Thomas Cook India - Soft 3Q; expecting better 4Q - IIFL

Thomas Cook India's (TCIL) 3Q CY12 earnings were weighed down by numerous one-off items and volatility in quarterly performance of the forex and inbound divisions. However, the company expects better results in 4Q CY12, buoyed by network expansion, a pick-up in forex volumes, and the launch of its new prepaid card. We remain positive on longer-term growth outlook and retain our BUY rating while trimming CY12/13ii EPS estimates by 13%/4%.

One-off items skew YoY comparisons in 3Q: In 3Q CY11, TCIL benefited from a one-time receipt of Rs67m attributable largely to the signing of an agreement to sell prepaid cards. In contrast, 3Q CY12 results were weighed down by Rs27m in ex-gratia payments to employees. Furthermore, a temporary lull in the forex and inbound travel divisions depressed margins. TCIL's quarterly results can be volatile, depending on currency movements and economic sentiment. However, YTD in CY11, EBIT is up 9% YoY, adjusted for one-off items.

Management expects improved 4Q CY12 results: Forex volumes reportedly picked up in October owing to rupee depreciation. The opening of 26 new forex outlets in July/August is also seen spurring growth in 4Q. The launch of TCIL's new prepaid foreign exchange card on Nov. 1st (in partnership with MasterCard) is seen as a key growth driver. The outlook for both outbound and inbound travel is also positive for 4Q, and TCIL did good business for Haj pilgrims in October. All these pointers lead management to expect a strong finish to CY12.

Long-term outlook remains positive: TCIL expects the launch of the prepaid card to boost growth in the forex division (~50% of revenue) potentially to the mid-teens. Outbound travel is seen maintaining 20%+ growth, while MICE and domestic travel should also grow well. Efficiency enhancement initiatives, including shifting various business processes online, are also in the works. TCIL's sustainable competitive advantage, healthy cash flows, strong management and growth potential form the basis for our positive view.

Source : Equity Bulls

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