The Thomas Cook (India) stock continues to be highly valued despite the fall in share prices following what the market thought was a disapointing performance in the second quarter ended June 1999. The company which is the country's leading travel and tour operator has suffered a little from a slowdown in tourist traffic, besides the huge increase in competition for these services. It has another profitable line of business; moneychanging and wholesale trading in foreign currencies. It was this line of business that sustained margins in the last year. Any depreciation in the rupee benefits Thomas Cook given the large stock of foreign currency held by it at any given time and secondly the higher margins it earns on all subsequent forex transactions.The second quarter performance dampened the overall first half performance. Revenues were higher by only three per cent despite a 4.6 per cent fall in the second quarter. The saving grace was that by cutting certain operating costs operating margins were higher inthe second quarter. The six per cent fall in profit before tax would have been worse but for a significant increase in other income in Q2. Net profit was lower by 9 per cent. This performance which followed a significant improvement in the previous quarter depressed the market sentiment in the stock.
But it is quite likely that the Q2 performance is only an aberation and given the company's varied strengths the stock should not stay an underperformer for long. The travel and tours business is dependent mainly on tourist inflows, which are expected to improve later in the year. But if this does not materialise then it is quite likely that the Q2 trend of depressed revenues will continue into the latter part of the year.
In both the travel and forex business the company is a known and successful innovator, for example, it has introduced a pre-paid ATM card which allows the card holder to withdraw cash in local currency across 117 countries. Besides it has set up forex centres at branches of nationalisedbanks in tourist places. This move of setting up forex centres within bank branches is to tackle the surge in competition from newly licenced full fledged money changers. Besides, it has been expanding its travel business into neighbouring countries as well. Last year the company set up a subsidiary in Mauritius, to cater to potential business in South Asia. This business could given the much needed thrust to revenue growth. Until some time ago TCIL operated largely in forex but the decision to focus on value added services in the very high potential tourism business has turned it into a one-stop travel shop, which provides all concievable services.
But it is quite likely that barring any sudden spurt in business activity in the tourism sector the full years performance will at best match last years performance.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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