Thomas Cook (India), the 115-year-old affiliate of $16 billion Thomas Group, has established itself as a dominant player in retail foreign exchange market and also in the travellers cheques segment.

The company's income mix comprises 70-80 per cent forex earnings, 10-15 per cent travel management and the balance from leisure travel. Thomas Cook has pioneered travel-related services in India and has developed its businesses such that the entire spectrum of activities leads to a high level of value addition.

The travel management business serves as a precursor for the forex business, which brings in bulk of income. Forex dealership or travel management alone leads to much lower value addition.

During 1996, the company reported an income of Rs 52.47 crore up from Rs 43.26 crore the previous year. Net profit also spurted from Rs 10.86 crore to Rs 13.65 crore. There has, however, been a consistent decline in operating margins, which has come down from 54.19 per cent in 1994 to 50.09 per cent in 1996.

The fall in margin was particularly steep in the second half of 1996, when it dropped to 45 per cent as compared to the 53 per cent achieved in the corresponding half in the previous year.

The picture would have been worse but for the change in accounting policy of foreign exchange transaction that resulted in an additional profit of Rs 62.40 lakh. This fall in margin could be mainly attributed to the increased competition in the money changing business. The number of licences given by the Reserve Bank of India to money changers has increased from six in 1993 to over 500 now. Although not all these players are currently active, the 10-15 large players are giving the company a tough time.

American Express travel related service is posing a threat to the leader with a market share of 38 per cent. During the first four months of the current year Thomas Cook reported a 20 per cent growth. Going by the same trend, it will most likely end the year with a total income of Rs 62.34 crore. Although gross margins will be depressed, the company is one of the largest beneficiary of the reduction in corporate taxes. Thomas Cook has always been an investor-friendly company. It has announced five bonuses in last 10 years and long term investors have been immensely benefited. Bonuses account for 92 per cent of today's paid-up capital. The company is quoting at Rs 1,180 (cum-bonus 2:3), which gives an effective price of Rs 700 per share.

At the current price, the scrip appears to be over valued as the company has historically been quoted at a price multiple of 28-32 times. Estimating the earning per share at Rs 22 for 1997, the company is likely to be in the bracket of Rs 600-700. Long-term investors can pick up the stock ex-bonus at around Rs 600 levels. (Specially prepared for The Financial Express by Kensource Financial) .

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.