Cox & Kings reported Q2FY19 numbers that were below our estimates on all fronts. Revenues grew 16.2% to Rs 754 crore (vs. I-direct estimate of Rs 774 crore). led by 36% YoY growth in the Meininger segment and 31% YoY growth in the education segment However, EBITDA came in at Rs 282.6 crore, down 16.6% YoY, dragged by forex loss of Rs 17 crore in Q2FY19 vs. forex gain of Rs 49 crore in Q2FY18. Excluding the forex impact, the company reported EBITDA growth of 2% YoY to Rs 296 crore on a like-to-like basis During the quarter, the company entered into an agreement with Midlothian Capital Partners to sell its education business for an all-cash enterprise value of Rs 4387 crore (i.e. £467 million).
We expect the company’s domestic leisure revenues to grow at 11% CAGR in FY18-20E mainly led by improving domestic spend and higher growth in foreign tourist arrivals. The company plans to increase bed capacity at Meininger at 28% CAGR in FY18-22E will also drive the revenue growth of its international segment. With concerns over high debt now being addressed, we turn positive on the company with a BUY rating on the stock. Valuing at 6.5x FY20E adjusted EBITDA, we maintain our target price of Rs 220 per share.