Cox and Kings IPO analysis

8/8/2019 Cox and Kings IPO analysis

1/15

Homework Title / No. :______Assignment 1_____________Course Code :___MGT_784_____

Course Instructor: ______Mr Rohit Duggal_____Course Tutor (if applicable) :__________________

Date of Allotment____________________________: Date of submission :_____29/10/2101________

Students Roll No.:____A19, A 21, A 05__Section No. :______Q 1902, Q1903_____________________

Declaration:

I declare that this assignment is my individual work. I have not copied from any other students

work or from any other source except where due acknowledgment is made explicitly in the text, nor has

any part been written for me by another person.

Students Signature Sandeep Singh

Gangesh Kaushik

Shishir Saurabh

Evaluators comments: ________ _________________________ __

_

Marks obtained: ___________ out of _________________


2/15

Company Background

The Cox and Kings brand has evolved over 250 years and is one of the most recognized

holiday brands today. The company offers services as a 'One-Stop Shop' for all travel and travel-

related products. Its business can broadly be categorized as Leisure Travel, Corporate Travel,

Forex and Visa Processing. C&K designs travel packages for both individuals and groups, for

their domestic and international leisure travel.

The company makes travel arrangements for corporate clients to cater to their business

meetings, conferences, events, and as an incentive for their employees and business partners. The

company also provides value-added services, such as customizing travel plans for NRI

customers, travel arrangements for Trade Fairs and providing private air charter services.

Besides, C&K offers travel-related foreign exchange and payment solutions. The company is one

of the first travel companies in India to be granted a license as an Authorized Dealer - Category

II, under the new licensing regime. Within Leisure Travel, the company has three sub-segments,

Outbound Travel, Inbound Travel and Domestic Travel.

The Inbound Travel business represents destination management services that cover all

aspects of ground tour arrangements required by tour operators across the world. The Domestic

and Outbound Travel businesses include the selling of holiday packages for travel in India and

overseas, respectively. Under Corporate Travel, a full range of business travel services, through a

team of dedicated relationship managers, is offered. In India, C&K has 255 points of presence,

covering 164 locations, through a mix of branch sales offices, franchised sales shops, General

Sales Agents (GSAs) and Preferred Sales Agents (PSAs).

The company has 14 branch sales offices located in Mumbai, New Delhi, Chennai,

Kolkata, Bangalore, Hyderabad, Ahmedabad, Jaipur, Kochi, Pune, Nagpur and Goa. Besides, it

also operates through 56 franchised sales shops spread across India. The company has a global

presence, with operations in 19 countries (besides India) through subsidiaries, branch offices and

representative offices (in the UK, Australia, New Zealand, Japan, US, UAE, Singapore and Hong

Kong).


3/15

Business Structure of Cox and Kings

Accuision details of Cox & Kings


4/15

Global Tourism Industry

As per a WTTC study, the number of tourist arrivals worldwide increased from 904mn in

2007 to 925mn in 2008, registering a rise of 2.3%. The growth was comparatively lower than the

CAGR of 4.6% over the period of CY1995-08, mainly on account of the global meltdown. In

CY2008, the growth was the weakest since the recessionary period of 2001-03, when the

industry was hit by the collapse of the high-tech boom, the 9/11 terrorist attacks and the SARS

outbreak. Close to two million jobs were nevertheless created during 2008, but the industry was

faced with increasingly difficult global headwinds in the second half of the year, as consumer

and business confidence collapsed.

The effects of the global meltdown are expected to continue in CY2009, with the growth

rate of tourist arrivals likely to decline by 4.3% year on year to 885mn before picking up again

marginally in CY2010 to 1.9% year on year, and are expected to be back on track in CY2011E,

with a growth of 4.2% year on year.


