Buy Cox & Kings; target of Rs 195: ICICIdirect.com

ICICIdirect.com is bullish on Cox & Kings and has recommended buy rating on the stock with a target of Rs 195 in its March 30, 2012 research report.

"Cox & Kings (C&K) is one of the leading and oldest (established in 1758) players in the travel & tourism industry that caters to the overall travel needs of Indian and international travellers. The company has a presence in more than 19 countries besides India through subsidiaries and JVs. Opting for the inorganic route to grow exponentially, C&K has done seven acquisitions in the past six years (including the Holidaybreak Plc. acquisition), which has made it an integrated player globally with quality products and services. With its recent HBR acquisition, we expect return ratios to improve post FY12E as it has provided synergies in terms of geographic diversification, widening its product portfolio and cross-selling opportunities, amid challenges in terms of effective integration."

"C&K has done seven acquisitions in the past six years (including HBR), which made C&K an integrated player globally with quality products and services. This series of acquisitions brought huge business volume on the book of C&K on a consolidated basis. This, in turn, increased C&K's bargaining power with vendors due to its large customer base and global presence. The overseas acquisition created value for the company with healthy growth in revenues (CAGR of 51% during FY07-11) and operating margins (i.e. at ~40%) during the same period. We foresee HBR as a good long term strategic fit for C&K as it has provided synergistic opportunities in terms of geographic diversification, widening its product portfolio and offering cross-selling opportunities. However, medium-term benefits are unlikely on account of a slowdown in UK and European region and seasonally weak first half (i.e. October-March) of HBR."

"At the CMP of Rs 161, C&K currently trades at 6.4x FY14E EV/EBITDA. The stock has traded at a two-year average band of 7-9x. This discounted valuation mainly factors in depreciating rupee as majority of C&K India's business is outbound & there is a slowdown in Europe. However, considering the steady & resilient nature of education & adventure business segment of HBR and strong growth momentum in India, we believe, current valuations overlook the long term synergy & growth potential. We have used SOTP valuation and arrived at a target price of Rs 195, in line with peer valuation (i.e. 7x FY14E EV/EBITDA), reflecting our conservative valuation approach. We are initiating coverage on C&K with a BUY rating," says ICICIdirect.com research report.