Detailed Rationale

CRISIL Ratings has upgraded its long-term rating on the bank loan facilities of TC Tours Limited (TCTL) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ and reaffirmed the short-term rating at ‘CRISIL A1’.

 

The upgrade in rating reflects similar rating action by CRISIL Ratings on ratings of TC Tours’ parent Thomas Cook India Ltd (TCIL)

 

The ratings reflect the established market position and extensive experience of TC Tours management as a ticket management company and an integral part of Thomas Cook Group. These strengths are partially offset by susceptibility of profitability to industry competition and to any adverse macroeconomic event impacting the tourism industry.

 

The rating also continues to derive comfort from ultimate parent, Fairfax Financial Holdings Ltd (Fairfax, rated by S&P at ‘BBB/Stable’) and strong parent support from Thomas Cook India Ltd (CRISIL AA-/Stable/CRISIL A1+), healthy liquidity of TCIL group in the form of cash & cash equivalents against limited external debt supporting the capital structure along with strong recovery post covid-19 pandemic. The ratings also factor in the TCIL group’s dominant position in the forex business and strong brand equity in travel-related services.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of financial and managerial support available to TC Tours from TCIL

Key Rating Drivers & Detailed Description

Strengths:

• Strong business linkages, as an integral ticketing arm, with the parent

TC Tours acts as a captive ticket management service provider for corporate travel, outbound leisure travel and domestic travel for TCIL and SOTC Travel Ltd (SOTC; ‘CRISIL AA-/Stable /CRISIL A1+’; wholly owned subsidiary of TCIL). Majority of TCIL’s corporate travel and domestic travel air ticketing business is routed through TC Tours. While the air ticketing business has been the primary source of revenue to TC Tours, the company, with an objective of achieving buying efficiencies, started undertaking land arrangement services (including vendor management for hotel bookings and sightseeing, among other services, for domestic and corporate travel) for TCIL and SOTC in fiscal 2018. Strong business linkages with the parent are also reflected in gross operating margin sharing between group companies and TC Tours. Additionally, TC Tours continues to receive management support from the parent with three of its directors being senior executives of TCIL.

 

• Comfortable capital structure supported by limited debt

TC Tours works on an asset-light model with infrastructure services shared with TCIL across business locations, resulting in a comfortable capital structure despite small networth. Gearing (adjusted debt to net worth ratio) was moderate at 2.90 times as on 31Mar2023 (31Mar2022: 2.13 times). Debt protection metrics improved in fiscal 2023 with adjusted interest coverage of 3.22 time (Fiscal 2022: 1.22 time). However, working capital management is supported by credit from International Air Transport Association (IATA) used for booking tickets for full-cost carriers, corporate card providers for making payments to low-cost carriers and creditors in the land arrangement business. These are supported by maintaining equivalent receivables from the corresponding group companies.

 

Weaknesses:

• Small scale of operations and limited scope for business growth with no external engagements

The small scale is reflected in low revenue and operating profit, as the company had minimal operations till fiscal 2015 and only witnessed material improvement in its scale of operations since fiscal 2016. Revenue sharply rose during fiscals 2019 and 20, on account of increase in the share of land arrangement business to around 80% in fiscal 2020 from 18% in fiscal 2018. However, revenue for the land arrangement business is booked on a gross basis against accounting on a net basis for the air ticketing business, resulting in a corresponding increase in expenses during the year and limiting profitability margin for the company. Furthermore, being a captive service provider, TC Tours has no outside client engagement and relies on its parent and group companies for sourcing revenue. This results in margin sharing with group companies contributing to modest operating margin and limits business growth opportunities.

 

• Exposure to competition and susceptibility to cyclicality in the travel industry

Because of low fixed asset requirement and low technological complexity, the industry has low entry barriers and a large number of players. The group’s competitive position may improve in the medium term due to the impact of the pandemic on weaker players. However, the fragmentation of the industry constrains the operations of TC Tours, thereby limiting its profitability. Additionally, the travel and tourism industry is cyclical and vulnerable to geo-political risks and external events.

