| Thomas Cook India Limited | ||||||
| Rating outlook revised to 'Negative'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities ^Earler Short Term Debt (Including CP) |
| Detailed Rationale |
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CRISIL has revised its outlook on the long-term bank facilities and corporate credit rating of Thomas Cook India Ltd (TCIL) to 'Negative' from 'Stable', and reaffirmed the rating at 'CRISIL AA-'. The rating on the commercial paper and short-term bank facility has been reaffirmed at 'CRISIL A1+'. |
| Analytical Approach |
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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), Travel Corporation India Ltd (TCI), SOTC Travel Ltd ('CRISIL AA-/Negative'), Travel Circle International Ltd, Horizon Travel Services LLC, Travel Circle International (Mauritius) Ltd, and Digiphoto Entertainment Imaging group (DEI). This is because all these entities, collectively referred to as the Thomas Cook India group, are strategically important to, and have considerable operational integration with, TCIL. Earlier, the business and financial risk profiles of IKYA Human Capital Solutions Pvt Ltd (now known as Quess) were also combined. However, following the business restructuring, Quess has not been considered a part of the group to arrive at the ratings. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Dominant position in the forex business and strong brand equity in travel-related services The group leads both the wholesale and retail forex segments. The wholesale business is strengthened by the sound relationship with large banks in India. The strong position in the retail segment is supported by a wide distribution network and synergies with the travel segment. The group has dominant presence across the retail and corporate segments in the organised travel business, with high geographical diversity (presence across 29 countries with a strong network of 660+ retail outlets) and strong brand equity. * Comfortable capital structure Strong liquidity of Rs 1,724 crore in cash and cash equivalents (including current investments in mutual funds) with net free cash of more than Rs 200 crore as on December 31, 2019, and limited term debt repayments (Rs 73 crore out of outstanding consolidated adjusted debt of Rs 360 crore as on December 31, 2019) over the next 12 months, support financial risk profile. However, cash flow protection metrics could be significantly impacted in case of prolonged Covid-19 situation and would be a key rating sensitivity factor. Weaknesses: * Susceptibility to geo-political risks and intense competition Operating margin in the travel business is vulnerable to adverse events and geo-political risks. Increasing competition from organised and unorganised players, along with the adverse impact of the global slowdown in the travel segment, may continue to constrain pricing power and profitability. 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, its ability to profitably increase its low-cost e-business revenue share remains a key monitorable. * Suboptimal operating performance of businesses Performance of the traditional travel businesses remained subdued given the evolving business environment. Moreover, incremental cost for building up digital capability weakened profitability in these businesses. Nevertheless, investments in technology and initiatives to improve efficiency should benefit the group. The performance of the vacation ownership and resorts business, housed under Sterling, has been modest owing to moderate occupancy and high fixed cost. Pace of improvement and any further write-off (in fiscal 2016, there was a significant one-time write-off of about Rs 100 crore towards vacation ownership receivables and capital work-in-progress) will be key credit monitorables. In June 2017, TCIL completed the acquisition of destination management specialist (DMS) entities of the Kuoni group, performance of which remained weak in the first year of operations post-acquisition. Also, the one-time expenditure resulted in losses in fiscal 2018. The management's focus on increasing scale and containing losses in these entities resulted in profits in the second quarter of fiscal 2019 compared to loss at the earnings before interest and taxes level in the second quarter of fiscal 2018. Nevertheless, the ability to scale up operations (by integrating and enhancing end-to-end service delivery capabilities of the acquired entities) and drive profitability (by leveraging investments in technology and targeting strategic benefits across businesses) remains a key rating sensitivity factor. * Exposure to risks related to growth strategy through acquisitions and their funding TCIL is one of Fairfax's acquisition vehicles. Over the years, the company has grown both organically and inorganically. It has completed multiple acquisitions (Quess, Sterling, Kuoni, and DEI) over the past seven fiscals. While the financial risk profile has been stable despite these transactions, the strategy of growth through acquisitions could materially alter the business and financial risk profiles and, therefore, remains a key rating sensitivity factor. |
| Liquidity Strong |
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Liquidity remains strong, with cash and cash equivalents of Rs 1,724 crore as on December 31, 2019, against repayment obligation of Rs 73 crore over the 12 months till December 31, 2020. Liquidity is driven by the nature of operations with significant advances from customers. Financial flexibility is enhanced by the ability to contract short- and long-term debt at competitive rates. On a standalone level, TCIL has no long-term debt, and working capital limit has been sparsely utilised. Its subsidiaries are expected to service debt through internal accrual and need-based support from TCIL. |
| Outlook: Negative |
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CRISIL believes TCIL's profitability and cash flow metrics could be materially impacted by continued travel restrictions due to prolonged Covid-19 situation. |
| Rating Sensitivity factors |
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Upward factors * Sustained increase in scale of operations without weakening the capital structure and debt protection metrics * Improved profitability of acquired businesses, leading to return on capital employed (RoCE) of more than 12% on a sustained basis Downward factors * Weaker capital structure because of large, debt-funded capital expenditure or acquisition * Structural changes to scale and cost of operations * Deterioration in the operating margin, with RoCE at less than 8% on a sustained basis |
| About the Group |
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TCIL is the leading integrated travel and travel-related financial services company in India, offering a broad spectrum of facilities that include forex, corporate travel, leisure travel, and visa and passport services. |
| Key Financial Indicators* | ||||||||||||||||||||||||
^Includes fair value gain of Rs 5903.21 crore, with Quess being reclassified from a subsidiary to an associate of TCIL under Ind AS 110 |
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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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$$ Fully interchangeable with letter of credit (LC) $ Letters of credit interchangeable with bank guarantee to the extent of Rs 50 crore * Letters of credit interchangeable with bank guarantee to the extent of Rs 20 crore ** Fully interchangeable with working capital demand loan (WCDL) and LC/ bank guarantee (BG) ## Facility of Rs 100 crore fully interchangeable with bank guarantee (BG) and post-shipment credit in foreign currency (PSFC) up to Rs 25 crore, facility of Rs 150 crore fully interchangeable between LC and BG, facility of Rs 35 crore interchangeable with BG up to Rs 15 crore @@ Facility of Rs 55 crore fully interchangeable between LC and BG @Facility of Rs 49 crore interchangeable with LC of up to Rs 25 crore | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ Letters of credit interchangeable with bank guarantee to the extent of Rs 50 crore * Letters of credit interchangeable with bank guarantee to the extent of Rs 20 crore ** Fully interchangeable with working capital demand loan (WCDL) and Letter of Credit (LC)/ bank guarantee (BG) ## Facility of Rs 100 crore fully interchangeable with BG and post-shipment credit in foreign currency (PSFC) up to Rs 25 crore, facility of Rs 150 crore fully interchangeable between LC and BG, facility of Rs 35 crore interchangeable with BG up to Rs 15 crore @@@ Facility of Rs 75 crore fully interchangeable between LC and BG @@ Facility of Rs 55 crore fully interchangeable between LC and BG @Facility of Rs 49 crore interchangeable with LC of up to Rs 25 crore | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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