to Indian families to receive
                                      money through Xpress Money from any UAE.


GEPL Capital Research| Initiating Coverage                                                                                             37
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                      December 12, 2011


                                      Focus on outbound segment to drive travel business growth
                                      We expect commission revenues from the travel-related business to grow at 15.7% CAGR over
                                      CY10-13E, from `1.28bn in CY10 to `1.98 bn in CY13E mainly led by strong growth in the
                                      outbound segment. Consequently, TCIL’s share of travel-related business is expected to increase
                                      from 40% in CY10 to ~44% in CY13E while the outbound business contribution is expected to rise
                                      to ~23% in CY13E from ~17.5% in CY10.

                                      Outbound segment gaining momentum
                                      Despite the global recession and the H1N1 pandemic, the Indian outbound tourism sector has
                                      witnessed a 10.6% CAGR in outbound travel over the last decade and reached 12.1 mn in CY10.
                                      With the rising income levels, higher disposable income, propensity to spend and higher
                                      aspiration of Indian consumers as well as expansion of Indian corporations, the growth rate is
                                      expected to be maintained. The WTTC estimates a 14.1% CAGR in outbound visits during CY11E-
                                      21E, to reach 45.1 mn.

                                      The outbound segment has been one of the major growth drivers within the travel segment and
                                      we expect this trend to continue even in the future. TCIL is among the top five Indian outbound-
                                      travel players with a strong presence in Europe and the US. These routes, typically long-haul,
                                      offer better margins. In fact, Europe (UK, France and Italy) and the US are among the top-ten
                                      destinations for outbound tourism in India and together account for 15.3% of total outbound
                                      visits. The leisure travel and tourism spend in the US and UK is expected to grow at 3.7% CAGR
                                      and 3.8% over CY11E-21E to US$956 bn and US$128 bn respectively.

                                      Hence TCIL is poised to be one of the biggest beneficiaries of the growth in outbound travel.
                                      The outbound segment for TCIL has grown by over 40% for the second consecutive year,
                                      surpassing the other segments. This segment is expected to grow by another +25% over the next
                                      couple of years

                                       Top 10 Outbound destinations by Indians in CY09
                                                                                     Singapore
                                                                                        7%         UAE
                                                                                                    6%
                                                                                                           UK
                                                                                                           6%
                                                                                                                  Malaysia
                                                                                                                    5%



                                                                                                                   USA
                                         Others
                                                                                                                  5%
                                             55%                                                                Thailand
                                                                                                                   5%
                                                                                                           Eqypt
                                                                                                       China 4%
                                                                                             Italy France
                                                                                                        3%
                                                                                              2%     2%

                                       Source: Company data, GEPL Capital Research

                                      Synergies from TCI acquisition to drive a historically weak inbound segment
                                      The inbound travel segment contributes ~8% to the revenues of TCIL and has historically been a
                                      weaker segment when compared to the forex or outbound division. TCIL acquired Travel
                                      Corporation India Ltd (TCI) in an all-cash deal of `1.8 bn to strengthen its position in the
                                      inbound segment and got six branches worldwide, which serve as TCIL’s selling and distribution
                                      offices. TCIL (with TCI), offers Free Independent Traveler (FITs) and Group Individual Traveler
                                      (GITs), depending upon travelers’ requirements, as most of these are sourced by overseas



GEPL Capital Research| Initiating Coverage                                                                                                  38
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                          December 12, 2011


                                      principals, tour operators and travel agents. With the launch of several innovative products
                                      (Deccan Odyssey, Indian Maharaja), it has been able to gain market share in this segment. The
                                      company has also entered into business arrangements with foreign tour operators to serve their
                                      customers on arrival in India and hence act as Destination Management Centre (DMC).

                                      However, the growth in this segment has been slow across the industry post the CY09 economic
                                      turmoil and has hence impacted TCIL too. This has been coupled with a slower growth in the
                                      European region with the current debt crisis and risk of defaults holding back leisure travel
                                      spend by individuals. Consequently, inbound-tourist arrivals (to India) are expected register
                                      7.8% CAGR over CY11E-21E to 11.9mn visits as per the WTTC. As over 50% of the total Foreign
                                      Tourist Arrivals (FTAs) in India are from Europe and the US, TCIL is expected to be one of the
                                      major beneficiaries due to its strong presence in these regions. The segment grew by 10% in
                                      CY10 and in the first 9 months of CY11. With the commission margins expected to stabilize at
                                      12.5% we expect a 10% CAGR in commission revenues over CY10-13E, from `250 mn in CY10 to
                                      `333 mn in CY13E.

                                       Top 10 Countries by FTA’s in India in CY09
                                                                                                 USA
                                                                                                 16%


                                         Others
                                             38%
                                                                                                                    UK
                                                                                                                    14%




                                                                                                                    Bangladesh
                                                                                                                          7%

                                                   Malaysia                                                Canada
                                                     3%Australia Japan    France     Sri Lanka   Germany    4%
                                                            3%    3%                               4%
                                                                            4%          4%

                                       Source: Company data, GEPL Capital Research

                                      Sustained revenue stream in corporate segment
                                      The Corporate travel segment formed ~15% of TCIL’s consolidated revenues in CY10 whereby
                                      TCIL manages the travel budgets of several large, national and multinational companies. TCIL is
                                      one of the most preferred travel groups for most Indian corporate houses (the Reliance
                                      Industries group, the ADAG group, Hindustan Unilever and the Tatas), catering to over 300
                                      clients with the top 30 clients contributing to 50% of sales in this segment.

