Rating Rationale
October 13, 2020 | Mumbai
Thomas Cook India Limited
Ratings downgraded to 'CRISIL A+/CCR A+/Negative/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities Rated Rs.739 Crore
Long Term Rating CRISIL A+/Negative (Downgraded from 'CRISIL AA-/Negative')
Short Term Rating CRISIL A1 (Downgraded from 'CRISIL A1+')
 
Corporate Credit Rating CCR A+/Negative (Downgraded from 'CCR AA-/Negative')
Rs. 50 Crore Commercial Paper CRISIL A1 (Downgraded from 'CRISIL A1+')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on the bank facilities and debt programmes of Thomas Cook India Limited (TCIL) to 'CRISIL A+/CCR A+/Negative/CRISIL A1' from 'CRISIL AA-/CCR AA-/Negative/CRISIL A1+'.
 
The rating action reflects weakening of TCIL's business and financial risk profiles owing to the adverse impact of the Covid-19 pandemic on the travel and tourism industry. Continued travel restrictions and negative customer sentiments have severely impacted leisure and corporate travel, and the foreign exchange (forex) business. This may lead to operating losses during fiscal 2021 and substantially reduce the net free cash (over Rs 200 crore reported as on March 31, 2020).
 
During the first quarter of the fiscal, TCIL reported EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of Rs 80 crore (as against Rs 103 crore for the corresponding period in previous fiscal) and also reported reduction in cash & cash equivalents of around Rs 240 crore due to the lockdown.
 
While economies are gradually opening up since the last quarter, domestic remains significantly lower than pre-pandemic levels and international travel is yet to resume. TCIL is undertaking several cash preservation measures including optimisation of payroll cost, reduction in marketing and overhead costs, renegotiation of lease rentals and supplier contracts. The said measures are expected to result in savings of more than Rs 550 crore during the fiscal. Additionally, recent withdrawal of the share buyback offer will further reduce cash outflow by around Rs 180 crore (including tax on share buyback). Further, the company is looking to reengineer the business, focusing on aspects such as contactless customer experience, increased digitisation and process efficiencies.
 
The forex business, classified as an essential service, resumed operations since mid-April 2020. While the gross volume in forex business has been lower than pre-pandemic levels, it has picked up on a month-on-month basis and the business has turned cash positive since June 2020. Continued ramp-up in both the travel and forex volume remains a key monitorable.
 
TCIL's ratings factor in expectation of strong support from its ultimate parent, Fairfax Financial Holdings Ltd (Fairfax) during the current fiscal, towards revival of business and strengthening of liquidity and financial profile. Fairfax has been providing the required financial and managerial support to TCIL in the past too, given its strategic importance to the parent. Continued support from the parent will be a key rating sensitivity factor.
 
Additionally, the ratings continue to reflect the Thomas Cook India group's dominant position in the forex business, strong brand equity in travel-related services, limited debt and healthy liquidity supporting the capital structure. These strengths are partially offset by susceptibility to geo-political risk and intense competition in the travel and tourism industry. Moreover, the group also faces risk related to its inorganic growth strategy.
 
The 'Negative' outlook reflects the risk of slower-than-expected recovery in the travel and forex business and hence their profitability, during the next few quarters owing to a prolonged pandemic.

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), Travel Corporation India Ltd (TCI), SOTC Travel Ltd ('CRISIL A+/Negative/CRISIL A1'), 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.
 
Also, for arriving at the rating, CRISIL has applied the parent notch-up framework to factor in the support from the parent, Fairfax.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
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 benefits from the sound relationship with large banks in India, while 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 25 countries with a large network of 600+ retail outlets) and strong brand equity.
 
* Strong support from parent, driven by TCIL's high strategic importance
TCIL is strategically important to Fairfax, and has been one of the acquisition vehicles for the parent in India. Over the years, Fairfax has been extending regular funding support to TCIL, via equity or preference shares mainly towards business acquisitions. Also, Fairfax has strong managerial oversight over TCIL, with three nominees, including the chairman, on the board. Any change in the support philosophy of the parent towards TCIL shall be a key rating sensitivity factor.
 
