Cox and King’s revenue has grown at a compounded annual growth rate (CAGR) of at least 65% to Rs294 crore in the three years till FY09. Competitor Thomas Cook (India) Ltd registered a more modest CAGR of around 32% for the three years until 2008 (revenue of Rs326 crore). The company has enjoyed a consistent operating profit margin of around 42-44% and net profit has grown at a three-year CAGR of 80%.

But along with the impressive growth in revenue and profit, even the company’s debt has risen at a fast pace. In FY08, debt stood at Rs130 crore, which ballooned to Rs430 crore by end-FY09. The company has made some acquisitions which have also caused a drain on operating cash flow, resulting in higher debt. Not surprisingly, the company will use about one-fifth of the IPO proceeds to repay debt.

This is expected to bring the debt-equity ratio down from 1.6:1 to 1:1. It plans to use the remainder of the Rs600 crore or so for acquisitions and infuse funds into some subsidiaries, besides capital investments into refurbishing the existing centres.

At first look, Cox and King seems to have an extremely high proportion of sundry debtors. For example, during FY09, sundry debtors’ position was Rs232 crore, which works out to 80% of revenue of Rs294 crore. But it must be noted here that while the debtors’ position is stated on a gross basis (reflecting value of total package procured by customers), revenue is stated on a net basis (reflecting only the fee earned by the company from the package). A better measure of receivables would be to compare them with gross revenue, but this figure is not available.

While Cox and King’s revenue and profit growth have been impressive in the past few years, whether this will endure depends on the state of the economy. As things stand, the outlook for tourism looks good with the improvement in business and consumer sentiment.

As far as valuations go, the issue is priced at a little less than 15 times trailing earnings, a 33% discount to market valuations of at least 22 times trailing earnings. To some extent, the discount reflects investor concern about the vagaries of the tourism business. Having said that, there also seems to be money left on the table for IPO investors.

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