CRISIL has downgraded its ratings on the bank facilities and debt programmes of Thomas Cook India Limited (TCIL) to 'CRISIL A+/CCR A+/Negative/CRISIL A1' from 'CRISIL AA-/CCR AA-/Negative/CRISIL A1+'.
The rating action reflects weakening of TCIL's business and financial risk profiles owing to the adverse impact of the Covid-19 pandemic on the travel and tourism industry. Continued travel restrictions and negative customer sentiments have severely impacted leisure and corporate travel, and the foreign exchange (forex) business. This may lead to operating losses during fiscal 2021 and substantially reduce the net free cash (over Rs 200 crore reported as on March 31, 2020).
During the first quarter of the fiscal, TCIL reported EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of Rs 80 crore (as against Rs 103 crore for the corresponding period in previous fiscal) and also reported reduction in cash & cash equivalents of around Rs 240 crore due to the lockdown.
While economies are gradually opening up since the last quarter, domestic remains significantly lower than prepandemic levels and international travel is yet to resume. TCIL is undertaking several cash preservation measures including optimisation of payroll cost, reduction in marketing and overhead costs, renegotiation of lease rentals and supplier contracts. The said measures are expected to result in savings of more than Rs 550 crore during the fiscal. Additionally, recent withdrawal of the share buyback offer will further reduce cash outflow by around Rs 180 crore (including tax on share buyback). Further, the company is looking to reengineer the business, focusing on aspects such as contactless customer experience, increased digitisation and process efficiencies.
The forex business, classified as an essential service, resumed operations since mid-April 2020. While the gross volume in forex business has been lower than pre-pandemic levels, it has picked up on a month-on-month basis and the business has turned cash positive since June 2020. Continued ramp-up in both the travel and forex volume remains a key monitorable.
TCIL's ratings factor in expectation of strong support from its ultimate parent, Fairfax Financial Holdings Ltd (Fairfax) during the current fiscal, towards revival of business and strengthening of liquidity and financial profile. Fairfax has been providing the required financial and managerial support to TCIL in the past too, given its strategic importance to the parent. Continued support from the parent will be a key rating sensitivity factor.
Additionally, the ratings continue to reflect the Thomas Cook India group's dominant position in the forex business, strong brand equity in travel-related services, limited debt and healthy liquidity supporting the capital structure. These strengths are partially offset by susceptibility to geo-political risk and intense competition in the travel and tourism industry. Moreover, the group also faces risk related to its inorganic growth strategy.
The 'Negative' outlook reflects the risk of slower-than-expected recovery in the travel and forex business and hence their profitability, during the next few quarters owing to a prolonged pandemic.
Shares of THOMAS COOK (INDIA) LTD. was last trading in BSE at Rs.28.1 as compared to the previous close of Rs. 28.1. The total number of shares traded during the day was 18569 in over 230 trades.
The stock hit an intraday high of Rs. 28.2 and intraday low of 27.75. The net turnover during the day was Rs. 518418.