                                      The corporate segment has witnessed a growth of 10-12% over the last 18 months, in line with
                                      the inflation rate. This segment further helps to generate MICE revenues. The company has also
                                      started passing on the direct commission benefits received from airlines to its corporate
                                      travelers and charge them with a fixed management fee for the same. As the airline commission
                                      rates have been on a decline (+7% at peak in CY07 to 5.5% in CY10 and currently at 3.5%), TCIL
                                      is not impacted due to the fixed fees charged.

                                      We expect 8.2% CAGR in commission revenues over CY10-13E, from `480mn in CY10 to `608mn
                                      in CY13E. The reasons for growth being relatively slow are: a) a conscious management decision
                                      to reduce exposure to this segment due to the higher working-capital requirement in the
                                      corporate space and b) the assumption of a 100bps decline in commission margin, from 6% in
                                      CY10 to 5% in CY13, due to an increase in competition.




GEPL Capital Research| Initiating Coverage                                                                                                      39
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                    December 12, 2011


                                      Synergy potential from parent company

                                      TCIL is part of the Thomas Cook Group Plc (TCG) company which was formed in June CY07 by
                                      the merger of Thomas Cook AG and MyTravel Group Plc. TCG mainly has operations in four
                                      regions: a) the UK and Ireland; b) continental Europe (Germany, Austria, Belgium, France, the
                                      Netherlands, Poland, Hungary, Slovenia and Slovakia); c) Northern Europe (Sweden, Norway,
                                      Denmark and Finland); and d) North America (Canada and the US). It also has a German airline
                                      operating under the Condor brand.

                                       TCG’s consolidated revenues in CY10
                                                                   Airlines
                                                North America     Germany
                                                        4%            8%
                                                                                                         UK incl. India
                                             Northern                                                   and M iddle East
                                             Europe                                                           36%
                                               11%




                                              West & East
                                                Europe
                                                 19%
                                                                                       Central Europe
                                                                                            22%

                                       Source: Thomas Cook Plc. UK, GEPL Capital Research


                                      We believe TCIL has potential for synergies from the parent company, in terms of:
                                      A) Strengthening of inbound business
                                      TCIL is able to increase its inbound business by handling tours originating from the parent
                                      company. This is possible due to the strong presence of TCG in US and Europe which together
                                      form ~25% of India’s’ inbound traffic.

                                      B) An improved product mix
                                      TCIL is also able to leverage its global platform and improve its product offering resulting in a
                                      better mix enabling a better variety of products in a more cost effective manner resulting in
                                      better margins on individual packages.

                                      C) Consolidated product sourcing
                                      The large scale of operations offer better bargaining powers with vendors and enable to
                                      negotiate a better rate as well as enable year round demand due to presence in USA and India
                                      where the lean and peak season offset each other.

                                      D) Lower advertising and marketing costs
                                      With the better distribution and economies of scale it is possible to reduce the per unit spent on
                                      advertising and distribution, resulting in lower advertising and distribution costs as a percentage
                                      of sales as the size and scale of operations increase.

                                      In fact, in order to realise synergies, TCIL’s management appointed an executive to the Board
                                      from its parent company, in November CY08, whose sole responsibility is to integrate the Indian
                                      business with the global Thomas Cook business and derive synergy benefits in the process, by
                                      using existing resources.




GEPL Capital Research| Initiating Coverage                                                                                                40
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                December 12, 2011


                                      Concerns over parent company debt overdone

                                      TCG’s shares tanked by 75% on 22nd November, 2011 after the company said it was seeking new
                                      agreements with its main creditors. Investors fear the company would be unable to repay its
                                      debt as the announcement came within a month of TCG negotiating new funding arrangements
                                      to carry it through the slow winter months. The unrest in Tunisia and Middle East - normally the
                                      top winter destination for TCG has led to group sales dropping by 25%.

                                      The company is currently facing a severe cash crunch with its net debt soaring to €1.6 bn
                                      currently from €1.1 bn in CY10 and €930 mn in CY09. The slowdown in the economy, lean winter
                                      session and the Middle East crisis have accumulated to result in a cash crunch situation for the
                                      company.


                                       TCG’s Net debt

                                                    1,800                                            1,637   350
                                                    1,600
                                                                                                             300
                                                    1,400
                                                                                             1,063           250
                                                    1,200
                                                                                    940
                                                    1,000                                                    200
                                                                        772                                        %
                                             € mn




                                                     800                                                     150
                                                     600
                                                                                                             100
                                                     400    182.5
                                                                                                             50
                                                     200
                                                       0                                                     0

                                                             CY07      CY08       CY09       CY10    CY11E
                                                                       Net debt             YoY growth

                                       Source: Thomas Cook Plc. UK, GEPL Capital Research


                                      However, TCG has reduced its fleet of 41 aircraft to 35, and it hopes to raise £200 mn ($312 mn)
                                      by selling assets including its stake in Britain’s part-privatized air traffic control service.

