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Cox And Kings(COXK IN):Buy,Feedback from management roadshow

汇丰银行

5 December 2016
Cox And Kings (COXK IN) Buy: Feedback from management roadshow ? We hosted a two-day roadshow in the UK. COXK is confident of achieving 15% volume growth from the Indian business ? Key focus is Meininger; capacity to double by FY19. Robust Education travel business outlook, driven by increased bookings ? Investors are concerned about Leisure International due to GBP depreciation. We rate COXK Buy with a TP of INR253 Non-deal road show (NDRS): We organised a two-day roadshow in the UK with Cox and Kings’ management over 1-2 December. The questions were mostly on demonetisation, GST, capacity expansion for the hotels business, the impact of recent industry consolidation and the impact of GBP depreciation. Indian Business: The company believes demonetisation can be positive for its Leisure India retail business as many retail customers will likely move from unorganised to organised companies like COXK. While for corporate travel, which is half of the Leisure India business, the recent consolidation in the traditional travel space will help release working capital in 18-24 months, which has been an issue for the company for a while now as competitors continue to extend credit terms for corporate customers in order to gain market share. Overall for the Leisure India business the company expects at least 15% volume growth. Leisure International: The Leisure International business remains weak, led by recent GBP depreciation. The company expects flat growth for the segment in the near term as the UK Leisure business has slowed. HSBC’s currency strategy team sees significant downside risks for GBP and forecasts GBP-USD at 1.20 for year-end 2016 and 1.10 for year-end 2017. Meininger and Education business: The company remains bullish on the Meininger chain of budget hotels and the education travel business. For Meininger, Cox and Kings expects to double capacity by 2019 following an asset-light business model with minimal capital expenditure. For the Education business (outdoor learning for school students), COXK is planning to add 500 beds every year until 2020. Valuation and risks. We have a Buy rating and a SOTP-based target price of INR253, which implies51.8% upside. We value the domestic standalone business using the India travel industry’s five-year average 12-month forward EV/EBITDA multiple of 9.0x, and the international business at 4.8x EV/EBITDA. Key downside risks include: FX rates (38% of revenues are in GBP), a macro slowdown, and any sharp increase in competition.
EQUITIES HOTELS RESTAURANTS & LEISURE India
???? ? PREVIOUS TARGET (INR)
MAINTAIN BUY TARGET PRICE (INR)
253.00 SHARE PRICE (INR)
253.00 UPSIDE/DOWNSIDE
166.65 (as of 02 Dec 2016)
+51.8% 29,425 432 3 Free float BBG RIC 49% COKX IN COKI.NS
MARKET DATA Market cap (INRm) Market cap (USDm) 3m ADTV (USDm)
FINANCIALS AND RATIOS (INR) Year to HSBC EPS HSBC EPS (prev) Change (%) Consensus EPS PE (x) Dividend yield (%) EV/EBITDA (x) ROE (%) 03/2016a 20.7 8.0 0.5 5.9 14.8 03/2017e 22.7 7.4 0.6 5.5 15.6 03/2018e 26.8 6.2 0.7 4.6 15.9 03/2019e 32.7 5.1 0.8 3.5 16.6
52-WEEK PRICE (INR) 270.00 200.00 130.00 12/16
12/15
06/16 Target price: 253.00 High: 249.25 Low: 147.35 Current: 166.65
Source: Thomson Reuters IBES, HSBC estimates
Vikas Ahuja* Analyst HSBC Securities and Capital Markets (India) Private Limited vikasahuja@hsbc.co.in +9122 3396 0690 Yogesh Aggarwal* Head of Research, India HSBC Securities and Capital Markets (India) Private Limited yogeshaggarwal@hsbc.co.in +9122 3396 1246 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Securities and Capital Markets (India) Private Limited View HSBC Global Research at: https://www.research.hsbc.com