Liquidity: Strong

The rated instruments have strong liquidity as company benefits from support provided by TCIL. On a standalone basis, liquidity of TC Tours is moderate with minimal repayment obligation of Rs.3.9 crore; and has access to fund-based limits of Rs 9 crore, with limited utilization. Additionally, TCIL has provided an undertaking to maintain minimum liquidity of Rs 60 crore in the form of cash balance and unutilised fund-based limits at all times for meeting the obligation on the working capital limit of TC Tours.

Outlook: Stable

The outlook is based on the rating outlook of CRISIL Ratings on the debt instruments and bank facilities of TCIL.

Rating Sensitivity factors

Upward factors

• Change in the credit profile of the parent, resulting in upgrade in its rating by 1 or more notches
• Sustained increase in scale of operations while maintaining healthy financial risk profile.

 

Downward factors

• Weakening in the credit risk profile of the parent, resulting in a downgrade in its rating by 1 or more notches
• Change in TCIL’s ownership and support philosophy towards TC Tours

About the Company

TC Tours, a wholly owned subsidiary of TCIL, offers ticket management solutions for Thomas Cook India's diversified line of businesses, including corporate travel, MICE (meetings, incentives, conferencing and exhibitions), leisure travel and ad hoc partnerships with on-ground suppliers and destination management companies in India and abroad. It has presence in Goa and across the major cities of New Delhi, Bengaluru, Chennai, Pune, Hyderabad, Kolkata, Ahmedabad and Vadodara.

 

TC Tours acts as a captive ticket management service provider for corporate travel, outbound leisure travel and domestic travel for TCIL, SOTC and TC Travel. While the primary source of revenue for TC Tours has been air ticketing, the company started undertaking land arrangement services for TCIL and SOTC in fiscal 2018.

About the Parent

TCIL is the leading integrated travel and travel-related financial services company in India, offering a broad spectrum of services that include foreign exchange (forex), corporate travel, leisure travel and visa and passport services.

 

In May 2012, Fairfax Financial Holdings (Fairfax; rated 'BBB/Stable' by S&P Global Ratings) bought 77% stake in the Thomas Cook Group Plc's India entity, TCIL, through its wholly owned subsidiary, Fairbridge Capital Mauritius Ltd (FCML). As on March 31, 2022, FCML's shareholding in TCIL was 70.5%. Fairfax is a Toronto-based financial services holding company with global presence in insurance and reinsurance and a large portfolio of around USD 40 billion as on March 31, 2021, invested worldwide.

 

In February 2013, TCIL acquired 74% stake in IKYA Human Capital Solutions Pvt Ltd (now known as Quess Corp) for Rs 256 crore. On completion of TCIL’s corporate restructuring scheme in fiscal 2020, Quess Corp has been demerged from the TCIL group. In February 2014, TCIL acquired Sterling Holiday Resorts (India) Ltd, a vacation ownership company. The acquisition was primarily funded using Rs 500 crore infused by the parent, Fairfax.

 

TCIL acquired the Kuoni group’s travel-related businesses in Hong Kong (November 2015) and in India (December 2015) for around Rs 535 crore, and DMS business in June 2017 for Rs 140 crore. In October 2017, the group acquired TATA Capital Forex Ltd (forex business) and TC Travel and Services Ltd (travel services business) from TATA Capital Ltd (‘CRISIL AAA/Stable/CRISIL A1+’).

 

On February 25, 2019, TCIL (under its subsidiaries) entered into an agreement to acquire 51% stake in Digiphoto Entertainment Imaging group (DEI), with an enterprise value of Rs 289 crore (USD 40.6 million). This acquisition was completed on March 28, 2019. DEI is a leading souvenir imaging solutions provider and is associated with over 120 partners across 14 countries.

Key Financial Indicators*

Particulars	Unit	2023	2022
Revenue	Rs crore	350	109
Profit after tax (PAT)	Rs crore	10	1
PAT margin	%	2.8	0.7
Adjusted debt/adjusted networth	Times	2.90	2.13
Interest coverage**	Times	3.22	1.24

*The numbers reflect analytical adjustments made by CRISIL Ratings

**Includes bank charges for bank guarantees

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs crore)	Complexity Level	Rating Assigned with Outlook
NA	Bank Guarantee	NA	NA	NA	50	NA	CRISIL A1
NA	Overdraft Facility	NA	NA	NA	10	NA	CRISIL A+/Stable