                                      In any given case, TCIL has performed much better than TCG given the fact that India is the
                                      fastest growing outbound travel market in the World. TCIL has managed to deliver strong profits
                                      despite TCG lowering its guidance thrice in the last 18 months. Moreover, TCIL’s debt-equity
                                      ratio stood at 0.59x in CY10 and hence we believe the parent company concerns are overdone




GEPL Capital Research| Initiating Coverage                                                                                            41
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                           December 12, 2011


                                      New growth initiatives
                                      The growth in India’s T&T industry over the last decade, the potential for growth over the next
                                      few years, the strong domain expertise in the travel business and its strong distribution network
                                      are some of the factors that have led to TCIL’s growth in the last couples of years. To capture
                                      the future growth and expand its footprint, TCIL has undertaken two new major growth
                                      initiatives- the visa-processing and passport business and the insurance business.

                                      Visa-processing and passport- a ticket for future growth
                                      Thomas Cook Visa and Passport Services (TCVPS), was set up in CY08 by TCIL to cater to clients
                                      needs of visa and passport services. TCVPS has set up an end-to-end, online tracker to track the
                                      various stages of the documentation process, facilitated by bar-coded documents and can be
                                      used by internal and external customers. Some foreign missions are also moving towards e-visas
                                      and these can be processed only by approved visa agents, thereby boosting TCIL’s opportunities
                                      in this vertical. The business has established itself internally over the last three years and
                                      currently seeks to provide third-party services to the travel industry. By leveraging on its
                                      technology in an otherwise unorganized market, TCVPS intends to become the largest organised
                                      player in the segment.

                                      Insurance business – securing future growth
                                      The company is also focusing on the insurance business as a growth vertical in the future. It
                                      plans to capitalise the strong synergy potential available from its strong distribution network
                                      and a strong travel business (leisure, corporate and student) for the distribution of travel
                                      insurance. TCIL has tied-up with TATA-AIG General Insurance to offer various travel-related
                                      insurance products, including customised products such as wallet and credit card loss coverage,
                                      to customers. To leverage the brand and the network, TCIL has tied-up with Bajaj Allianz Life
                                      Insurance Company to distribute various life-insurance products.




GEPL Capital Research| Initiating Coverage                                                                                           42
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                                 December 12, 2011


                                                        Financials
                                                        Revenues to grow at 12.6% CAGR in CY10-13E
                                                        We anticipate a 12.6% CAGR in CY10-13E in TCIL’s consolidated revenues to `4.5 bn driven by a
                                                        15.7% CAGR in the travel business and 10.3% CAGR in the forex business in the same period. Due
                                                        to the higher CAGR of the travel business (8.2% CAGR in corporate, 10.0% CAGR in inbound and
                                                        23.7% CAGR in outbound), the contribution to consolidated revenues is expected to rise from
                                                        40% in CY10 to ~44% in CY13E.

  Revenue mix in CY10                                                             Revenue mix in CY13E

                       Outbound
                                                                                              Outbound
                         17%
                                                                                                    23%

            Inbound
              8%


                                                                                          Inbound                                             Foreign
                                                                    Foreign
                                                                                            7%                                               Exchange
            Corporate                                              Exchange
                                                                                                                                                57%
               15%                                                    60%
                                                                                             Corporate
                                                                                                  13%




  Source: Company data, GEPL Capital Research                                     Source: Company data, GEPL Capital Research


                                                        However, we do expect a 60bps decline in the blended margins for the travel business over
                                                        CY10-13E to 7.9%, led by a lower corporate margin and outbound margin. In the forex business,
                                                        we expect the blended commission margin to stablise near 1.2%.

  Segmental revenues                                                              Segmental margins in CY13E
             5,000
             4,500                                                                         14.0                                  12.5
             4,000                                                                         12.0                                              10.3
             3,500                                                   1,982
                                                                                           10.0
             3,000                                         1,685
                                                1,464
    Rs mn




                                   1,280                                                    8.0
             2,500                                                                    %
                          920                                                               6.0                       5.0
             2,000
             1,500                                                                          4.0
                                                           2,288     2,551
             1,000                 1,900        2,138                                                     1.2
                          1,725                                                             2.0
               500
                   0                                                                        0.0

                          CY09      CY10        CY11E      CY12E     CY13E                              Foreign   Corporate     Inbound   Outbound
                                                                                                     Exchange
                         Financial Services        Travel Related Services

  Source: Company data, GEPL Capital Research                                     Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                              43
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                                            December 12, 2011


                                                        Outbound segment to drive growth in travel business
                                                        The outbound segment has been one of the major growth drivers within the travel segment and
                                                        we expect this trend to continue even in the future. The outbound segment grew by 52% in CY10
                                                        driven by a 41% growth in turnover in CY10 which by passed the other segments (Inbound 10%,
                                                        Forex 10% and Corporate 45%) in the same year. While the corporate segment grew strongly in
                                                        CY10, it has witnessed a 10% growth so far while the outbound segment has in the last 9 months
                                                        registered another 40% growth.