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Financials & valuation: Cox And Kings Financial statements Year to Profit & loss summary (INRm) Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit Cash flow summary (INRm) Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity Balance sheet summary (INRm) Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders' funds Invested capital 23,820 8,970 -1,485 7,485 -2,236 2,334 5,249 -1,590 1,331 3,660 8,269 -3,202 -4,426 -149 -3,840 2,512 29,567 18,118 43,122 18,442 93,624 25,572 35,110 16,668 23,885 46,793 21,170 9,054 -1,320 7,735 -2,010 5,725 5,725 -1,717 3,907 4,007 8,431 -2,800 -2,454 -163 -3,458 3,621 29,567 19,598 42,736 19,400 94,718 25,322 32,610 13,210 27,629 47,179 23,790 10,070 -1,483 8,587 -1,812 6,775 6,775 -2,032 4,642 4,742 8,148 -2,200 -1,836 -193 -3,943 4,136 29,567 20,315 44,607 20,843 97,306 25,860 30,110 9,267 32,078 47,785 27,192 11,577 -1,695 9,881 -1,613 8,269 8,269 -2,481 5,738 5,788 9,002 -2,000 -1,618 -236 -5,153 5,389 29,567 20,620 48,053 23,496 101,057 26,560 27,610 4,114 37,580 48,184 03/2016a 03/2017e 03/2018e 03/2019e
Buy Valuation data Year to EV/sales EV/EBITDA EV/IC PE* PB FCF yield (%) Dividend yield (%) * Based on HSBC EPS (diluted)
03/2016a 2.2 5.9 1.1 8.0 1.2 6.9 0.5
03/2017e 2.3 5.5 1.1 7.4 1.1 9.9 0.6
03/2018e 1.9 4.6 1.0 6.2 0.9 11.3 0.7
03/2019e 1.5 3.5 0.8 5.1 0.8 14.7 0.8
Issuer information Share price (INR) Target price (INR) Reuters (Equity) Bloomberg (Equity) Market cap (USDm) 166.65 253.00 COKI.NS COKX IN 432 Free float Sector Country Analyst Contact 49% Hotels Restaurants & Leisure India Vikas Ahuja +9122 3396 0690
Price relative 339.00 289.00 239.00 189.00 139.00 89.00 2014 339.00 289.00 239.00 189.00 139.00 89.00
2015
2016 Rel to BOMBAY SE SENSITIVE INDEX
Ratio, growth and per share analysis Year to Y-o-y % change Revenue EBITDA Operating profit PBT HSBC EPS Ratios (%) Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt Per share data (INR) EPS Rep (diluted) HSBC EPS (diluted) DPS Book value -8.2 -13.5 -10.7 -10.2 -13.7 0.5 4.7 14.8 4.9 37.7 31.4 4.0 69.8 1.9 49.6 7.5 20.7 0.8 135.1 -11.1 0.9 3.3 145.3 9.5 0.5 11.5 15.6 6.0 42.8 36.5 4.5 47.8 1.5 63.8 22.1 22.7 0.9 156.3 12.4 11.2 11.0 18.3 18.3 0.5 12.7 15.9 6.5 42.3 36.1 5.6 28.9 0.9 87.9 26.3 26.8 1.1 181.5 14.3 15.0 15.1 22.0 22.0 0.6 14.4 16.6 7.2 42.6 36.3 7.2 10.9 0.4 218.8 32.5 32.7 1.3 212.6 03/2016a 03/2017e 03/2018e 03/2019e Source: HSBC
Cox And Kings
Note: Priced at close of 02 Dec 2016
2
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Committed to reduce debt further The company remains committed to reducing gross debt by INR5 billion per year though internal accruals and plans to increase the dividend pay-out once a significant amount of debt is paid off. In our view, investors remain cautious because of the high debt levels, despite the company’s good track record on paying interest on time and reducing gross debt by half over the past few years. The company’s recent financial performance has been impressive. Net debt has fallen from INR37bn in FY12 to cINR17bn in FY16. As a result its overall net debt-to-equity ratio dropped from 3.0x to 0.7x and its EBIT coverage ratio improved from 0.6x to 3.0x in FY12-16. We expect leverage and coverage metrics to continue to improve, with the net debt-to-equity ratio declining to below 0.5x in FY17e and to below 0.2x by FY19e.