5/15

Indian Tourism Industry - Recovering

During 2008-09, the Indian tourism industry had to cope with terrorism and the global economic

downturn, which put a brake on a decade of phenomenal growth in international arrivals

(CY1998-2007), driven mainly by the successful 'Incredible India' marketing campaign and

steady improvements in the tourism infrastructure. However, with the effects of the meltdown

easing out and economic activity picking up, the declining trend of FTAs (Foreign Tourist

Arrivals) seems to have been arrested.

The FTAs declined significantly to 13.8% during 1QFY2010, as compared to that in

2008, but, during 2QFY2010, the situation improved markedly (a decline of only 1.8%), with the

FTAs close to that of last year. However, measured in terms of a percentage of GDP, tourism

still accounts for just 6% of the economy, much below the world average in 2008.The expected

rise in demand over the next 2-3 years would be largely due to factors such as India's popularity

as a tourist destination, strong economic fundamentals, a continued interest from multinationals

and a steady growth in domestic travelers (both business and leisure).


6/15

Why to invest in Cox & Kings

C&K derives over half of its earnings from the emerging markets (mainly India) and is

focused on increasing its presence in other high growth geographies (mainly the Middle-East and

South-East Asia). This, we believe, would bode well for the company, as it is ideally poised to

benefit from a strong growth in demand for outbound and inbound services in these areas,

enabling it to achieve a high growth rate in the future. According to WTTC estimates, the world

travel and tourism industry is expected to clock a CAGR of 4% over FY2009-2019E.

The growth rate is expected to be much higher in the case of emerging markets, mainly

India, the Middle-East and South-East Asia. According to WTTC estimates, the tourism industry

in India, the Middle-East and South-East Asia is likely to witness a CAGR of ~8% over FY2009-

2019E. According to the WTTC, developing countries, which until recently have been the key

drivers of growth in the tourism industry, are expected to take a backseat over the next decade.

Although countries like the US, Japan, China and West-European countries would continue to

generate a big chunk of travel and tourism demand, in terms of growth, the emerging countries in

Asia, the Middle-East and Africa are likely to lead going ahead.

The shifting of the trend towards the emerging markets is evident from the steep decline

in the share of the top 15 destinations of international tourist arrivals (from around 75% in 1970

to around 57% in 2007).

Well-positioned to gain market share on the back of a strong brand franchise and a

presence across the value-chain The travel market is highly fragmented, with a large number of

travel agents catering to most of the demand. We believe that C&K's strong brand, coupled with

services across the value-chain (inbound and outbound), would act as a key driver in garnering a

higher market share in the future.

Strong Brand Equity: C&K's brand has evolved over a period of 250 years and is one of

the oldest brands in the Travel and Tourism industry. Over the years, the company has built a

strong brand franchise for itself in overseas markets as well as in India. Cox & Kings was ranked

#1 among the Top Brands in India, and ranked 152 amongst the Top 1000 Brands in the Asia-


7/15

Pacific region. The tour-operator industry is dependent on brand awareness and recall in the

long-run, as customers need to believe in the capabilities of the operator to provide quality

services and that their products will lead to a satisfied experience, even before they have

approached the service provider.

Presence across the value-chain: C&K offers complete travel solutions, and serve as an

integrated provider of all travel and travel-related products. The company provides a 'One-Stop

Shop' for all travel requirements, from visa formalities to ticketing, holidays, insurance and

foreign exchange. Besides, the company is in the process of rolling-out a pan-India, luxury train,

under the brand 'Maharajas' Express', through a joint venture with the Indian Railways.

Wide geographical reach: In India, C&K has 255 points of presence, covering 164

locations, through a mix of branch sales offices, franchised sales shops, General Sales Agents

(GSAs) and Preferred Sales Agents (PSAs). The company has 14 branch sales offices located in

Mumbai, New Delhi, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Jaipur, Kochi,

Pune, Nagpur and Goa. Besides, it also operates through 56 franchised sales shops spread across

India. Moreover, the company has a global presence, with operations in 19 countries (besides

India) through subsidiaries, branch offices and representative offices (in the UK, Australia, New

Zealand, Japan, US, UAE, Singapore and Hong Kong).