  Segmental travel related revenues                                                     Segmental CAGR in CY10-13E
               2,500
                                                                                                                                                       23.7
                                                                                                  25.0
               2,000
                                                                                                  20.0
               1,500                                                     1,041
       Rs mn




                                                             833                                  15.0
                                                683                                          %                              10.0            10.3
               1,000                550                                                                       8.2
                                                                                                  10.0
                         362                                             333
                                                275          303
                                    250
                500      228                                                                       5.0
                                    480         506          550         608
                         331
                  0                                                                                0.0

                         CY09      CY10         CY11E       CY12E        CY13E                            Corporate       Inbound       Foreign     Outbound
                                                                                                                                        Exchange
                       Corporate          Inbound                  Outbound

  Source: Company data, GEPL Capital Research                                           Source: Company data, GEPL Capital Research


                                                        Consequently we expect the outbound segment to register a 23.7% CAGR in CY10E-13E to `1.04
                                                        bn. We expect the corporate segment to register 8.2% CAGR over CY10-13E, to `608mn, despite
                                                        a 15% improvement in turnover, mainly due to a 100bps decline in margins over CY10-13E to 5%.
                                                        In the inbound-travel segment, we expect 10.0% CAGR in commission revenues over CY10-13E,
                                                        to `333 mn, with steady margins.

                                                        EBITDA margin to improve 150bps by CY13E
                                                        We expect a 150bps improvement in EBIDTA margin over CY10-13E to 25.5% led by scale benefits
                                                        and increased operational efficiencies with better distribution of overhead costs. Consequently,
                                                        we expect 14.9% CAGR in EBIDTA over CY10-13E, to `1.16 bn in CY13E.

                                                         EBITDA and EBITDA margins
                                                                 1,400                                                             26
                                                                                                                         25.5
                                                                                                                                   26
                                                                 1,200
                                                                                                                                   25
                                                                 1,000
                                                                                                                                   25
                                                                               24.1                         24.1
                                                                                      24.0
                                                         Rs mn




                                                                   800                                                             24
                                                                                                                                        %
                                                                                                 23.1                              24
                                                                   600
                                                                                                                                   23
                                                                   400
                                                                                                                                   23
                                                                   200
                                                                                                                                   22
                                                                     0                                                             22

                                                                               CY09   CY10       CY11E      CY12E     CY13E

                                                                                      EBITDA             EBITDA margin
                                                         Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                        44
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                           December 12, 2011


                                      Net profits to record 11.1% CAGR in CY10-13E
                                      The higher rate of interest of 11% despite partial debt repayment (`450 mn over next two years)
                                      and a lower other income should partially negative the impact of higher margins. We expect the
                                      Profit after tax (PAT) to witness a 11.1% CAGR in CY11E-13E, from `471 mn in CY10 to `646 mn
                                      in CY13.

                                       Consolidated net profit after tax
                                                700                                              646    100

                                                600                             531     539             80
                                                                   471
                                                500                                                     60

                                                400                                                     40
                                        Rs mn


                                                                                                              %
                                                        250
                                                300                                                     20

                                                200                                                     0

                                                100                                                     -20

                                                 0                                                      -40

                                                       CY09        CY10         CY11E   CY12E   CY13E

                                                                          PAT           YoY growth

                                       Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                         45
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                            December 12, 2011


                                      Key Risks
                                      Company Related Risks
                                      Parent company Concerns
                                      Thomas Cook Plc (TCG) is currently facing a cash crunch and has an outstanding debt of €1.6 bn.
                                      The cash crunch, slowdown in economy has impacted sales by 25% and has resulted in the
                                      company taking serious measures like grounding part of its fleet. TCIL has performed much
                                      better than TCG given the fact that India is the fastest growing outbound travel market in the
                                      World. TCIL has managed to deliver strong profits despite TCG lowering its guidance thrice in
                                      the last 18 months. Moreover, TCIL’s debt-equity ratio stood at 0.59x in CY10 and hence we
                                      believe the parent company concerns are overdone

                                      Delisting rumors
                                      Investors have been worried with rumors of delisting of TCIL. One possible reason for this could
                                      be that TCIL is the only listed subsidiary of TCG making it a possible delisting candidate.
                                      However, we do not think the possibility of delisting exists in the future. Even though the TCG
                                      management holds 77% stake in TCIL, the law requires them to increase stake to 95% before
                                      delisting. Furthermore, given the high debt of TCG (€1.6 bn) and the current cash flow crunch
                                      that the company is facing with the slowdown in European tourism, we believe the possibility of
                                      increasing a stake in TCIL is unlikely. Consequently, we believe that the management would
                                      reduce its stake to 75% in the next one year as per the stipulated norms of the SEBI and would
                                      not delist.

                                      Higher penetration of credit card usage amongst Indians
                                      Since TCIL derives 60% of its business from the forex division, 35% of which is retail, the higher
                                      penetration of credit cards and decline in use of travelers’ cheques can hamper the revenues.
                                      With the increasing penetration of credit cards and the rise in facilities and limits offered to
                                      customers, people could shift from using traveler’s cheques to credit cards on foreign trips.
                                      However, we do not expect TCIL to lose out on its retail clients due to the unfavourable
                                      currency conversion rates that credit card companies offer as well as the mark-up charged by
                                      banks for using credit cards.