Chart 1. Cox & Kings: Leverage ratio continues to improve
Source: Company data, HSBC estimates
Chart 2. Cox & Kings: Stock is trading at a discount to the travel sector on EV/EBITDA 16
12
8
4
0 Nov-11
Nov-12
Nov-13 Cox and Kings
Nov-14
Nov-15 Travel Sector
Nov-16
Source: Thomson Reuters Datastream, HSBC estimates
3
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Investment thesis We are positive on the stock as we think it is a good turnaround story. As discussed in our initiation note A travel business that is back on track, 5 October 2016, over the past decade Cox & Kings has made a series of expensive and ultimately unsuccessful overseas acquisitions, mostly in Europe, that hurt the stock price. Management has now changed course and, over the past couple of years, has sold off stakes in these enterprises, reduced debt, and focused on its four main revenue streams: (1) domestic travel, (2) overseas travel, (3) a budget hotel chain in Europe, and (4) education travel business (outdoor learning for school students) in the UK and Australia. Earnings, margins and cash flow look set to improve on our estimates. Valuation and risks We use an SOTP valuation approach. We value the domestic standalone business using a 12month forward EV/EBITDA multiple of 9x, the five-year industry average. For the international business we use 4.8x EV/EBITDA, in line with international travel peers such as Thomas Cook Group (TCG LN, 84p, Not rated), TUI (TUI LN, 1,035p, Not rated) and Carnival (CCL LN, 3,907p, Buy). This gives us a blended EV/EBITDA multiple of 6.3x based on consolidated 12month forward estimated EBITDA. We reduce consolidated net debt and add market investments to arrive at our fair value target price of INR253, which implies 51.8% upside, and we rate the stock Buy. Key downside risks: 1) Around 75% of the company’s revenue comes from outside India, so it is exposed to foreign currency fluctuation risk, mostly EUR and GBP. 2) The travel industry is cyclical and any slowdown in the world economy would impact the overall industry. 3) Any sharp increase in competition from online/traditional travel agents aiming to increase market share.
Chart 3. Cox & Kings valuation summary (INR/share) 400 300 200 100 0
165
7
94 253
175
Source: HSBC estimates
4
Leisure India
Fair Value TP
Investments
International Business
Net Debt
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Vikas Ahuja and Yogesh Aggarwal Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating. From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates). Upside/Downside is the percentage difference between the target price and the share price. Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral. *A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Rating distribution for long-term investment opportunities As of 04 December 2016, the distribution of all independent ratings published by HSBC is as follows: Buy 44% ( 25% of these provided with Investment Banking Services ) Hold Sell 41% 15% ( 26% of these provided with Investment Banking Services ) ( 21% of these provided with Investment Banking Services )
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above. For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures. Share price and rating changes for long-term investment opportunities Cox And Kings (COKI.NS) share price performance INR Rating & target price history Vs HSBC rating history From To N/A Target price Price 1 Source: HSBC
Date
Analyst Vikas Ahuja Analyst Vikas Ahuja
337 287 237
Buy Value 253.00
05 Oct 2016 Date 05 Oct 2016
187 137 87 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: HSBC
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please see the disclosure page available at www.research.hsbc.com/A/Disclosures. HSBC & Analyst disclosures Disclosure checklist Company COX AND KINGS Source: HSBC
Ticker COKI.NS
Recent price 166.65
Price date 02 Dec 2016
Disclosure 4, 5, 6, 7
1 2 3 4 5 6 7 8
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. As of 31 October 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. A covering analyst/s has received compensation from this company in the past 12 months.
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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9 10 11 12 13
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company As of 29 November 2016, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology. As of 09 November 2016, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst. Additional disclosures 1. This report is dated as at 05 December 2016. 2. All market data included in this report are dated as at close 02 December 2016, unless a different date and/or a specific time of day is indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument.
3.
4.
