With close to one-third of its revenues from Europe, Cox & Kings (CKL) is likely to get affected by the turmoil in Europe and the expected currency fluctuations. The company derives 38% of its overall revenues from education and Meininger businesses based in Europe. During Q1FY16, euro depreciated by 6% and 3% against rupee and dollar, respectively.The depreciation of euro could adversely affect forex translation of close to 3% on its revenues.
Notwithstanding the possible impact of euro zone crisis on its education business, the company’s core leisure business outlook remains strong on the back of expected improvement in the urban consumption pattern and spending. The management is confident of achieving a double-digit revenue growth in the domestic leisure travel business while the international business is steadily showing improvement.
We believe the euro zone crisis would only temporarily affect the education and Meininger businesses. Moreover, the outlook for leisure business remains strong and would drive its overall performance. The deleveraging of the balance sheet is another re-rating trigger for the stock and also boost its earnings growth over the next couple of years. CKL is among our preferred picks in the consumer discretionary space given its strong position in the Indian tourism market. Hence, we retain our buy rating on the stock with the price target revised downwards to R350 (based on P/E of 9.5x on FY2017e earnings).