                                      Lower commission rates from airlines
                                      With the rising fuel price burden and mounting losses, airlines have reduced their commission
                                      rates to travel agents and tour operators from 7-7.5% to 5.5% last year which has currently
                                      dropped to 3%. Moreover, there are talks of bringing down the commission rates to 0% and
                                      selling tickets through their respective websites. We do not think this is possible as consumers
                                      prefer to use a Global Distribution System (GDS) system to compare prices while purchasing
                                      tickets and prefer to make informed decisions. Also, TCIL now passes on its commission
                                      discounts to corporate clients and other customers and charges a fixed management fees and
                                      charges for the airline ticket sales. Hence, even if the commission rates drop further, it would
                                      not impact the volumes or the revenues of TCIL




GEPL Capital Research| Initiating Coverage                                                                                            46
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                            December 12, 2011


                                      Industry related Risks
                                      Fluctuating exchange rates
                                      Any fluctuation in the foreign exchange rates can impact business as most regulations of most
                                      countries require tour operators to fix and quote prices on brochures throughout the offer
                                      period. This can pose a risk if the currency fluctuates and if operator’s over/under-book tours.
                                      Moreover, though the strengthening rupee can lead to an increase in the outbound tourists from
                                      India, inbound tourism would be hit as India would become relatively expensive.

                                      Brand awareness and enhancing
                                      Continued investments are needed to maintain a high brand recall and retain traveler, supplier
                                      and advertiser’s mind share as the industry is highly fragmented. A bad experience in the past
                                      can have a domino effect on the brand image of the company and impact future earnings.

                                      Negotiation of favourable rates with travel suppliers
                                      It is important for the company and other industry players to maintain and improve margins by
                                      enhancing relations with suppliers and GDS partners and try and achieve maximum scale
                                      benefits.

                                      Employee retention and satisfaction
                                      Being in a highly service-oriented industry, people are the most important resources for the
                                      industry and hence any faster than expected attrition rate of de-motivation by employees can
                                      impact the business.

                                      Competition
                                      The industry is intensely competitive, with the unorganised sector forming over 70% of the
                                      tourism market. Moreover, the fragmented nature of the business can lead to revenue losses.
                                      Competition also includes internet distributors and low-cost airlines, which may lead to a fall in
                                      demand for traditional package tours.

                                      Unforeseen conditions and the industry’s cyclical nature
                                      The industry is cyclical; hence, any changes in economic or political stability may adversely
                                      affect the industry. Events such as natural calamities (the Japanese earthquake), terrorist
                                      attacks (Mumbai 2008), economic downturns, political disturbances (Egypt, Bahrain, Libya) may
                                      lead to reduced demand for such products and services. Tourism is the first to be hit if an
                                      economy slows down.




GEPL Capital Research| Initiating Coverage                                                                                            47
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                                                                                                                   December 12, 2011


                                      Valuations
                                      TCIL is currently trading at 15.2x CY12E EPS and 12.7x CY13E EPS, a 33% and 44% discount
                                      respectively to its historical one-year forward P/E band of 22.7x. This is on account of a 20%
                                      drop on the stocks over the last two months on concerns of the debt positions of its parent
                                      company TCG. TCG has revised its earning guidance thrice in the last three months and has a
                                      net debt of €1.6 bn. Hence TCG which is listed on the LSE also witnessed a 75% intraday drop.
                                      We however believe, TCIL has performed much better than TCG aided by the fact that India is
                                      the fastest growing outbound travel market in the World. Moreover, TCIL’s debt-equity ratio
                                      stood at 0.59x in CY10 and hence we believe the parent company concerns are overdone.

                                      We initiate the coverage with a BUY rating and target price of `46.5 (15.2x CY13E EPS). We see
                                      great value for the company even at its lowest one-year forward P/E since CY03 of 15.2x. In
                                      view of its well diversified business model with strong growth prospects in the forex and travel
                                      business and the parent company concerns overdone, we expect the stock to perform well over
                                      the course of the next year.

                                       1 year forward P/E
                                         140

                                         120

                                         100

                                             80

                                             60

                                             40

                                             20

                                              0
                                                                                                                              Jul-06
                                                  Nov-01
                                                            Jun-02
                                                                      Jan-03
                                                                                Aug-03




                                                                                                                                       Feb-07
                                                                                                                                                Sep-07
                                                                                                                                                         Apr-08
                                                                                                                                                                  Nov-08
                                                                                                                                                                           Jun-09
                                                                                                                                                                                    Jan-10
                                                                                                                                                                                             Aug-10
                                                                                          Mar-04


                                                                                                            May-05
                                                                                                                     Dec-05




                                                                                                                                                                                                       Mar-11
                                                                                                   Oct-04




                                                                               Price                         10.0x                          20.0x                          30.0x                          40.0x  Oct-11

                                       Source: Bloomberg, GEPL Capital Research


                                       1 year forward EV/EBITDA
                                             120

                                             100

                                             80

                                             60

                                             40

                                             20

                                              0
                                                                                                                              Jul-06
                                                   Nov-01
                                                             Jun-02
                                                                       Jan-03
                                                                                 Aug-03




                                                                                                                                       Feb-07
                                                                                                                                                Sep-07
                                                                                                                                                         Apr-08
                                                                                                                                                                  Nov-08
                                                                                                                                                                           Jun-09
                                                                                                                                                                                    Jan-10
                                                                                                                                                                                             Aug-10
                                                                                          Mar-04