Production & distribution disclosures 1. This report was produced and signed off by the author on 04 Dec 2016 15:14 GMT. 2. In order to see when this report was first disseminated please see the disclosure page available at https://www.research.hsbc.com/R/34/JBvwmrc
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Disclaimer Legal entities as at 1 July 2016 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch Issuer of report HSBC Securities and Capital Markets (India) Private Limited Registered Office 52/60 Mahatma Gandhi Road Fort, Mumbai 400 001, India Telephone: +91 22 2267 4921 Fax: +91 22 2263 1983 Website: www.research.hsbc.com SEBI Reg No. INH000001287 CIN: U67120MH1994PTC081575
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Cox And Kings(COXK IN):Buy,Feedback from management roadshow

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报告类型:外行报告 发布日期:2016/12/5
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5 December 2016
Cox And Kings (COXK IN) Buy: Feedback from management roadshow ? We hosted a two-day roadshow in the UK. COXK is confident of achieving 15% volume growth from the Indian business ? Key focus is Meininger; capacity to double by FY19. Robust Education travel business outlook, driven by increased bookings ? Investors are concerned about Leisure International due to GBP depreciation. We rate COXK Buy with a TP of INR253 Non-deal road show (NDRS): We organised a two-day roadshow in the UK with Cox and Kings’ management over 1-2 December. The questions were mostly on demonetisation, GST, capacity expansion for the hotels business, the impact of recent industry consolidation and the impact of GBP depreciation. Indian Business: The company believes demonetisation can be positive for its Leisure India retail business as many retail customers will likely move from unorganised to organised companies like COXK. While for corporate travel, which is half of the Leisure India business, the recent consolidation in the traditional travel space will help release working capital in 18-24 months, which has been an issue for the company for a while now as competitors continue to extend credit terms for corporate customers in order to gain market share. Overall for the Leisure India business the company expects at least 15% volume growth. Leisure International: The Leisure International business remains weak, led by recent GBP depreciation. The company expects flat growth for the segment in the near term as the UK Leisure business has slowed. HSBC’s currency strategy team sees significant downside risks for GBP and forecasts GBP-USD at 1.20 for year-end 2016 and 1.10 for year-end 2017. Meininger and Education business: The company remains bullish on the Meininger chain of budget hotels and the education travel business. For Meininger, Cox and Kings expects to double capacity by 2019 following an asset-light business model with minimal capital expenditure. For the Education business (outdoor learning for school students), COXK is planning to add 500 beds every year until 2020. Valuation and risks. We have a Buy rating and a SOTP-based target price of INR253, which implies51.8% upside. We value the domestic standalone business using the India travel industry’s five-year average 12-month forward EV/EBITDA multiple of 9.0x, and the international business at 4.8x EV/EBITDA. Key downside risks include: FX rates (38% of revenues are in GBP), a macro slowdown, and any sharp increase in competition.
EQUITIES HOTELS RESTAURANTS & LEISURE India
???? ? PREVIOUS TARGET (INR)
MAINTAIN BUY TARGET PRICE (INR)
253.00 SHARE PRICE (INR)
253.00 UPSIDE/DOWNSIDE
166.65 (as of 02 Dec 2016)
+51.8% 29,425 432 3 Free float BBG RIC 49% COKX IN COKI.NS
MARKET DATA Market cap (INRm) Market cap (USDm) 3m ADTV (USDm)
FINANCIALS AND RATIOS (INR) Year to HSBC EPS HSBC EPS (prev) Change (%) Consensus EPS PE (x) Dividend yield (%) EV/EBITDA (x) ROE (%) 03/2016a 20.7 8.0 0.5 5.9 14.8 03/2017e 22.7 7.4 0.6 5.5 15.6 03/2018e 26.8 6.2 0.7 4.6 15.9 03/2019e 32.7 5.1 0.8 3.5 16.6