Outlook and Valuation

Over FY2006-09, C&K's Revenues and PAT have witnessed a CAGR of 65.6% and 80.7%,

respectively; these, however, have also been aided by the five acquisitions it has made across the

globe since 2006. Going ahead, we estimate C&K's Top-line and PAT to witness a CAGR of

27.4% and 37.7% over FY2009-11E, respectively On the lower and upper end of the price band,

the stock would quote at 16.5x and 17.3x its post diluted FY2011E estimates, respectively. We

believe that the companys organic and inorganic growth rates will be sustained, and its core

profitability will remain healthy, going ahead. Hence, on the back of positives like C&K's

superior growth rates, its wide geographical reach, a strong brand franchise and the improving

industry dynamics, we recommend a Subscribe view on the IPO.


8/15

Requirement of IPO for Cox & Kings

Cox and Kings India Ltd., a global tour operator having presence in India, Middle East

and South East Asia is entering the capital market 18th

November, 2009 with a public issue of

184,96,640 equity shares of Rs. 10 each, in the price band of Rs. 316 to Rs. 330 per share. The

issue consists a fresh issue of 154, 50,000. Equity shares, while offer for sale is of 30, 46,640

equity shares of Rs. 10 each. The company proposes to list its shares on NSE and BSE.

The object of the issue is for repayment of loans of Rs. 129.60 crore, acquisitions and

other strategic initiatives of Rs. 150 crore, investment in overseas subsidiaries of Rs. 62.50 crore

and investment in corporate office and up gradation of existing operations for Rs. 60 crore.

The company had achieved a total income of Rs. 294 crore for the year ended 31st March

09, with net profit after tax, having placed at Rs. 63.40 crore, on equity base of Rs. 27.93 crore,

yielding an EPS of Rs. 22.70. On 23rd July 2009, the company made a rights issue, at par, in the

ratio of 7 shares for every 10 shares held, due to which, paid up equity capital of the company,

increased to Rs. 47.47 crore. Post this IPO, paid up equity of the company will rise to Rs. 62.92

crore, of which, public holding will be close to 29.40%, with promoters stake at 63.60% and 7%

held by others.

Cox and Kings, with a 250 year brand franchise, has a strong presence in India and

emerging countries in the Middle East and South East Asia. These markets are estimated to

witness robust growth in tourism, both in outbound demand and inbound tourist arrivals, at


9/15

around 8% CAGR, between FY09 to FY19, as estimated by World Travel and Tourism Council.

At Cox and Kings, outbound traffic grew at an annualized rate of 23% between FY04 to FY08,

against 15% CAGR, of industry during the same period.

In the coming months, the market share of the company is expected to increase on the

back of its recent acquisitions. What will also help is that the share of unorganized tour

operators, which is presently at around 90% of the tourism market, is expected to come

under pressure due to stringent regulatory changes, caps on commissions of travel agents. In the

coming months, business will move more to organized players like Cox and Kings, which have

a strong brand equity, reach and technology infrastructure to give it a more global presence.

Financial Analysis

C&K, with respect to its Indian operations, witnessed a Compounded Annual Growth

Rate (CAGR) of 35% in total income during FY06-09. C&K has managed strong growth in

relatively weak market, achieving 32% Year on year growth in revenues in FY09 in its

Indian operations and 58% Year on year growth in revenues on a consolidated basis. As per its

revenue recognition policy, the company books its revenues from all its travel packages

net of expenses incurred for the same.

The expenses incurred towards payment to airlines, hotels and other services

rendered for all its travel packages, are deducted from the gross revenues received from

the passengers and booked as total income from operations in the books. Since majority of

the variable costs are already accounted for while reporting the turnover, the costs reported by

the company in its books are fixed in nature. Even in the weak market scenario prevalent

during FY09, C&K managed to maintain high PBILDT margin of 44.39% in FY09

compared to 44.40% in FY08 on a standalone basis. However, PAT margin has

marginally deteriorated to 23.62% in FY09 as compared to the previous year due t o higher

interest and tax expenses. Being a service-driven industry, fixed assets mainly comprise

computers, furniture & fixtures etc.