                                                                                                            May-05
                                                                                                                     Dec-05




                                                                                                                                                                                                      Mar-11
                                                                                                   Oct-04




                                                                                                                                                                                                                Oct-11




                                                                        Price                               8.0x                        12.0x                          16.0x                            20.0x
                                       Source: Bloomberg, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                                                                                               48
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                            December 12, 2011


                                      Company background

                                      TCIL is one of the largest integrated T&T operators in the country with operations spread across
                                      72 cities in 190 locations in India through its own branches and has additional presence through
                                      its general sales agents (GSAs), 184 preferred sales agents (PSAs) and 72 franchised offices. TCIL
                                      has a presence in six other countries (USA, Spain, UK, Japan, Nepal and Germany), apart from
                                      its subsidiaries in Mauritius and branches in Sri Lanka.

                                      TCIL is part of the Thomas Cook Group Plc (TCG), - a leisure travel group with sales of ~£9 bn,
                                      19 mn customers, 30,000 employees, a fleet of 97 aircraft, a network of over 3,000 owned or
                                      franchised travel stores and a number of hotels and resort properties.


                                      TCIL : Change in Promoters


                                                   CY07                                 CY08                         CY09

                                        • Dubai Financials (LLC)
                                          acquired entire stake of              • Thomas Cook Group Plc
                                          Thomas Cook UK, the                     was created with the
                                          holding company of TCIL.                merger   of  MyTravel
                                                                                                            • Thomas     Cook     group
                                                                                  Group Plc and Thomas
                                                                                                              acquired 100% of Thomas
                                                                                  Cook AG.
                                                                                                              Cook        International
                                        • TCIL acquired LKP Forex
                                                                                                              Markets (TCIM), TCIL’s
                                          and TCI.
                                                                                                              holding company, from
                                                                                • Thomas Cook Group Plc
                                                                                                              Dubai Financials (LLC).
                                                                                  is listed on the London
                                        • TCIL sold entire stake in               Stock Exchange.
                                          Hindustan Cargo Ltd
                                          (HCL).




                                      Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                49
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                           December 12, 2011


                                      TCIL earns revenues from two segments:
                                      1) Foreign exchange and financial services (60% of revenues)
                                      2) Travel and related services (40% of revenues)


                                      Company structure

                                                                                    Thomas Cook India Ltd
                                                                                           (TCIL)




                                                         Forex Business                                               Travel Business
                                                             (60%)                                                        (40%)




                                             Wholesale                      Retail                          Leisure                     Corporate
                                             (65-70%)                      (30-35%)                         (62.5%)                      (37.5%)




                                                                                          Inbound Travel                  Outbound
                                                                                              (30%)                      Travel (70%)

                                      Source: Company data, GEPL Capital Research


                                      1) Foreign exchange and financial services (forex)
                                      TCIL has been granted an authorised Dealers License (Category II) to deal in foreign exchange by
                                      the Reserve Bank of India (RBI). TCIL provides travel-related forex and payment solutions where
                                      in it offers travelers’ cheques, credit cards, pre-paid international cards, inbound and outbound
                                      remittances, money transfers and financial services related to travel insurance.

                                      It is one of India’s largest foreign-exchange dealers and one of largest exporters in the world for
                                      bank notes. It handles 60% of India’s foreign currency bank notes and derived 60% of its
                                      consolidated revenues from this segment in CY10.

                                      The forex division of the company can further be classified into two categories depending on its
                                      nature of business:

                                      A.     Wholesale business: This segment forms 65-70% of total forex revenues (39-42% of total
                                             revenues). TCIL provides currency buying and selling services to institutions (FFMCs, RMCs,
                                             etc) and collects, packages and ships forex to its three international locations. The segment
                                             is a steady source of revenue with IT companies contributing 40% to its volumes with
                                             revenues generated by the spread between the buy and sell rates.

                                      B.     Retail business: This segment accounts for 30-35% of total forex (18-21% of total revenues)
                                             revenues. The company provides forex services to travelers visiting India and/or to
                                             outbound travelers. With the merger of LKP Forex CY06, the company has managed to
                                             increase its retail market share to 55% (35% pre-merger) due to its enhanced branch
                                             network.




GEPL Capital Research| Initiating Coverage                                                                                                          50
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                         December 12, 2011

 Authorised dealer category
  Category                                     Entities                                    Activities


  Authorised Dealer - Category I               Commercial Banks
                                                                                           All current and capital account transactions according to
                                               State Co-op Banks
                                                                                           RBI directions issued from time-to-time.
                                               Urban Co-op Banks


  Authorised Dealer - Category II              Upgraded FFMCs
                                                                                           Specified non-trade related current account transactions
                                               Co-op Banks
                                                                                           and all the activities permitted to FFMC and any other
                                               Regional Rural Banks (RRBs)                 activity as decided by the Reserve Bank
                                               Others


  Authorised Dealer - Category III             Select Financial and other institutions     Transactions incidental to the foreign exchange activities
                                                                                           undertaken by these institutions



  Full Fledged Money Changers (FFMC)           Department of Posts
                                                                                           Purchase of foreign exchange and sale for private and
                                               Urban Co-op Banks
                                                                                           business visits abroad.
                                               Other FFMCs
 Source: Company data, GEPL Capital Research


                                               2) Travel-related services
                                               Thomas Cook Group Plc is a leading international leisure travel group, created by the merger of
                                               MyTravel Group Plc and Thomas Cook AG in June CY07. Being part of a strong parent company,
                                               TCIL too has been increasing its presence in the travel related segment (40% of revenues in
                                               CY10). TCIL also offers travel-related services under two broad categories: a) leisure travel and
                                               b) corporate travel.

