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CRISIL reaffirms ratings of Thomas Cook India Limited

Posted On: 2019-11-25 22:42:36


CRISIL has reaffirmed its ratings on the debt programmes and bank facilities of Thomas Cook India Limited (TCIL; part of the Thomas Cook India group) at 'CRISIL AA-/Stable/CRISIL A1+'. Additionally, CRISIL has reaffirmed its corporate credit rating of 'CCR AA-'. CRISIL CCR is a rating of an issuer and indicates the degree of strength of the issuer with regard to honouring its debt obligation.

CRISIL has partially withdrawn the rating on short term debt (including commercial paper) of Rs.50 crore since the company has not utilised the same. The rating is withdrawn in line with CRISIL's policy.

On September 23, 2019, Thomas Cook PLC (UK, TCPLC) announced that it is filing for compulsory liquidation with immediate effect. While TCIL is a brand licensee of the Thomas Cook brand in India (brand licensing agreement valid until November 2024), it is a completely separate entity from TCPLC post acquisition of a 77% stake by Canadabased Fairfax Financial Holdings (Fairfax; rated 'BBB-/Positive' by S&P Global Ratings) in 2012. There are no shareholding or business linkage between the two companies. Hence, CRISIL believes liquidation of the UK-based entity should not have a material impact on TCIL's credit risk profile.

TCIL has also communicated through various releases that it is a completely separate entity from TCPLC. While the brand has been licenced to TCIL until November 2024, TCIL is evaluating various options, including transitioning to a new brand. CRISIL will continue to track the developments on this front.

The group's financial flexibility is expected to remain healthy, given strong cash and equivalents in the foreign exchange (forex) and travel businesses, aided by the omni-channel business model with extensive outreach and absence of any major long-term debt and capital expenditure (capex) over the medium term.

On March 06, 2019, CRISIL had reaffirmed its ratings with a stable outlook on the debt programmes and bank facilities of TCIL. The reaffirmation had factored in the expectation that the company's credit risk profile will remain unaffected by its plan to acquire a 51% stake in Digiphoto Entertainment Imaging group (DEI) (acquisition completed in March 2019). Acquisition price of about Rs 145 crore (for 51%, at an enterprise value of Rs 289 crore) was funded through a mix of debt (about Rs 106 crore [USD 15 million] in Travel Circle International (Mauritius) Ltd [wholly owned stepdown subsidiary of TCIL]) and internal cash accrual.

DEI is a leading souvenir imaging solutions provider and is associated with over 120 partners across 14 countries. Given that tourism services would complement imaging solutions, the acquisition is expected to entail business synergy. Additionally, as the acquisition should increase cash accretion, the group's financial risk profile is expected to remain strong, supported by a comfortable capital structure and adequate liquidity.

In fiscal 2019, the board had announced corporate restructuring of the group. The restructuring includes:

* Demerger of the inbound business undertaking of Travel Corporation India Ltd (TCI; 'CRISIL AA-/Stable') into SOTC Travel Management Pvt Ltd on a going concern basis

* Merger of residual TCI, TC Travel Services Ltd, and TC Forex Services Ltd with Thomas Cook (India) Ltd

* Demerger of Human Resource Services Business of Thomas Cook (India) Ltd into Quess Corp Ltd on a going concern basis

* Change of name of SOTC Travel Management Pvt Ltd to Travel Corporation (India) Ltd

* Change of name of Thomas Cook (India) Ltd to TC Travel Services Ltd or any other name

The scheme has received the required approval from the shareholders of the company on September 4, 2019, and is currently subject to requisite statutory and regulatory approvals.

The ratings continue to reflect the Thomas Cook India group's healthy business risk profile, driven by a dominant position in the forex business and strong brand equity in travel-related services; comfortable capital structure; and strong liquidity. These strengths are partially offset by susceptibility of the travel business to geo-political risks and suboptimal operating performance of the vacation ownership and resorts business. Moreover, the group is exposed to risks related to its strategy of growth through acquisitions. Success of these acquisitions remains a key monitorable as it could materially alter the business and financial risk profiles of the group.

Shares of THOMAS COOK (INDIA) LTD. was last trading in BSE at Rs.153.3 as compared to the previous close of Rs. 150.55. The total number of shares traded during the day was 109665 in over 569 trades.

The stock hit an intraday high of Rs. 155 and intraday low of 150.05. The net turnover during the day was Rs. 16706880.


Source: Equity Bulls

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