Thomas Cook India - Strong fundamentals - ICICISecurities

We initiate coverage on Thomas Cook India (TCI) with a BUY rating and a target price of Rs66/share. Travel Industry - part of the consumer discretionary segment - has benefited from the strong economic growth of the past decade that led to a 14-year CAGR of 10% in outbound tourists from India. This trend may moderate in CY13, owing to the economic slowdown but is unlikely to be impacted severely, keeping the structural story intact. The fact that TCI's revenues grew 18% YoY in H1CY12 supports this thesis.

The company is built on an over 130-year-old 'brick and mortar', face-to-face interaction based business model and intends to drive cost improvements by increasing internet based delivery of products and services and outsourcing of non core functions. We factor-in revenue CAGR of 12% over CY11-13 and margin expansion by 240bps to 28.2%, driven by the move into the online space and other cost-cutting avenues, driving an EPS CAGR of 18% over the period.

We value the stock at a 1-year forward P/E multiple of 18x arriving at a fair value of Rs66/share. Initiate with BUY.

Source : Equity Bulls

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