52-WEEK PRICE (INR) 270.00 200.00 130.00 12/16
12/15
06/16 Target price: 253.00 High: 249.25 Low: 147.35 Current: 166.65
Source: Thomson Reuters IBES, HSBC estimates
Vikas Ahuja* Analyst HSBC Securities and Capital Markets (India) Private Limited vikasahuja@hsbc.co.in +9122 3396 0690 Yogesh Aggarwal* Head of Research, India HSBC Securities and Capital Markets (India) Private Limited yogeshaggarwal@hsbc.co.in +9122 3396 1246 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Securities and Capital Markets (India) Private Limited View HSBC Global Research at: https://www.research.hsbc.com
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Financials & valuation: Cox And Kings Financial statements Year to Profit & loss summary (INRm) Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit Cash flow summary (INRm) Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity Balance sheet summary (INRm) Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders' funds Invested capital 23,820 8,970 -1,485 7,485 -2,236 2,334 5,249 -1,590 1,331 3,660 8,269 -3,202 -4,426 -149 -3,840 2,512 29,567 18,118 43,122 18,442 93,624 25,572 35,110 16,668 23,885 46,793 21,170 9,054 -1,320 7,735 -2,010 5,725 5,725 -1,717 3,907 4,007 8,431 -2,800 -2,454 -163 -3,458 3,621 29,567 19,598 42,736 19,400 94,718 25,322 32,610 13,210 27,629 47,179 23,790 10,070 -1,483 8,587 -1,812 6,775 6,775 -2,032 4,642 4,742 8,148 -2,200 -1,836 -193 -3,943 4,136 29,567 20,315 44,607 20,843 97,306 25,860 30,110 9,267 32,078 47,785 27,192 11,577 -1,695 9,881 -1,613 8,269 8,269 -2,481 5,738 5,788 9,002 -2,000 -1,618 -236 -5,153 5,389 29,567 20,620 48,053 23,496 101,057 26,560 27,610 4,114 37,580 48,184 03/2016a 03/2017e 03/2018e 03/2019e
Buy Valuation data Year to EV/sales EV/EBITDA EV/IC PE* PB FCF yield (%) Dividend yield (%) * Based on HSBC EPS (diluted)
03/2016a 2.2 5.9 1.1 8.0 1.2 6.9 0.5
03/2017e 2.3 5.5 1.1 7.4 1.1 9.9 0.6
03/2018e 1.9 4.6 1.0 6.2 0.9 11.3 0.7
03/2019e 1.5 3.5 0.8 5.1 0.8 14.7 0.8
Issuer information Share price (INR) Target price (INR) Reuters (Equity) Bloomberg (Equity) Market cap (USDm) 166.65 253.00 COKI.NS COKX IN 432 Free float Sector Country Analyst Contact 49% Hotels Restaurants & Leisure India Vikas Ahuja +9122 3396 0690
Price relative 339.00 289.00 239.00 189.00 139.00 89.00 2014 339.00 289.00 239.00 189.00 139.00 89.00
2015
2016 Rel to BOMBAY SE SENSITIVE INDEX
Ratio, growth and per share analysis Year to Y-o-y % change Revenue EBITDA Operating profit PBT HSBC EPS Ratios (%) Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt Per share data (INR) EPS Rep (diluted) HSBC EPS (diluted) DPS Book value -8.2 -13.5 -10.7 -10.2 -13.7 0.5 4.7 14.8 4.9 37.7 31.4 4.0 69.8 1.9 49.6 7.5 20.7 0.8 135.1 -11.1 0.9 3.3 145.3 9.5 0.5 11.5 15.6 6.0 42.8 36.5 4.5 47.8 1.5 63.8 22.1 22.7 0.9 156.3 12.4 11.2 11.0 18.3 18.3 0.5 12.7 15.9 6.5 42.3 36.1 5.6 28.9 0.9 87.9 26.3 26.8 1.1 181.5 14.3 15.0 15.1 22.0 22.0 0.6 14.4 16.6 7.2 42.6 36.3 7.2 10.9 0.4 218.8 32.5 32.7 1.3 212.6 03/2016a 03/2017e 03/2018e 03/2019e Source: HSBC
Cox And Kings
Note: Priced at close of 02 Dec 2016
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Committed to reduce debt further The company remains committed to reducing gross debt by INR5 billion per year though internal accruals and plans to increase the dividend pay-out once a significant amount of debt is paid off. In our view, investors remain cautious because of the high debt levels, despite the company’s good track record on paying interest on time and reducing gross debt by half over the past few years. The company’s recent financial performance has been impressive. Net debt has fallen from INR37bn in FY12 to cINR17bn in FY16. As a result its overall net debt-to-equity ratio dropped from 3.0x to 0.7x and its EBIT coverage ratio improved from 0.6x to 3.0x in FY12-16. We expect leverage and coverage metrics to continue to improve, with the net debt-to-equity ratio declining to below 0.5x in FY17e and to below 0.2x by FY19e.
