BackMark to Market | Cox and Kings stock discounts most of the bad news
The company’s debt position would be a key variable to track in the days to come
Premium(The debt-equity ratio stands at about 3.1 times as on 31 March.)
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.
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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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