                                                1.   Leisure travel: Under this segment TCIL offers inbound and outbound holidays through
                                                     customised individual tours, group escorted holidays and MICE (meeting, incentive,
                                                     conference and exhibition) arrangements. The leisure travel segment accounted for 25% of
                                                     the total revenues in CY10. The leisure travel business can be further classified into

                                                     A) Outbound leisure travel: This segment accounted for 70% of leisure revenues (17% of
                                                        total revenues) in CY10, hence dominating the leisure travel segment. In this segment,
                                                        TCIL focuses on long-haul routes like Europe and US, who are typically high-ticket
                                                        transactions and offer, better margins.

                                                     B) Inbound leisure travel: This segment accounted for 30% of the leisure revenues (8% of
                                                        total revenues) in CY10. Under the inbound leisure travel segment TCIL caters to
                                                        tourists coming to India typically sourced by overseas principals, tour operators or
                                                        travel agents routed through its offices in the European Union and the USA. Currently,
                                                        its inbound customers are primarily from the US and Europe. The company also
                                                        acquired Travel Corporation India (TCI) in CY06 which offered individual and group
                                                        tours.

                                                2.   Corporate travel: The Company also operates under the corporate segment where it
                                                     manages the travel budgets of ~1400 corporate. It provides passport and visa services, air
                                                     and hotel reservations, insurance, forex, conference arrangements, and land arrangements
                                                     specialising in tailor-made travel policies for each corporate entity. The Corporate travel
                                                     segment accounted for 15% of the total revenues in CY10.



GEPL Capital Research| Initiating Coverage                                                                                                              51
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                                   December 12, 2011

Income Statement                                                                     Balance Sheet
  Y/E march (`mn)          FY09(A)       FY10(A)      FY11(A)    FY12(E)   FY13(E)    Y/E March (`mn)                FY09      FY10     FY11P    FY12E    FY13E
                                                                                      Equity capital                   211       212       212      212      212
 Total net revenues           2,652        3,180        3,601      3,973     4,533
                                                                                      Reserves & Surplus            2,803     3,190     3,620    4,060    4,607
 COGS                              -             -          -          -         -
                                                                                      Preference Capital                 6         6         0        0        0
 Gross Profit                 2,652        3,180        3,601      3,973     4,533    Net worth                     3,020     3,407     3,832    4,272    4,819
 Employee Cost                1,073        1,290        1,471      1,655     1,862    Minority interest                  0         0         0        0        0
                                                                                      Deffed tax liability            (29)      (76)      (76)     (76)     (76)
 Advertising Expenses           113           206         220        238       272
                                                                                      Total debt                    1,700     2,016     2,066    1,866    1,616
 Other Expenditure              829           921       1,080      1,121     1,243    Total Liabilities & Equity    4,720     5,423     5,898    6,138    6,434
 EBITDA                         637           763        830        959      1,157    Net block                        714       955       964   1,000    1,020
 EBITDA Margin (%)                24            24         23         24        26    Capital WIP                       24        66        66       66       66
                                                                                      Total fixed assets            2,192     2,475     2,484    2,520    2,540
 Depreciation                   116           135         141        164       180
                                                                                      Investments                      356       155       155      155      155
 Other Income                     94          295         330        215       165    Goodwill                      1,454     1,454     1,454    1,454    1,454
 Interest (Net)                 210           211         227        205       178    Current Assets                4,658     5,266     6,254    6,611    7,274
                                                                                      Inventories                        0         0         0        0        0
 PBT                            405           712        792        805       964
                                                                                      Debtors                       2,071     2,225     2,417    2,776    3,229
 PBT Margin (%)                   15            22         22         20        21    Cash & bank                   1,501     1,601     2,406    2,202    2,182
 Tax                            155           265         262        266       318    Loans & advances              1,086     1,440     1,431    1,633    1,863
 Minority Interest                 -             -          -          -         -    Other Current Assets          1,086     1,440     1,431    1,633    1,863
                                                                                      Current Liab. & Prov.         2,456     2,397     2,919    3,071    3,458
 Adjusted Pat after
                                250           447        531        539       646     Creditors                     1,972     1,821     2,163    2,271    2,544
 Minority Interest
                                                                                      Other liabilities                334       458       395      435      497
 Extraordinary                                                                        Provisions                       150       117       361      365      417
                                   -             -          -          -         -
 /exceptional
                                                                                      Net Working capital                0         0         0        0        0
                                                                                      Miscellaneous Exp                  0         0         0        0        0
 Reported PAT                   250           447        531        539       646
                                                                                      Total Assets                  4,720     5,423     5,898    6,138    6,434