* Limited debt supporting healthy capital structure; High customer advances supports liquidity
As on March 31, 2020, adjusted gearing (ratio of adjusted debt to adjusted networth) was low at 0.5 time (0.1 time as on March 31, 2019). TCIL had nil long term debt on a standalone basis and consolidated debt of Rs 508 crore, including term debt of Rs 285 crore as on March 31, 2020. Large customer advances, including that from prepaid forex cards, supports efficient working capital management and maintenance of sufficient liquidity.
 
Weaknesses:
* Susceptibility to geo-political risks and competition
Operating margin in the travel business remains vulnerable to adverse events and geo-political risk. TCIL's travel business did face challenges during fiscal 2020, due to various factors such as the closure of Jet Airways leading to increased airfares, terror attacks in Sri Lanka, and negative customer sentiment because of the collapse of Cox & Kings. Furthermore, the global travel industry has been severely impacted since January 2020, on account of reduced travel amidst the pandemic. Prolonged travel restrictions, coupled with continued travel aversion among customers, could further impact TCIL, and would thereby remain a key monitorable.
 
The group's competitive position may improve in the medium term due to the impact of the pandemic on weaker players. However, competition from organised and unorganised players including online ones, along with slowdown in the travel segment globally, may continue to constrain pricing power and profitability.
 
* Exposure to risks related to growth strategy through acquisitions
Over the years, TCIL 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 had been stable despite these transactions, on account of support received from the parent, pursuing growth via acquisitions could materially alter the credit profile in case of slower-than-expected ramp up of acquired businesses and, therefore, remains a key rating sensitivity factor.
Liquidity Strong

Liquidity remains healthy, aided by cash and cash equivalents of Rs 936 crore as on June 30, 2020, against term debt repayment obligation of Rs 96 crore in fiscal 2021. Liquidity is supported by advances received from customers. On a standalone level, TCIL has no long-term debt, and utilisation of the fund-based limit averaged 55% over the six months ending August 31, 2020. Its subsidiaries are expected to service debt through internal accrual and need-based support from TCIL.

Outlook: Negative

CRISIL believes TCIL's profitability and cash flow metrics could be materially impacted in case of slower-than-expected recovery in the travel business, subsequent to the pandemic.

Rating Sensitivity factors
Upward factors
* Change in credit risk profile of ultimate parent, Fairfax, resulting in an upgrade in its rating by one notch
* Higher-than-expected revenue and profitability leading to improved liquidity and return on capital employed (RoCE)
 
Downward factors
* Weakening in credit risk profile of Fairfax, resulting in a downgrade in its rating by one notch
* Change in support philosophy from ultimate parent, Fairfax, towards TCIL
* Slower-than-expected ramp up in revenue and operating profitability, leading to further reduction in liquidity and RoCE
About the Group

TCIL is a leading integrated travel and travel-related financial services company in India, offering a broad spectrum of facilities including forex, corporate travel, leisure travel, and visa and passport services.
 
In May 2012, Fairfax bought a 77% stake in TCIL through its wholly-owned subsidiary, Fairbridge Capital Mauritius Ltd (FCML). As on June 30, 2020, FCML's shareholding in TCIL was 65.6%. Fairfax is a Toronto-based financial services holding company with global presence in insurance and reinsurance and a large portfolio of USD 39 billion as on December 31, 2019, invested worldwide.
 
In September 2014, TCIL acquired Sterling, a vacation ownership company. The transaction was primarily funded using Rs 500 crore infused by the parent, Fairfax, through FCML in the form of compulsorily convertible preference shares.
 
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 DMS business covering 17 countries across Asia, Australia, the Middle East, Africa, and the Americas for Rs 140 crore in June 2017. 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+').
 
