>COX & KINGS:Has four segments - Education, Hotel breaks, Adventure and Camping (Technical view)

Holidaybreak acquisition-one-off PAT impact to reverse in FY13 Cox & Kings (C&K) acquired UK-based Holidaybreak (HBR), an education and activity travel group with market leading positions in UK and other major European markets in late Q2 FY12. Acquisition was made for an EV of US$730mn in a business that generated ~US$100mn EBIDTA in FY11 (Oct-Sep). HBR business has a strong seasonality with bulk of profits accruing in H2 (Apr-Sep). For instance, H1 FY11 saw headline pre-tax loss of US$28mn whereas FY11 posted headline PBT of US$53mn. Since C&K would consolidate the loss making Oct-Mar period, we expect FY12 PAT to be adversely impacted but situation would reverse with full year consolidation in FY13.


Holidaybreak: resilient model with leadership position
Holidaybreak offers educational and activity-based tours with FY11 group revenues of US$711mn and EBIDTA of ~14%. It has 4 segments- Education, Hotel breaks, Adventure and Camping with the first two accounting for over ~54% of revenues and 57% of EBIDTA in FY11.
Within the education segment, PGL is the leader in outdoor residential trips for students with centres spread across Europe, largely on ownership basis. Acquisition would fortify C&K’s revenue mix with the addition of a sturdier education business to the high growth leisure
travel business.


India outbound growth to remain robust
Of the nearly 20% of the 13.6mn outbound travelers from India who bought a travel package in 2011, C&K accounts for ~50% share; it expects India outbound to grow at a robust 30% yoy. Over the FY09-12 period, C&K India revenues have probably witnessed a ~26% cagr and we build in a healthy ~22% compounded growth over FY11-14.


Margins to improve, valuation appears attractive: BUY
Q3 FY12 EBIDTA was impacted by HBR merger which has a seasonally lean period in Oct-Mar while higher interest expense took its toll on PAT. However, the impact would reverse from FY13 upon full year consolidation. C&K would drive synergies on both revenue (C&K outbound generates European hotel bookings worth US$51mn to whom Hotel break bookings can be marketed) and cost fronts through group buying. Expect consolidated margin, return ratios to improve as HBR is fully integrated; valuations at 8.4x EV/E appears attractive. Recommend BUY.

Technical View
Cox and Kings is a channeling stock with an upward tilt. The stock’s price action is controlled by two parallel trend lines. Shown below is the primary ascending trend line, which connects consecutive higher lows. The stock hit a trough of Rs153 in December 2011. After that, on multiple occasions in January 2012 and February 2012, it bounced back from the primary support line. Upon reaching the lower trend line, the stock bounces until it reaches the upper trend line. This acts as resistance as well as a profit-taking zone, making the upside potential target of the current pullback to Rs220. Prices are not always perfectly contained in a channel; it only shows areas of support and resistance for price targets. So, any kind of decline towards lower ascending trendline, which coincides with 20-DMA (Rs181), is likely to act as a strong support and entry point. Cox & Kings was in a downward spiral for the last two months of 2011. The intermediate rallies faltered near the long-term bearish resistance line on daily chart (see below). However, recent chart pattern has been encouraging with strength in volumes; the stock is trading close to its 200-DMA, which coincides with neckline of an Inverted Head and Shoulders pattern. Any move above Rs195 (200-DMA) would confirm a breakout from the above mentioned pattern and ignite bullish momentum. Another argument supporting our optimistic view is the positive crossover in the daily RSI. A move above Rs195 would also result into negation of a bearish pattern, which is considered to be positive. Based on the above mentioned technical observations, we advise accumulating stock at current levels for medium term target of Rs220.

RISH TRADER