Rating Rationale
July 27, 2018 | Mumbai
Thomas Cook India Limited
Rating continues on 'Watch Developing' ; short-term rating reaffirmed 
Rating Action
Total Bank Loan Facilities Rated Rs.739 Crore
Long Term Rating CRISIL AA- (Continues on 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A1+ (Reaffirmed) 
Rs.100 Crore Short Term Debt (Including Commercial Paper) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the long-term bank facilities of Thomas Cook India Limited (TCIL; part of the Thomas Cook group) continues to be on 'Rating Watch with Developing Implications'; short-term bank facilities and short-term debt (including commercial paper) is reaffirmed at 'CRISIL A1+'.
The long-term rating was placed on watch on May 3, 2018, post announcement by the company's board for corporate restructuring; this includes consolidation of related businesses under the travel and human resources (HR) services segment. As part of the scheme, the inbound business of Travel Corporation India Ltd (TCI; 'CRISIL AA-/Watch Developing ') will be demerged into SOTC Travel Management Pvt Ltd, a wholly owned subsidiary of TCIL. Thereafter, the residual business of TCI will be merged with TCIL along with other subsidiaries - TC Forex Services Ltd and TC Travel and Services Ltd. Also, the HR services business, mainly housed under Quess Corp Ltd (Quess Corp), will be demerged from the Thomas Cook group by share swap. The scheme is subject to sanction by the respective shareholders of each of the companies involved in the scheme and requisite statutory and regulatory approvals. CRISIL is in discussion with the management to better understand the scheme of arrangement and evaluate the impact of the revised structure on the group's credit risk profile. CRISIL will remove the rating from watch and take a final rating action once it obtains clarity on these aspects. The reaffirmation of the short-term rating is driven by adequate liquidity and management's intent to utilise this to reduce debt over the medium term.
The ratings continue to reflect the Thomas Cook group's healthy business risk profile driven by a dominant position in the foreign exchange (forex) business and strong brand equity in travel-related services; coupled with a comfortable capital structure and adequate liquidity. These strengths are partially offset by vulnerability of the travel business to geo-political risks and sub-optimal operating performance of the vacation ownership and resorts business. Moreover, the group is exposed to risks related to its strategy of growth through acquisitions, which could materially alter its business and financial risk profiles.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of TCIL and its subsidiaries, including Sterling Holiday Resorts Ltd (Sterling), TCI, SOTC Travel Ltd (SOTC; 'CRISIL AA-/Watch Developing'), Travel Circle International Ltd, Horizon Travel LLC and Travel Circle International (Mauritius) Ltd, together referred to as the Thomas Cook group. Earlier, Quess Corp had also been combined; however, following the recent announcement of restructuring, Quess Corp has not been considered as part of the group to arrive at the ratings.
The estimated goodwill arising from various acquisitions has been amortised over 5-10 years.

Key Rating Drivers & Detailed Description
* Dominant position in the forex business and strong brand equity in travel-related services
The Thomas Cook group leads both the wholesale and retail forex segments. The wholesale segment is strengthened by a sound relationship with large banks in India. Strong position in the retail segment is supported by a wide distribution network and synergies with the travel segment. The group has presence across the retail and corporate segments in the travel business and enjoys strong brand equity.
* Comfortable capital structure and strong liquidity
The group (on a consolidated basis, including Quess Corp) had maintained gearing (adjusted for tangible networth) of less than 1 time over the six fiscals ended March 31, 2015. However, gearing remained over 1 time for fiscals 2016 and 2017 primarily due to increased reliance on debt and networth adjusted for a sizeable one-time loss in Sterling and other intangible adjustments. Cash flow protection metrics, which moderated in fiscal 2016, are expected to improve over the medium term, as seen in fiscal 2017. Adjusted debt increased to about Rs 1,418 crore as on March 31, 2017 (Rs 1,111 crore as on March 31, 2016), to support existing business capital expenditure as well as working capital requirement and acquisitions. However, strong liquidity (Rs 1,547 crore in cash and cash equivalents [including current investments in mutual funds] as on March 31, 2017, against Rs 1151 crore as on March 31, 2016) and expected increase in profitability (even after the demerger of Quess Corp) continue to support financial risk profile.
* Susceptibility of the forex and travel businesses to geo-political risks and intense competition
Operating margin in the travel business is vulnerable to event and geo-political risks. Increasing competition from organised and unorganised players, along with the adverse impact of the global slowdown in the travel segment, led to pressure on pricing and operating margins of players. The group also has to compete with online players. Though it has transformed itself from a brick and mortar player to its current omni-channel business model, ability to increase low-cost e-business revenue share remains a key monitorable.
* Sub-optimal operating performance of the vacation ownership and resorts business
This business is housed under Sterling, performance of which has been modest on account of moderate occupancy and high fixed costs. Pace of improvement and any further write-offs (in fiscal 2016, there were significant one-time write-offs of about Rs 100 crore towards vacation ownership receivables and capital work-in-progress) will be key credit monitorables.
* Exposure to risks related to growth strategy through acquisitions, and its funding
TCIL is one of the acquisition vehicles for Fairfax Financial Holdings Ltd (Fairfax; rated 'BBB-/Stable' by S&P Global Ratings) in India. Over the years, the company has grown both organically and inorganically. It has completed multiple acquisitions (Quess Corp, Sterling, and Kuoni) over the past five fiscals. While financial risk profile has been maintained despite these transactions, strategy of growth through acquisitions could materially alter business and financial risk profiles, and therefore remains a key rating sensitivity factor.
About the Group