10/15

Basis of allotment

Cox & Kings has allocated 2,744,480 Equity Shares to Anchor Investors at Rs. 330 per

Equity Share. The Equity Share of the Company is proposed to be listed on the Bombay Stock

Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE) and trading is

expected to commence on or about December 11, 2009.

The face value per equity share is rs. 10/-. The issue price per equity share is rs.

330/- and it is 33.0 times the face value. The anchor investor issue price is rs. 330/- per

equity share.

The Issue was made through a 100% Book Building Process wherein up to 50% of the

Net Issue shall be allocated on a proportionate basis to Qualified Institutional Buyers. Our

Company has allocated 2,744,480 Equity Shares to Anchor Investors (as defined in the section

"Definitions and Abbreviations" on page (i) of the Prospectus) in accordance with applicable

SEBI Regulations. Further 5% of QIB Portion less Anchor Investor Portion shall be available for

allocation on a proportionate basis to Mutual Funds only, and the remaining QIB portion shall be

available for allocation on a proportionate basis to all Qualified Institutional Buyers, including

Mutual Funds, subject to valid Bids being received at or above Issue Price.

Further, not less than 15% of the Net Issue shall be available for allocation on

proportionate basis to Non-Institutional Bidders and not less than 35% of the Net Issue shall be

available for allocation on a proportionate basis to Retail Individual Bidders subject to valid Bids

being received from them at or above the Issue Price. Further, up to 200,000 Equity Shares shall

be available for allocation on a proportionate basis to the Eligible Employees, subject to valid

bids being received from them at or above the Issue Price.

The Issue received 49,867 applications for 104,288,280 equity shares resulting in 5.64

times subscription. The details of the applications received in the Issue from Qualified

Institutional Buyers, Non-Institutional, Retail Individual Investors categories and Employees are

as under.


11/15

Sr. No. CategoryNo. of Applications

ReceivedNo. of Equity

SharesNo. ofTimes

Subscribed

A Retail Individual Bidders 49,416 5,956,710 0.93

B Non Institutional Bidders 212 29,502,240 10.75

C Qualified Institutional Bidders 80 63,568,240 9.93D Employees 150 29,210 0.15

E Anchor Investors 9 5,231,880 1.91

Total 49,867 104,288,280 5,64

Final Demand

A summary of the final demand as per the BSE and the NSE as on the Bid/ Issue Closing Date at

different bids is as detailed hereunder:

Bid Price No. of Shares % to Total Cumulative TotalCumulative %

ofTotal

316 28,920 0.03 99,386,840 100.00

317 400 0.00 99,357,920 99.97

318 400 0.00 99,357,520 99.97

319 460 0.00 99,357,120 99.97

320 42,180 0.04 99,356,660 99.97

321 240 0.00 99,314,480 99.93

322 420 0.00 99,314,240 99.93

323 280 0.00 99,313,820 99.93

324 140 0.00 99,313,540 99.93

325 2,820 0.00 99,313,400 99.93

326 20 0.00 99,310,580 99.92

327 80 0.00 99,310,560 99.92

328 20 0.00 99,310,480 99.92

329 0 0.00 99,310,460 99.92

330 99,310,460 99.92 99,310,460 99.92

The Basis of Allocation was finalized in consultation with the Designated Stock Exchange, being

the Bombay Stock Exchange Limited ("BSE") on December 02, 2009.


12/15

A. Employees

The Basis of Allocation to the employees of the Cox and Kings (India) Ltd, who have bid at cut-

off or at the Issue Price of Rs. 330/- per Equity Share, was finalized in consultation with BSE.

The total number of shares allotted in this category is 28,160.

