The 250-year old travel and tour operator Cox & Kings is going in for an IPO in India which will raise Rs 370 crore, according to the filing with SEBI. The company is also looking at a pre IPO placement. The public issue will see a dilution of 23.48 per cent post-IPO, valuing the company at Rs 1,575 crore.
It’s not clear what is the quantum of the stake that will be placed with pre-IPO invstors. Out of the total 8.6 million shares of Cox & Kings, a 10 per cent of the post issue paid up capital or at least 3.66 million shares have to be made available for the public. This means the maximum that the pre-IPO deal could involve is about 13.48 per cent equity stake (though its more likely to be about 10 per cent) or about 4.93 million shares.

Pricing
Given the total shares under issue and the funds required, the per share value is Rs 425 plus (the unknown figure relates to the funds proposed to be raised for working capital purposes which is not mentioned in the DRHP in addition to the funds required for floating the issue). The book value per share as of September’07 was Rs 231.
One of the most recent share transaction in Cox & Kings involved a issue price of Rs 375 for Mauritius based Kubber Investments (part of the promoters group). So the pre-IPO price is likely to be in the region of Rs 400-450 while IPO price could be around Rs 450-550. Some of the existing institutional investors in Cox & Kings include Lehman Brothers, Goldman Sachs, Deutsche Securities and Merrill Lynch. Incidentally, promoter group also has some equity interest in online travel portal Ezeego1.com.

Comparison With Peers
Now, lets compare with the other large listed travel & tour company Thomas Cook, which currently trades at P/E ratio of about 30 (given its EPS for the year ending Dec’06) with a market cap of Rs 1,180 crore. With consolidated net profit of about Rs 23 crore for the six month period ending September’07, Thomas Cook had EPS of 1.43. Assuming this to double for the full year it has a P/E ratio of 26.9 as of Wednesday.
As against this, Cox & Kings had EPS of Rs 39.64 for year ending March’07 and Rs 24.57 for the “six months” ending September’07. However, Cox & Kings had a bonus issue of shares at the ratio of 3:1 in October. For the six months ending September’07 consolidated net profit was Rs 19.1 crore and given the total shares post IPO, on a six month earnings basis, the post issue EPS works out to Rs 5.22. Assuming the annualised EPS for FY’08 to be an exact double of the H1 figure, it becomes 10.44. An issue price of Rs 500 or more would translate into a P/E ratio of around 50.
This would be much higher than that of Thomas Cook which had higher consolidated profit for the April-September’07 period. The rerating already seems to have started with Thomas Cook shooting up 4.9 per cent today when Cox & Kings filed its DRHP, even as the broader market index dropped by 2 per cent.

Posted on 01/30/08, 7:33 PM
in: Capital Markets
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