Thomas Cook: Good show

Thomas Cook plans to leverage retail network of LKP Forex

With standalone revenues of Rs 158.48 crore for the twelve months ended October 2006, Thomas Cook has registered a reasonably good y-o-y revenue growth of 30 per cent.

Consolidated revenues for the 14 months period ended December 2006, were of the order of Rs 234.72 crore but in the absence of comparable numbers, an analysis of the growth for this period is not possible.

However, operating margins for the 14-month period have dropped to 23.6 per cent from nearly 31 per cent for the 12 month period.

This has been primarily due to a hefty rise in other expenditure at 41.2 per cent of revenues; the management claims that some of the items are one-off items including a settlement for the earlier CEO and the launch of its new brand '100% holidays'. However, Staff costs are also up around 200 basis points.

The management proposes to leverage the retail network that it has acquired with the acquisition of LKP Forex""-it now has 59 offices across the country""-and to grow the retail business which brings in far better margins compared with the corporate travel business which is highly competitive.

While the focus will be on the fast-growing retail business, Thomas Cook will also try to grow the corporate travel services segment which has got a boost with Travel Corporation of India (TCI) coming into its fold.

TCI has a strong corporate franchise""it has eleven offices""and Thomas Cook intends to mine the clientele. With both domestic and foreign tourism on the rise, the demand for travel services and packages is certain to see an uptick. Thomas Cook is well poised to cash in on the demand.

The current market price of Rs 515, discounts the earnings of CY06 by just under 25 times and estimated CY2007 earnings by about 21 times. However, despite the potential for growth, the near""term upsides seem to have been priced in by the market.

The stock has traditionally been rather illiquid; the proposed stock split of one share of Rs 10 paid-up into ten shares of Re 1 paid-up should help improve liquidity. The company has announced a rights issue in the ratio of one for three and plans to raise Rs 225 crore.

Glenmark: Czech push

Glenmark's Swiss subsidiary has acquired a majority stake in Czech-based Medicamenta. Glenmark has not disclosed the cost of this acquisition but clearly the price it would have paid is small, as Glenmark has said that the Czech company's projected revenues for 2007 are estimated at $8 million (Rs 35 crore).

Glenmark's consolidated net sales in the first nine months of FY07 amounted to Rs 867.9 crore. Nevertheless, this acquisition will help Glenmark get a foothold in the booming generics market in Central Europe. It is understood that Medicamenta's medication for headache, cold and pain are well accepted in Czech and Slovakian markets.

The Glenmark stock rose 4.9 per cent to Rs 621 on Monday. In the first nine months of FY07, Glenmark derived 16.1 per cent of its consolidated revenues from formulation sales in the US, while Latin America provided 8.6 per cent.

In the December 2007 quarter, Glenmark's standalone operating profit grew 70 per cent y-o-y to Rs 51.69 crore, as compared to a 24.2 per cent growth in net sales to Rs 201.86 crore. Its operating profit also expanded 690 basis points y-o-y to 25.6 per cent in the previous quarter.

The company's growth in Q3 FY07 was powered by formulation sales in the US surging 401 per cent y-o-y to Rs 83.5 crore. However, with the stock trading at 17-18 times estimated FY08 earnings (excluding the latest acquisition), the near-term appreciation seems priced in.

With contributions from Shobhana Subramanian and Amriteshwar Mathur