B. Allocation to Retail Individual Investors [Including Applications Supported by Blocked

Amount ("ASBA")] (After Technical Rejections)

The Basis of Allocation to the Retail Individual Bidders, who have bid at cut-off or at the Issue

Price of Rs. 330/- per Equity Share, was finalized in consultation with BSE. This category has

been oversubscribed to the extent of 0.90 times. 9,419 applications for 1,232,820 Equity Shares

were made under the ASBA process. Of these 9,334 applications for 1,224,620 Equity Shares

were found valid and they were considered for allotment. The total number of Equity Shares

allotted in Retail Individual Bidders category is 5,863,660 Equity Shares to 48,130 applicants.

The category-wise details of the Basis of Allocation are as under:

C. Allocation to Non-institutional Investors (After Technical Rejections)

The Basis of Allocation to the Non-Institutional Investors, who have bid at cut-off or at the Issue

Price of Rs. 330/- per Equity Share, was finalized in consultation with BSE. This category has

been oversubscribed to the extent of 10.04 times. 199 applications for 29,208,880 Equity Shares

were found valid and they were considered for allotment. The total number of Equity Shares

allotted in this category is 2,908,805 (including unsubscribed portion of 138,533 Equity Shares

being 2.2% of the Retail Individual Investor category and unsubscribed portion of 25,776 equity

shares being 12.9% of the Employee Category) to 199 successful applicants. The category-wise

details of the Basis of Allocation (sample) are as under:

D. Allocation to QIBs (excluding Anchor Investor Portion)

Allocation to QIBs has been done on a proportionate basis in consultation with BSE. 547,695

equity shares including unsubscribed portion of 461,775 equity shares been 7.2% of the Retail

Individual Investor category and unsubscribed portion of 85,920 equity shares been 43.0% of the


13/15

Employee Category were added to the QIB category. In accordance with the Securities and

Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009,

Mutual Funds were initially allotted 5% of the QIB Portion (excluding Anchor Investor Portion)

i.e. 347,577 Equity Shares and other QIBs and unsatisfied demands of Mutual Funds were

allotted the remaining available shares i.e. 6,603,958.

Category Fls/Banks Flls MFs ICs VCs Total

No. of Equity Shares allocated - 3,149,063 3,799,338 - 3,134 6,951,535

E. Anchor Investors

The Company allocated 2,744,480 Equity Shares to 9 Anchor Investors in consultation with the

Book Running Lead Manager. This represents 30% of the portion earmarked for allotment to

Qualified Institutional Investors.


14/15

Performance of Cox & Kings

Through the allotment process of the IPO and the after looking at the huge

amount of angel investors as well s the investments by QIBs in Cox & Kings we can say that the

IPO has performed really well the IPO of Cox & Kings was oversubscribed by 6.31 times so

fro that also we can conclude that the expectation from the IPO is huge and so many investors

were ready at that point of time to invest in the Cox & Kings as the sector is emerging in India

and the company fundamentals are very strong. The performance of any company is explicitly

shown through the stock market movement of the stock of the company. So for analyzing the

performance of the IPO of the company we have to see the trend of the stock from the launch.

If we see the trend of stock movement we can see that the cox and kings is performing

really well in the market from the IPO launch onwards the stock is moving upwards in spite of

few decreases the overall performance of the stock is rely very good. When we compare Cox &

Kings with Indian hotels we can see that the performance Cox & Kings is far better than Indian

hotels as both the companies are in same sector but the increase the value of cox & Kings is

better than Indian Hotels which shows that the performance of Cox & Kings is better.


15/15

If we compare the prices of Cox & kings with the Sensex we can see the increase in the

prices of Cox & Kings are much better than increase in the Sensex it show that the investors see

huge potential in stock and they are ready to invest in the company. The Cox & Kings is a good

stock to invest in.

If we see the report card of the Cox & Kings we can see that the performance of Cox &

kings is good. As we can see that the net profit margin of Indian hotels is 9.94% whereas the net

profit margin of Cox & Kings is 26.99% so we can see that the net profit margin of Cox & Kings

is far better. Same is the case with EPS and return on average equity.

Documents

Cox and Kings IPO analysis