In May 2012, Fairfax 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, 2018, FCML's shareholding in TCIL was 67.03%. Fairfax is a Toronto-based financial services holding company with global presence in insurance and reinsurance and an asset portfolio in excess of USD3800 crore invested worldwide.
As part of the sale agreement, TCIL retains the right to use the Thomas Cook brand up to 2025 in its countries of operations'India, Sri Lanka, and Mauritius. Also, TCIL acquired the Kuoni group's travel-related businesses in Hong Kong (November 2015) and India (December 2015) for around Rs 535 crore; and the destination management specialists (DMS) business covering 17 countries across Asia, Australia, the Middle East, Africa, and the Americas in June 2017 for Rs 140 crore. In October 2017, the group also acquired Tata Capital Forex Ltd (forex business) and TC Travel and Services Ltd (travel services business), from Tata Capital Ltd ('CRISIL AA+/Stable/CRISIL A1+').
Traditionally, TCIL has operated solely in the forex and travel-related service segments. In February 2014, it announced the acquisition of Sterling Holiday Resorts (India) Ltd (SHRIL), a vacation ownership company. The transaction was primarily funded using Rs 500 crore infused by parent, Fairfax, through Fairbridge, in the form of compulsorily convertible preference shares. SHRIL became a subsidiary of TCIL from September 2014. Subsequent to the High Court order dated July 2, 2015, sanctioning the scheme of arrangement and amalgamation between SHRIL, Thomas Cook Insurance Services (India) Ltd (TCISIL), and TCIL, the timeshare and resorts business has been demerged into TCISIL (which has since been renamed Sterling Holiday Resorts Ltd), while the residual business of SHRIL has been amalgamated with TCIL by effecting a share swap between TCIL and SHRIL shareholders.
In February 2013, TCIL signed an investment agreement to acquire a 74% stake in IKYA Human Capital Solutions Pvt Ltd (now known as Quess Corp) for Rs 256 crore. The acquisition was completed in May 2013. Quess Corp, based in Bengaluru, provides integrated business services to clients. It completed a Rs 400 crore initial public offering in July 2016, followed by a Rs 873 crore institutional placement programme in August 2017. In November 2017, TCIL divested 5.42% stake in Quess Corp for about Rs 640 crore, while retaining controlling stake. On completion of the proposed corporate restructuring scheme by issuing 1,889 equity shares of Quess Corp (of Rs 10 each) for every 10,000 equity shares (of Re 1 each) held in TCIL, Quess Corp will be demerged from the TCIL group.

Key Financial Indicators*
Particulars Unit 2017 2016
Revenue Rs crore 8625 6122
Profit after tax (PAT) Rs crore 15 -153
PAT margins % 0.2 -2.5
Adjusted debt/Adjusted networth Times 1.15 1.32
Interest coverage Times 3.48 3.11
*Above numbers reflects analytical adjustments made by CRISIL Ratings