Key Ratio                                                                            Cash Flow
 Y/E (`mn)                      FY09       FY10        FY11P      FY12E     FY13E     Y/E March, (`mn)               FY09      FY10     FY11P    FY12E    FY13E
 Per Share Ratios                                                                     PBT                             405       736       792      805      964
 Fully diluted E P S               1.2          2.2        2.5       2.5       3.0    Add: Depreciation               116       135       141      164      180
 Book Value                        2.3          3.8        2.0       1.8       1.6    Add: Interest expense           210       211       227      205      178
 Dividend per share                0.4          0.4        0.4       0.4       0.4
                                                                                      Less: Other Income              (94)    (295)      (330)    (215)    (165)
 per share FCFF                  (1.8)        (0.2)        4.3       1.3       2.6
                                                                                      Other Adjustments             (1047)       (6)         0        0       0
 Valuation Ratio
 P/E                              27.8       27.7         14.8      14.5      12.1    Change in working capital       181     (568)       339     (409)    (297)
 P/BV                              2.3        3.8          2.0       1.8       1.6    Taxes paid                      155       265       262      266      318
 EV/EBITDA                        11.2       17.7          9.0       7.8       6.3    CF from operations            (384)      (52)       908      285      542
 EV/Sales                          2.7        4.2          2.1       1.9       1.6    Change in fixed assets         (152)    (418)      (150)    (200)    (200)
 Price/ FCFE per share          (18.1)    (251.6)          8.6      27.5      14.5    Changes in Intangible Asset       0         0          0        0       0
 Growth Ratios
                                                                                      Change in investments          (354)      201          0        0       0
 Sales Growth                   (14.5)        19.9        13.3      10.3      14.1
                                                                                      Other income                     94       295       330      215      165
 EBITDA Growth                  (31.9)        19.7         8.9      15.5      20.6
 Net Profit Growth              (33.0)        88.4        12.7       1.5      19.8    CF from investing acti.       (411)        78       180       15      (35)
 EPS Growth                     (49.0)        88.1        12.7       1.5      19.8    Change in debt                 (904)      315        50     (200)    (250)
 Common size Ratios                                                                   Change in Equity capital       1670        15          0        0       0
 Gross Margin                     0.0          0.0         0.0       0.0       0.0    Changes in Pref. capital          0         0          0        0       0
 EBITDA Margin                   24.0         24.0        23.1      24.1      25.5    Dividend & dividend tax         (93)      (93)      (99)     (99)     (99)
 PAT Margin                       9.4         14.8        14.7      13.6      14.2
                                                                                      Interest paid                  (210)    (211)      (227)    (205)    (178)
 Employee Cost                   40.4         40.6        40.8      41.6      41.1
                                                                                      Other Adjustments                15        47        (0)      (0)      (0)
 Ad spend                        95.7         93.5        93.9      94.0      94.0
 Return ratios                                                                        CF from financing acti.         478        73     (276)    (504)     (527)
 RoAE                             9.5         14.7        14.7      13.3      14.2    Change in cash                 (317)      100       812     (205)     (20)
 RoACE                            7.9         11.6        12.1      11.2      12.2    Opening cash                   1819      1501      1601     2406     2202
 Turnover ratios (days)                                                               Closing cash                   1501      1601      2406     2202     2182
 Debtors ( Days)                247.5       246.6        235.3     238.5     241.8
 Creditors ( Days)              301.0       286.4        262.5     268.5     260.3   Du-Pont Analysis
 Inventory (Days)                 0.0         0.0          0.0       0.0       0.0   (%)                            FY09A     FY10A     FY11E    FY12E    FY13E
 Net working capital            108.9       113.0        111.4     104.1     119.6    Net Profit Margin                 9.4      14.1     14.7     13.6     14.2
 Solvency Ratios                                                                      Asset Turnover                    0.6       0.6      0.6      0.6      0.7
 Total Debt/Equity                0.6          0.6         0.5       0.4       0.3    Leverage                          1.6       1.6      1.5      1.4      1.3
 Interest coverage                1.8          2.8         3.0       3.3       4.3    ROE                               9.5      14.7     14.7     13.3     14.2


Source: Company data, GEPL Capital Research




GEPL Capital Research| Initiating Coverage                                                                                                                   52
 Equity | India | Travel & Tourism

 Thomas Cook India Ltd.                                                                                                                                                                December 12, 2011




 NOTES




 Recommendation Rationale
   Recommendation                 Expected Absolute Return (%) over 12 months

   BUY                            >20%

   ACCUMULATE                     <20% and >10%

   NEUTRAL                        <-10% and <10%

   REDUCE                         >-10% and <-20%

   SELL                           >-20%


 Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a 12-month
 horizon. Our target price represents the fair value of the stock based upon the analyst’s discretion. We note that future price fluctuations could lead to a temporary mismatch
 between upside/downside for stock and our recommendation.


 GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt. Ltd.)
 Head Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001
 Reg. Office : 922-C, P.J. Towers, Dalal Street, Fort, Mumbai 400001

 Analyst Certification
 The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or
 indirect compensation in exchange for expressing specific recommendations or views in this report:

 Name : Sunil Sewhani
 Sector : Travel & Tourism

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GEPL Capital Research| Initiating Coverage                                                                                                                                                                          53

								
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