Maintain ‘buy’ on Cox & Kings due to reduced balance sheet stress and roll-forward target price to FY17e. Our target of R438 values the stock at at 15x FY17e EPS on concerns of high investment in working capital. We continue to believe in Cox & Kings’ long-term potential even as it repaid R730 crore of debt in Q3FY15. We believe reduction of investment in working capital could improve RoCE further. Other triggers include the government’s increased focus on tourism; and increased utilisation of Meininger business in off season.
Cox & Kings’ Q3FY15 ebitda and PAT at R87,130 croreand R870 crore came in lower than our estimates by 32.5% and 33.5%, respectively, due to forex loss on conversion of Meininger and HBR earnings. India leisure business grew 15.5% y-o-y and contributed 24% to revenues; education business grew 62% and contributed 37% to revenues. Debt reduced to R4,090 crore as the company repaid R1,460 crore of debt during nine months of FY15. Investment in working capital however, remains a concern even as the company follows asset-light mode of
operations.
India leisure’s Q3FY15 revenue at R110 crore and flat ebitda margin of 44.7% contributed 57% to Cox & Kings’ ebitda. Working capital debt in the standalone entity increased by R6,500 crore, which limited interest savings as the company repaid R6.2 billion of high-cost debt in Q3FY15.
By Edelweiss
