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Buy Cox & Kings, target Rs 275 : ICICI Direct

Buy Cox & Kings Ltd. at a price target of Rs 275 abd time period is a year

ETMarkets.com|
Last Updated: Jun 05, 2017, 09.04 AM IST
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ICICI Direct has a buy call on Cox & Kings Ltd. with a target price of Rs 275 . The current market price of Cox & Kings Ltd. is 224.45 Time period given by analyst is year when Cox & Kings Ltd. price can reach defined target.
Domestic tourism outlook remains healthyThe company witnessed healthy growth (up 10% YoY) in its domestic business. Consumer sentiments continued to remain healthy as witnessed in air passenger traffic growth, foreign tourist arrivals data led by improvement in purchasing power. Further, with an improved macroeconomic environment, we expect the company’s domestic business to continue to perform well, going forward. In addition, C&K should be a key beneficiary of any positive policy announcements (visa on arrival) given the new government’s thrust on tourism.
International business to improve, going forward…The Paris and Brussels attack has adversely impacted the company’s international business (mainly Meininger and education business). Further, despite Q1 and Q2 being the best quarters, Meininger and Education reported muted topline growth mainly due to adverse impact of Brussels attack. However, over the long term, we expect Meininger business to report healthy growth led by 7000 bed addition at Meininger and 480 beds in PGL UK (Education business). Further, the various divestments of subsidiaries in leisure international (like Explore worldwide, Late rooms and Superbreak) are likely to positively impact the company’s EBITDA margins.
Debt level peaks out; expect further reduction of Rs 200 crore in FY18ETill FY16, the debt levels remained at elevated levels. In FY16, the debt increased to Rs 4,101 crore from Rs 3,456.5 crore in FY15. However, in Q1FY17, C&K was able to reduce gross debt by around Rs 600 crore mainly led by equity infusion by the promoter, sale of non core asset and working capital efficiency. Further, the company has guided debt reduction of Rs 180-200 crore each year. We believe if C&K is able to achieve the same, it will lead to a re-rating of the stock from a longer term perspective.
At the cusp of recovery; upgrade to BUYPost the negative impact of terror attacks in Europe and sale of its loss making units, we expect the business environment to improve during our forecast period. The major growth driver would be Meininger & leisure division. On the balance sheet side, with the sale of its loss making units, the D:E level now has come down to comfortable levels. Further, demerger of its forex segment (huge growth potential) will drive the value for its investors over the long term. Accordingly, we upgrade the stock to BUY recommendation with a revised target price of Rs 275/share (i.e. valuing at 25x FY19E EPS & 6x EV/EBITDA).
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