Chart 1. Cox & Kings: Leverage ratio continues to improve
Source: Company data, HSBC estimates
Chart 2. Cox & Kings: Stock is trading at a discount to the travel sector on EV/EBITDA 16
12
8
4
0 Nov-11
Nov-12
Nov-13 Cox and Kings
Nov-14
Nov-15 Travel Sector
Nov-16
Source: Thomson Reuters Datastream, HSBC estimates
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Investment thesis We are positive on the stock as we think it is a good turnaround story. As discussed in our initiation note A travel business that is back on track, 5 October 2016, over the past decade Cox & Kings has made a series of expensive and ultimately unsuccessful overseas acquisitions, mostly in Europe, that hurt the stock price. Management has now changed course and, over the past couple of years, has sold off stakes in these enterprises, reduced debt, and focused on its four main revenue streams: (1) domestic travel, (2) overseas travel, (3) a budget hotel chain in Europe, and (4) education travel business (outdoor learning for school students) in the UK and Australia. Earnings, margins and cash flow look set to improve on our estimates. Valuation and risks We use an SOTP valuation approach. We value the domestic standalone business using a 12month forward EV/EBITDA multiple of 9x, the five-year industry average. For the international business we use 4.8x EV/EBITDA, in line with international travel peers such as Thomas Cook Group (TCG LN, 84p, Not rated), TUI (TUI LN, 1,035p, Not rated) and Carnival (CCL LN, 3,907p, Buy). This gives us a blended EV/EBITDA multiple of 6.3x based on consolidated 12month forward estimated EBITDA. We reduce consolidated net debt and add market investments to arrive at our fair value target price of INR253, which implies 51.8% upside, and we rate the stock Buy. Key downside risks: 1) Around 75% of the company’s revenue comes from outside India, so it is exposed to foreign currency fluctuation risk, mostly EUR and GBP. 2) The travel industry is cyclical and any slowdown in the world economy would impact the overall industry. 3) Any sharp increase in competition from online/traditional travel agents aiming to increase market share.
Chart 3. Cox & Kings valuation summary (INR/share) 400 300 200 100 0
165
7
94 253
175
Source: HSBC estimates
4
Leisure India
Fair Value TP
Investments
International Business
Net Debt
EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Vikas Ahuja and Yogesh Aggarwal Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating. From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates). Upside/Downside is the percentage difference between the target price and the share price. Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral. *A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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Rating distribution for long-term investment opportunities As of 04 December 2016, the distribution of all independent ratings published by HSBC is as follows: Buy 44% ( 25% of these provided with Investment Banking Services ) Hold Sell 41% 15% ( 26% of these provided with Investment Banking Services ) ( 21% of these provided with Investment Banking Services )
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above. For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures. Share price and rating changes for long-term investment opportunities Cox And Kings (COKI.NS) share price performance INR Rating & target price history Vs HSBC rating history From To N/A Target price Price 1 Source: HSBC
Date
Analyst Vikas Ahuja Analyst Vikas Ahuja
337 287 237
Buy Value 253.00
05 Oct 2016 Date 05 Oct 2016
187 137 87 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: HSBC
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please see the disclosure page available at www.research.hsbc.com/A/Disclosures. HSBC & Analyst disclosures Disclosure checklist Company COX AND KINGS Source: HSBC
Ticker COKI.NS
Recent price 166.65
Price date 02 Dec 2016
Disclosure 4, 5, 6, 7
1 2 3 4 5 6 7 8
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. As of 31 October 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. As of 31 October 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. A covering analyst/s has received compensation from this company in the past 12 months.
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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9 10 11 12 13
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company As of 29 November 2016, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology. As of 09 November 2016, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst. Additional disclosures 1. This report is dated as at 05 December 2016. 2. All market data included in this report are dated as at close 02 December 2016, unless a different date and/or a specific time of day is indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument.
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Production & distribution disclosures 1. This report was produced and signed off by the author on 04 Dec 2016 15:14 GMT. 2. In order to see when this report was first disseminated please see the disclosure page available at https://www.research.hsbc.com/R/34/JBvwmrc
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EQUITIES ● HOTELS RESTAURANTS & LEISURE 5 December 2016
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