In May 2013, TCIL had acquired a 74% stake in Quess for Rs 256 crore. In November 2017, TCIL divested a 5.42% stake in Quess for about Rs 640 crore, while retaining the controlling stake. On completion of TCIL's corporate restructuring scheme in fiscal 2020, via issuance of 1,886 equity shares of Quess (of Rs 10 each) for every 10,000 equity shares (of Re 1 each) held in TCIL, Quess has been demerged from the TCIL group.
 
On February 25, 2019, TCIL (through its subsidiaries) acquired a 51% stake in 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, associated with over 120 partners across 14 countries.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 6909 6667
Profit after tax (PAT) Rs crore (18)** 89
PAT margin % -0.3 1.3
Adjusted debt/adjusted networth Times 0.47 0.06
Interest coverage Times 2.46 3.44
*The numbers reflect analytical adjustments made by CRISIL Ratings
**Includes exceptional item expense of ~ Rs 39 crore (provision for stamp duty charges and impairment of intangible assets). Excluding the exceptional item, PAT for FY2020 would be Rs 12.5 crore.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Commercial Paper NA NA 7-365 days 50 Simple CRISIL A1
NA Bank Guarantee NA NA NA 83 NA CRISIL A1
NA Bank Guarantee $ NA NA NA 15 NA CRISIL A1
NA Bank Guarantee* NA NA NA 30 NA CRISIL A1
NA Cash Credit** NA NA NA 45 NA CRISIL A+/Negative
NA Letter of credit## NA NA NA 55 NA CRISIL A1
NA Overdraft NA NA NA 65 NA CRISIL A1
NA Overdraft NA NA NA 49 NA CRISIL A1
NA Overdraft @ NA NA NA 43 NA CRISIL A+/Negative
NA Overdraft NA NA NA 16 NA CRISIL A+/Negative
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 338 NA CRISIL A+/Negative
NA Corporate Credit Rating NA NA NA 0 NA CCR A+/Negative
$ Interchangeable with overdraft (OD) to the extent of Rs 5 crore
* Interchangeable with letters of credit (LC) to the extent of Rs 20 crore 
** Fully interchangeable with LC
## Fully interchangeable with bank guarantee (BG)
@ Including the corporate cards limits of Rs 10 crore which is fully interchangeable with OD; Fully interchangeable with LC/BG
 
