Consolidation Of Nature Trails Into Domestic Operations Will Expand Offerings In The Growing Domestic Tourism Sector

Key Takeaways

• Strategic expansions and focus on cost optimization could drive revenue growth and improve profitability across Thomas Cook (India)'s service and tourism segments.
  
• Effective succession planning and asset-light strategies are likely to ensure steady governance and enhance net margins and operational efficiency.
  
• Leadership uncertainty and geopolitical risks could impact revenue and earnings, while customer concentration and currency fluctuations threaten profitability and sales growth.

Catalysts

Offers integrated travel services in India and internationally.

• The systematic succession planning at Thomas Cook (India) means leadership changes will likely be smooth, potentially resulting in consistent operational efficiency and stable governance. This could positively impact investor confidence and ensure steady earnings growth.
  
• The consolidation of the Nature Trails brand into Thomas Cook's domestic operations seeks to expand their offering, particularly in the growing domestic tourism sector. This could lead to increased revenue as the company taps into different segments of the market.
  
• The strategic expansion of infrastructure, such as new airport counters and digital platforms for foreign exchange, positions Thomas Cook (India) to enhance its service delivery and convenience, which might translate into increased revenue and improved net margins through operational efficiencies.
  
• Focus on asset-light expansion for Sterling Resorts and increasing contribution from food and beverage operations shows a strategic shift towards enhancing net margins and maximizing the use of existing assets, improving overall profitability.
  
• The recovery and growth in inbound and outbound travel demand, along with the company’s efforts in cost optimization and new market entries, are expected to enhance their financial services and travel segment revenues, supporting strong earnings growth in the future.

Thomas Cook (India) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thomas Cook (India)'s revenue will grow by 14.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.5% in 3 years time.
• Analysts expect earnings to reach ₹5.2 billion (and earnings per share of ₹10.84) by about February 2028, up from ₹2.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2028 earnings, up from 24.8x today. This future PE is lower than the current PE for the IN Hospitality industry at 33.5x.
• Analysts expect the number of shares outstanding to decline by 6.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.45%, as per the Simply Wall St company report.

Thomas Cook (India) Future Earnings Per Share Growth

Risks

• The recent retirement of Executive Chairman Madhavan Menon introduces potential uncertainty in leadership, which could affect the company's strategic direction and governance, impacting future revenue growth and earnings.
  
• Currency fluctuations, such as the significant 8% depreciation of the Thai baht against the dollar in a short time frame, pose a risk to profitability, especially in pre-contracted businesses where margins could be squeezed, affecting net margins.
  
• Geopolitical tensions, particularly in the Middle East, have affected demand and occupancy rates, which could lead to reduced revenues and unpredictable earnings in those regions if such tensions persist.
  
• The termination of a major customer contract in East Africa, which constituted a substantial portion of sales, highlights vulnerability in customer concentration and could impact overall sales growth and net margins until new customers are acquired.
  
• One-off grants, such as those previously seen by DEI in the U.S., create non-recurring revenue contributions; the absence of such grants in future periods can negatively impact profitability comparisons and earnings stability.

Valuation

• The analysts have a consensus price target of ₹256.5 for Thomas Cook (India) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹283.0, and the most bearish reporting a price target of just ₹230.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹116.4 billion, earnings will come to ₹5.2 billion, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 15.5%.
  
• Given the current share price of ₹131.6, the analyst price target of ₹256.5 is 48.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.