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Time to return money to shareholders: Thomas Cook India MD

The company is generating Rs 200 crore of free cash every year and has thought that this would be an ideal time to return that money to shareholders, says Madhavan Menon.

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Last Updated: Feb 27, 2020, 04.11 PM IST
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Madhavan Menon-Thomas Cook India-1200
If things are controlled at where they are currently, my expectation is that there will be some improvement in the situation.
Thomas Cook stock has certainly been abuzz ahead of the buyback; can you divulge the details in terms of the pricing and fill us in?

We got the approval of the board to buy 2.6 crores shares from existing shareholders at a price of Rs 57.50 per share. This is at about a premium of 40 per cent from the date that we actually sent out the notice to the stock exchange. This will be done on a tendering basis and has a reservation of 15 per cent for small shareholders. The majority shareholder Fairbridge Capital, which is a part of Fairfax, will not participate in the buyback.
The rationale behind the buyback was several. In reality, the restructuring of the Thomas Cook group with the spin-off of Quess took place in November. We have a large degree of cash sitting on our balance sheet and then came the coronavirus. So, it gave us an opportunity as management to register our confidence in the underlying value of the company and therefore we decided that we would return some of the cash that is sitting on our balance sheet to shareholders. We generate on average about Rs 200 crore of free cash every year and we thought that this would be an ideal time to register our confidence and return that money to shareholders.

The coronavirus has spread across several countries other than China. How much of a dip have you seen in the bookings in the last few months?

So there are several metrics that we look at. If we look at the domestic bookings, they have actually grown over the past year. If you look at the short-haul outbound to south-east Asia, there we have seen a dip. We have seen some growth in terms of other short-haul locations like the Middle East that is Dubai, Abu Dhabi as well as Mauritius. It is very early to define what the impact of the coronavirus will be. The advisory in Italy yesterday is something that came out of the blue; we will have to wait and watch. My expectation is that if they are able to bring coronavirus under control and there are some signs, especially in China, of infected numbers actually beginning to come down, then my expectation is that sooner or later the world will put this behind them and move forward. Our inbound business has not been affected by this at all and we are actually seeing growth over last year. Right now it is the end of the season and forward bookings as it stands are higher than the previous year. My expectation is that we will see the overhang of the virus on earnings for at least two quarters i.e. the fourth quarter of 2019-20 and first quarter of 2020-21.

Are you seeing a trend of people actually cancelling or scaling back their travel plans? If so, how will this impact your revenues from travel and related services?

We have seen cancellations for south-east Asia travels. Without a doubt, we have seen cancellations and that trend continues even today purely because of the advisories and all the news that is coming out of south-east Asia, especially out of Thailand and Singapore. Talking about the impact, my forward bookings are down by about 20 per cent compared with the previous year. We do not know how coronavirus is going to pan out but my expectation is that if this continues, we will see a further impact. If things are controlled at where they are currently, then with the summer approaching, my expectation is that there will be some improvement in the situation.

What is your strategy for Thomas Cook and what can we anticipate by way of your overall revenues? How much of a slowdown will we see?

It is very difficult to predict the numbers at this stage and I do not want to provide guidance in an environment where I am not even able to see the impact even one week into the future. But I can tell you that some of our other businesses, like foreign exchange as well as corporate travel and the incentive business, continue to fire. One of the reasons for this is that as far as the incentive business and the corporate travel business are concerned, we are moving it to safer locations from south-east Asia. We have sort of diverted groups into Australia. We are diverting groups into Sri Lanka. We have diverted groups into the Middle East. To that extent, we have only seen a deferral of the date; we have not actually seen a cancellation. My expectation is that as far as the European bookings are concerned right now, we are just entering the booking season. We have not seen any impact; it is too early to talk about yesterday’s advisory. People will wait and watch. My expectation is that there will be some deferral of travel but right now the impact is limited and it is very difficult to predict what our revenues and our profits will look like come the first quarter of 20-21.

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