Annexure - List of entities consolidated
Sr. No Name of the Company Type of consolidation Rationale for consolidation
1 Asian Trails (Vietnam) Co Ltd Full consolidation Subsidiary
2 Asian Trails Co Ltd Full consolidation Subsidiary
3 Asian Trails Holdings Ltd Full consolidation Subsidiary
4 Asian Trails Ltd Full consolidation Subsidiary
5 Asian Trails SDN BHD Full consolidation Subsidiary
6 Asian Trails Tours Ltd Full consolidation Subsidiary
7 AT Lao Co, Ltd Full consolidation Subsidiary
8 Australian Tours Management Pty Ltd Full consolidation Subsidiary
9 Borderless Travel Services Ltd Full consolidation Subsidiary
10 Chang Som Ltd Full consolidation Subsidiary
11 Desert Adventures Tourism Ltd Full consolidation Subsidiary
12 Desert Adventures Tourism LLC Full consolidation Subsidiary
13 Gulf Dunes LLC Full consolidation Subsidiary
14 Gulf Dunes Tourism LLC Full consolidation Subsidiary
15 Horizon Travel Services LLC (USA) Full consolidation Subsidiary
16 Indian Horizon Marketing Services Ltd Full consolidation Subsidiary
17 Jardin Travel Solutions Ltd Full consolidation Subsidiary
18 Kuoni Australia Holding Pty Ltd Full consolidation Subsidiary
19 Kuoni Destination Management (Beijing) Ltd Full consolidation Subsidiary
20 Kuoni Private Safaris (Pty) Ltd Full consolidation Subsidiary
21 Kuoni Private Safaris Namibia (Pty) Ltd Full consolidation Subsidiary
22 Luxe Asia (Pvt) Ltd Full consolidation Subsidiary
23 Muscat Desert Adventures Tourism LLC Full consolidation Subsidiary
24 Nature Trails Resorts Pvt Ltd Full consolidation Subsidiary
25 Private Safaris (East Africa) Ltd Full consolidation Subsidiary
26 PT. Asian Trails Ltd Full consolidation Subsidiary
27 Reem Tours & Travels LLC Full consolidation Subsidiary
28 SITA World Travel (Nepal) Pvt Ltd Full consolidation Subsidiary
29 SITA World Travel Lanka (Pvt) Ltd Full consolidation Subsidiary
30 SOTC Travel Ltd (formerly Known as SOTC Travel Pvt Ltd) Full consolidation Subsidiary
31 SOTC Travel Management Pvt Ltd (formerly known as SITA Travels and Tours Pvt Ltd) Full consolidation Subsidiary
32 Sterling Holiday Resorts (Kodaikanal) Ltd Full consolidation Subsidiary
33 Sterling Holiday Resorts Ltd Full consolidation Subsidiary
34 Sterling Holidays (Ooty) Ltd Full consolidation Subsidiary
35 TC Forex Services Ltd (formerly known as Tata Capital Forex Ltd Full consolidation Subsidiary
36 TC Tours Ltd (formerly known as Thomas Cook Tours Limited) Full consolidation Subsidiary
37 TC Travel and Services Ltd Full consolidation Subsidiary
38 TC Visa Services (India) Ltd Full consolidation Subsidiary
39 TCI-GO Vacation India Pvt Ltd Full consolidation Subsidiary
40 Thomas Cook (Mauritius) Holding Company Ltd Full consolidation Subsidiary
41 Thomas Cook (Mauritius) Holidays Ltd Full consolidation Subsidiary
42 Thomas Cook (Mauritius) Operations Company Ltd Full consolidation Subsidiary
43 Thomas Cook Lanka (Pvt) Ltd Full consolidation Subsidiary
44 Travel Circle International (Mauritius) Ltd Full consolidation Subsidiary
45 Travel Circle International Ltd; formerly known as Luxe Asia Travel (China) Ltd Full consolidation Subsidiary
46 Travel Corporation (India) Ltd Full consolidation Subsidiary
47 DEI Holdings Ltd Full consolidation Subsidiary
48 Digiphoto Entertainment Imaging LLC Full consolidation Subsidiary
49 Digiphoto Entertainment Imaging SDN BHD Full consolidation Subsidiary
50 Digiphoto Entertainment Imaging Pte Ltd Full consolidation Subsidiary
51 PT. Digiphoto Imaging Indonesia Full consolidation Subsidiary
52 Digiphoto Entertainment Image (Shanghai Co) Ltd Full consolidation Subsidiary
53 Digiphoto Entertainment Imaging Ltd Full consolidation Subsidiary
54 Digiphoto Imaging (Macau) Ltd Full consolidation Subsidiary
55 DEI Solutions Ltd Full consolidation Subsidiary
56 Digiphoto SAE Full consolidation Subsidiary