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Rating Assigned
with Outlook
NA Short-term debt (including commercial paper) NA NA 7-365 days 100.0 CRISIL A1+
NA Bank guarantee ^ NA NA NA 185 CRISIL A1+
NA Cash credit * NA NA NA 65 CRISIL AA-/Watch Developing
NA Letter of credit # NA NA NA 180 CRISIL A1+
NA Overdraft facility & NA NA NA 174 CRISIL A1+
NA Overdraft facility$ NA NA NA 135 CRISIL AA-/Watch Developing
^ Facility of Rs 120 crore interchangeable with letter of credit (LC) of up to Rs 25 crore
# Facility of Rs 85.0 crore interchangeable with post-shipment credit in foreign currency (PSFC) and bank guarantee of up to Rs 25 crore
& Facility of Rs 49.0 crore interchangeable with LC of up to Rs 25 crore; facility of Rs 100.0 crore fully interchangeable with LC and bank guarantee
$ Facility of Rs 15.0 crore interchangeable with working capital demand loan (WCDL) of up to Rs 12 crore; for facility of Rs 70.0-Rs 50 crore interchangeable with WCDL and short-term loan (STL), Rs 60 crore with LC; facility of Rs 50.0 crore fully interchangeable with WCDL and STL, Rs 30 crore with bank guarantee and Rs 10 crore with LC
* Fully interchangeable with WCDL, commercial paper, and LC
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT    --  03-05-18  Withdrawal  04-10-17  CRISIL AA-/Stable  09-12-16  CRISIL AA-/Stable  18-08-15  CRISIL AA-/Stable  CRISIL AA-/Stable 
            18-08-17  CRISIL AA-/Stable  07-12-16  CRISIL AA-/Stable       
            30-05-17  CRISIL AA-/Stable  15-11-16  CRISIL AA-/Stable       
Short Term Debt (Including Commercial Paper)  ST  100.00  CRISIL A1+  03-05-18  CRISIL A1+  04-10-17  CRISIL A1+  09-12-16  CRISIL A1+    --  -- 
            18-08-17  CRISIL A1+           
            30-05-17  CRISIL A1+           
Short Term Debt Issue  ST              07-12-16  CRISIL A1+  18-08-15  CRISIL A1+  CRISIL A1+ 
                15-11-16  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  374.00  CRISIL AA-/(Watch) Developing/ CRISIL A1+  03-05-18  CRISIL AA-/Watch Developing/ CRISIL A1+  04-10-17  CRISIL AA-/Stable/ CRISIL A1+  09-12-16  CRISIL AA-/Stable/ CRISIL A1+  18-08-15  CRISIL AA-/Stable/ CRISIL A1+  CRISIL AA-/Stable 
            18-08-17  CRISIL AA-/Stable/ CRISIL A1+  07-12-16  CRISIL AA-/Stable/ CRISIL A1+       
            30-05-17  CRISIL AA-/Stable/ CRISIL A1+  15-11-16  CRISIL AA-/Stable/ CRISIL A1+       
Non Fund-based Bank Facilities  LT/ST  365.00  CRISIL A1+  03-05-18  CRISIL A1+  04-10-17  CRISIL A1+  09-12-16  CRISIL A1+  18-08-15  CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
            18-08-17  CRISIL A1+  07-12-16  CRISIL A1+       
            30-05-17  CRISIL A1+  15-11-16  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee^ 185 CRISIL A1+ Bank Guarantee^ 185 CRISIL A1+
Cash Credit* 65 CRISIL AA-/Watch Developing Cash Credit* 65 CRISIL AA-/Watch Developing
Letter of Credit# 180 CRISIL A1+ Letter of Credit# 180 CRISIL A1+
Overdraft& 174 CRISIL A1+ Overdraft& 174 CRISIL A1+
Overdraft$ 135 CRISIL AA-/Watch Developing Overdraft$ 135 CRISIL AA-/Watch Developing
Total 739 -- Total 739 --
^ Facility of Rs 120 crore interchangeable with letter of credit (LC) of up to Rs 25 crore
# Facility of Rs 85.0 crore interchangeable with post-shipment credit in foreign currency (PSFC) and bank guarantee of up to Rs 25 crore
& Facility of Rs 49.0 crore interchangeable with LC of up to Rs 25 crore; facility of Rs 100.0 crore fully interchangeable with LC and bank guarantee
$ Facility of Rs 15.0 crore interchangeable with working capital demand loan (WCDL) of up to Rs 12 crore; for facility of Rs 70.0-Rs 50 crore interchangeable with WCDL and short-term loan (STL), Rs 60 crore with LC; facility of Rs 50.0 crore fully interchangeable with WCDL and STL, Rs 30 crore with bank guarantee and Rs 10 crore with LC
* Fully interchangeable with WCDL, commercial paper, and LC
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Mapping global scale ratings onto CRISIL scale

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