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A bond default and stock slump: Where is Cox & Kings headed?

What purpose has this acquisition and subsequent hive-offs achieved, ask analysts.

, ET Bureau|
Updated: Jul 01, 2019, 07.31 AM IST
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Cox & Kings defaults on payments of Rs 150 crore
Third, is the high share pledge by promoters — more than half of their 49.8 per cent stake in the company, the purpose of which analysts are unable to fathom.
ET Intelligence Group: The stock of Cox & Kings falling by 39 per cent over the past five trading sessions on its inability to pay holders of unsecured commercial paper may not be a knee-jerk reaction.

Even before the travel services company announced its inability to pay, the stock has been on a downward spiral. Over the past three years ending June 25, the stock has declined 61 per cent. In this backdrop, there are four fundamental concerns about the company’s health that need examination.

The first issue is the company’s financials in the wake of several acquisitions done over the last 7-8 years. Cox and Kings told analysts in August 2011 that it acquired the UK based Holiday break, which is into education travel and hotels under the Meininger brand, for close to Rs 2,250 crore. Holiday break had higher revenues than Cox & Kings. It then sold Holiday break’s camping division in 2014 for over Rs 880 crore, and the education business last October for Rs 4,387 crore.

What purpose has this acquisition and subsequent hive-offs achieved, ask analysts. Revenue growth over the past three years has been a compounded annual rate of negative 8 per cent to Rs 5,693 crore, while debt-to-equity has risen to 0.76 in FY19 to 0.35 in FY16.

The second question is why the default on payment of Rs 150 crore on its unsecured commercial paperRs Generally, the cash on a company’s books gives confidence to investors in its unsecured commercial paper. As of FY19, the cash and cash equivalent was Rs 1,890 crore on consolidated basis and Rs 723 crore on standalone basis. Then there are the proceeds from the sale of Holidaybreak’s education business. Why then would Cox & Kings risk its reputation by defaulting on an amount that is one-fifth the cash on its booksRs Is this cash in the true sense or merely an accounting entry, ask analysts.

Third, is the high share pledge by promoters — more than half of their 49.8 per cent stake in the company, the purpose of which analysts are unable to fathom.
Capture

Fourth, the lack of clarity on the rising receivables, which have grown to Rs 2,418 crore in FY19 from Rs 1,981 crore a year earlier. According to a report by ratings firm Brickwork, the standalone receivables were Rs 2,031 crore in FY19, which were from overseas group companies that owe 150 crore for destination management services that Cox & Kings provided.

Analysts are questioning the reason for delay receivables especially from group companies.

With no answers forthcoming on these four concerns, analysts have advised investors to stay away from the stock until there is clarity from the management.

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