57 Digiphoto Entertainment Imaging Co Ltd Full consolidation Subsidiary
58 D E I General Trading LLC Full consolidation Subsidiary
59 Digi Photo Electronics Repairing LLC Full consolidation Subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
--  CCR  0.00  CCR A+/Negative  27-03-20  CCR AA-/Negative  22-11-19  CCR AA-/Stable    --    --  -- 
            09-10-19  CCR AA-/Stable           
Commercial Paper  ST  50.00  CRISIL A1  27-03-20  CRISIL A1+    --    --    --  -- 
Non Convertible Debentures  LT    --    --    --  03-05-18  Withdrawal  04-10-17  CRISIL AA-/Stable  CRISIL AA-/Stable 
                    18-08-17  CRISIL AA-/Stable   
                    30-05-17  CRISIL AA-/Stable   
Short Term Debt (Including Commercial Paper)  ST          22-11-19  CRISIL A1+  27-07-18  CRISIL A1+  04-10-17  CRISIL A1+  CRISIL A1+ 
            09-10-19  CRISIL A1+  03-05-18  CRISIL A1+  18-08-17  CRISIL A1+   
            26-09-19  CRISIL A1+      30-05-17  CRISIL A1+   
            06-03-19  CRISIL A1+           
            21-01-19  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  556.00  CRISIL A+/Negative/ CRISIL A1  27-03-20  CRISIL AA-/Negative/ CRISIL A1+  22-11-19  CRISIL AA-/Stable/ CRISIL A1+  27-07-18  CRISIL AA-/Watch Developing/ CRISIL A1+  04-10-17  CRISIL AA-/Stable/ CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
            09-10-19  CRISIL AA-/Stable/ CRISIL A1+  03-05-18  CRISIL AA-/Watch Developing/ CRISIL A1+  18-08-17  CRISIL AA-/Stable/ CRISIL A1+   
            26-09-19  CRISIL AA-/Stable/ CRISIL A1+      30-05-17  CRISIL AA-/Stable/ CRISIL A1+   
            06-03-19  CRISIL AA-/Stable/ CRISIL A1+           
            21-01-19  CRISIL AA-/Stable/ CRISIL A1+           
Non Fund-based Bank Facilities  LT/ST  183.00  CRISIL A1  27-03-20  CRISIL A1+  22-11-19  CRISIL A1+  27-07-18  CRISIL A1+  04-10-17  CRISIL A1+  CRISIL A1+ 
            09-10-19  CRISIL A1+  03-05-18  CRISIL A1+  18-08-17  CRISIL A1+   
            26-09-19  CRISIL A1+      30-05-17  CRISIL A1+   
            06-03-19  CRISIL A1+           
            21-01-19  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 83 CRISIL A1 Bank Guarantee1 6 CRISIL A1+
Bank Guarantee$ 15 CRISIL A1 Bank Guarantee2 120 CRISIL A1+
Bank Guarantee* 30 CRISIL A1 Bank Guarantee3 30 CRISIL A1+
Cash Credit** 45 CRISIL A+/Negative Cash Credit4 45 CRISIL AA-/Negative
Letter of Credit## 55 CRISIL A1 Letter of Credit5 285 CRISIL A1+
Overdraft 16 CRISIL A+/Negative Letter of Credit 10 CRISIL A1+
Overdraft@ 43 CRISIL A+/Negative Overdraft7 63 CRISIL AA-/Negative
Overdraft 65 CRISIL A1 Overdraft 65 CRISIL A1+
Overdraft 49 CRISIL A1 Overdraft6 49 CRISIL A1+
Proposed Long Term Bank Loan Facility 338 CRISIL A+/Negative Proposed Long Term Bank Loan Facility 63 CRISIL AA-/Negative
-- 0 -- Bank Guarantee 3 CRISIL A1+
Total 739 -- Total 739 --
$ Interchangeable with overdraft (OD) to the extent of Rs 5 crore
* Interchangeable with letters of credit (LC) to the extent of Rs 20 crore 
** Fully interchangeable with LC
## Fully interchangeable with bank guarantee (BG)
@ Including the corporate cards limits of Rs 10 crore which is fully interchangeable with OD; Fully interchangeable with LC/BG
1. Fully interchangeable with letter of credit (LC)
2. Letters of credit interchangeable with bank guarantee to the extent of Rs 50 crore
3. Letters of credit interchangeable with bank guarantee to the extent of Rs 20 crore
4. Fully interchangeable with working capital demand loan (WCDL) and Letter of Credit (LC)/ bank guarantee (BG)
5. 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
6. Facility of Rs 49 crore interchangeable with LC of up to Rs 25 crore
7. Facility of Rs 55 crore fully interchangeable between LC and BG
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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