Cox & Kings’ stock has been on a steady climb this month, rising by 42% from a low of Rs.141 on October 1 to an intraday high of Rs.213.5 on October 16 even as the Sensex and Nifty continued their slide. The rise, however, is not due to any new-found investor confidence but its promoters who have stepped in, increasing their stake. Between October 1 and 15, promoters Peter Kerkar-led entity Sneh Sadan Traders and Agents and Elisabetha Kerkar-led entity Liz Traders and Agents bought 638,444 shares worth around Rs.116 million in 11 tranches.
Before the promoters intervened in October, the stock was in a free fall. From its 52-week high of Rs.281 on January 2, 2018, the stock had dropped to a 52-week low of Rs.141 on October 1, 2018 as the company’s margins came under severe pressure during the past couple of quarters. In the first quarter of FY19, revenue increased 15.8% YoY to Rs.8.17 billion. However, the EBITDA margins shrunk by 1643 bps (Y-O-Y) due to higher other expenses led by forex loss of Rs.910 million.
The company’s muted performance has made brokerages cautious. While remaining positive on the stock in the long-run, thanks to higher domestic leisure revenue and international revenue led by Meininger, analysts at ICICI Direct expect increasing working capital requirements to keep debt at elevated levels. “Although the company had repaid Rs.6 billion in FY17, debt levels are back to Rs.39.07 billion in FY18 led by higher working capital. Further, considering higher capex in the education business, we believe it will be difficult for the company to reduce debt in FY19 against a guided debt reduction of Rs.1.8-2 billion each year,” says the report.
The demerger of its forex business has entered the last phase with October 26 being fixed as the record date. The decision to spin off the forex business was taken to enable it to capitalise on growth opportunities in an independent manner. Analysts believe that the demerger will drive the value for its investors over the long term. Excluding the forex impact, the company’s EBITDA grew 15% YoY to Rs.3.89 billion in the June quarter thanks to a rebound in the operating margin of its international leisure segment.
Before the acquisition spree in October, promoter Anthony Bruton Meyrick Good had sold shares worth Rs.849 million in December 2017 and January 2018. The promoter holding has gone down over the last four quarters, dropping to 49.34% in September 2018 from 51.26% in September 2017.
While the promoters were trimming their holding, foreign portfolio investors (FPIs) kept increasing their stake in the company, from 33.23% in September 2017 to 40% in Q2FY19. As of September 2018, 13 FPIs including New Horizon Opportunities Master Fund, Karst Peak Asia Master Fund and Premier Investment Fund hold more than 1% stake in the company. However mutual fund houses have stayed away from the company. In September 2017, Tata Equity Opportunities Fund and Mirae Asset Tax Saver Fund held a 1.76% and 1.50% stake in the company. However, they completely exited the stock in March 2018.