Thomas Cook: Focus on costs

Thomas Cook's income stays flat

Thomas Cook India has reported a 32.25 per cent growth in its consolidated operating profit growth to Rs 9.39 crore in the October quarter, despite income from operations remaining flat at Rs 30.52 crore.

Senior company management emphasised that this improvement in earnings has largely taken place due to their ability to keep operational costs under check, given the intense competition in the travel business.

As a result, overall operating profit margin, too, expanded 730 basis points to 30.76 per cent in the October quarter over previous corresponding period.

In contrast, in the first nine months ended July 2005, the company's operating profit margin had slipped 366 basis points to 30.84 per cent and that was largely due to reduced segment profitability of the financial services business.

This year Diwali was celebrated in the first week of November, hence the traditional pick-up in travel packages that comes during festive seasons was captured in the October quarter.

In contrast, in the previous year, this pick-up in demand was captured only in the January quarter, as Diwali was celebrated in mid-November.

Nevertheless, the company's key travel and related services business saw segment revenues drop marginally to Rs 22.45 crore in the October quarter.

The company management highlighted that it has been attempting to expand travel packages offered within the country, in a bid to offset the difficult pricing environment in several outbound destinations.

To the company's credit, this focus on operational efficiency has helped this segment profit expand 7.75 per cent to 9.46 crore in the October quarter.

The financial services business saw a marginal drop in segment profit to Rs 3.2 crore in the October quarter, despite an 11.5 per cent growth in segment revenues. In the travellers cheques business, competition is increasing.

Going forward, the pick-up in travel usually witnessed in Christmas and New Year period is expected to drive growth for the company in the January quarter.

The Street was not impressed and the stock slipped almost two per cent to Rs 597 on Friday. However, the stock appears fully valued at about 30.6 times trailing earnings.

Mid-caps: Back in action

Mid-cap stocks are back in action on the bourses, as both the BSE Mid-cap index and the CNX Midcap index crossed their previous highs and closed at new highs. In the previous rally that lasted till October 5, when mid-caps and small-caps were the leaders.

In this rally that started since the end of October, mid-caps are followers as the large-caps have been clear favourites. Stocks in technology, automobiles and engineering have made a higher contribution in the two large-cap indices, which are both up over 21 per cent.

The CNX Midcap index has risen only 16.7 per cent and BSE Midcap has gone up by 18.95 per cent.

While the rally in the large-caps has been all-round, in mid-caps it has been mostly sector or stock-specific. Sugar stocks, which do not make in the large-cap set, are among the biggest gainers in the mid-cap indices. Mid-cap tech stocks like Geometric and Rolta, have also performed well.

Also, some engineering stocks like Crompton Greaves and Hindustan Construction have done well. Stocks like Titan and Bombay Dyeing have been good performers too.

But beyond these stocks, a large segment of the mid-cap stocks are trading close to their end-October prices. This includes stocks like Dena Bank, Ipca Labs and MRF.

There had been doubts on valuations in some of the mid-cap stocks and there have been questions on the sustainability of future growth as well as the financial performance.

But as large-caps become more expensive, money could well move further into mid-cap stocks going forward.