A Mint news report says that Cox and Kings Ltd (C&K) is looking to sell more profitable products in the next fiscal year. This would include specialized international school trips, study tours and children’s adventure holidays.

While that is interesting, the C&K stock essentially has not been able to deliver on the bourses. In the last one year, the stock has sharply underperformed the BSE-500 index of BSE.

One of the key worries for the stock has been the high debt on C&K’s books. The travel company’s consolidated debt (long-term and short-term borrowings) as on 31 March was 3,706 crore. Compare that with its latest market capitalization of 1,905 crore. The debt-equity ratio stands at about 3.1 times as on 31 March, while the company had cash and cash equivalents worth 1,053 crore.

While interest costs have increased substantially in the June quarter, C&K’s profitability wasn’t really affected much, thanks to strong revenue growth. For instance, in the June quarter, consolidated revenue increased sharply by about 240% over the same period last year to 532 crore. But then, revenue growth got a big boost from the consolidation of results of Holidaybreak Plc, the company’s UK unit.

However, C&K’s March quarter revenue growth was relatively slower at around 70% to 268 crore. Even as the March quarter consolidated revenue included Holidaybreak’s numbers, growth was relatively slower than the June quarter on account of seasonal factors. April-September is usually the best time for Holidaybreak.

In the June quarter, interest costs as a percentage of operating profit were as high as 38%. Investors would do well to track the efforts of C&K in reducing debt. At 139.60, the stock trades at about eight times Bloomberg earnings estimates for fiscal year 2013. While valuations may appear attractive, the company’s debt position would be a key variable to track in the days to come. Moreover, Holidaybreak’s seasonality is also a worry. Global macroeconomic measures, too, are not showing very encouraging signs. While the stock seems to be factoring in most of these concerns, meaningful upsides could be few and far between.

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