Thomas Cook India : TCIL Q4 FY23 Transcript

THOMAS COOK (INDIA) LIMITED

Q4 FY2023 Earnings Conference Call

May 19, 2023

MANAGEMENT:

MR. MADHAVAN MENON - CHAIRMAN & MANAGING DIRECTOR, THOMAS COOK (INDIA) LIMITED MR. MAHESH IYER - CHIEF EXECUTING OFFICER ‐ THOMAS COOK (INDIA) LIMITED

MR. DEBASIS NANDY ‐ GROUP CHIEF FINANCIAL OFFICER - THOMAS COOK (INDIA) LIMITED

MR. VISHAL SURI - MANAGING DIRECTOR - SOTC

MR. VIKRAM LALVANI - MANAGING DIRECTOR -STERLINGHOLIDAYS

MR. RAMKRISHNAN - MANAGING DIRECTOR AND CEO - DEI

MR. KRISHNA KUMAR - CHIEF FINANCIAL OFFICER ‐ STERLING RESORTS

Moderator: Ladies and gentlemen, good day and welcome to the THOMAS COOK (INDIA) LIMITED Q4 FY2023 earnings conference call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen‐ only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand over the call to Mr. Akul Broachwala from IIFL Securities. Thank you and over to you Sir!

Akul Broachwala: Thank you Yusuf. Ladies and gentlemen good afternoon and thank you for joining us on the Q4 FY2023 earnings conference call of THOMAS COOK (INDIA) LIMITED. I invite the company's senior management team to discuss the results and business strategy. We will begin the call with opening remarks from Mr. Madhavan Managing Director followed by Management team and thereafter we will open the call for Q&A session. I would now like to hand over the call to Mr. Menon to take the proceedings forward. Thank you and over to you Sir!

Madhavan Menon: Let me thank everybody for participating on this call. Let me kick off by introducing everybody in the room from our side, I have Mahesh Iyer, CEO of THOMAS COOK (INDIA) LIMITED; Mr. Debasis Nandy, group CFO of Thomas Cook India Group; Mr. Vishal Suri, MD of SOTC; Mr. Vikram Lalvani, MD of Sterling Holidays; and Mr. Ramakrishnan MD and CEO of DEI. I am pleased to report that we announced a good set of results yesterday

for the financial year ended 2023, we reported a 163% increase in income from operations of Rs. 5,111 crores against which we reported an operating EBITDA of Rs. 277 crores and an operating PBT of Rs. 63 crores. The performance was primarily driven by Thomas Cook who reported an operating EBITDA of Rs. 277 crores, Sterling Holidays reporting at the same number as an EBITDA number, SOTC reporting a number of Rs. 28.5 crores and DEI reporting a number of Rs. 67.8 crores. The primary drivers in terms of our business segments were foreign exchange, corporate travel, the incentive business, hospitality, and the imaging business, all these businesses reported far better profitability than they had in the previous two years, which obviously as you are aware was disrupted by the pandemic. If I look from a cost and productivity level, how we did this, through the pandemic, we actually reduced our costs and for the financial year ended March 2023, you will see savings of 20% across the group. However, I just want to point out that several companies within the group are clocking at 30% plus in cost savings and our intent is to sustain these cost savings in the medium to longer term. So, there is cost rationalization. The second important point is the improved margins and if you look at our EBITA margin for the year ended 2023, it stands at 5.4% as compared to 3.6% for a similar period in the financial year ended 2020.

Obviously, all these numbers are showing significant growth because we had losses in the previous financial year as a result of the pandemic. A third important driver was the productivity improvements that we have achieved through automation and digitization relating to the delivery of products to customers. This is across all our segments, not just it is a foreign exchange that today delivers products both digitally as well as physically. You've got leisure which does the same thing. Our internal processes also have been automated to a significant aspect. The last point I want to make is that our cash and cash equivalents stood at Rs. 1,000 odd crores which is almost similar to our pre‐COVID 2019 numbers. So, we are back in business. We are generating cash and I expect that in the coming quarters, we have a fair degree of visibility, with this I will leave to Mahesh and Debasis to address. Thank you.

Debasis Nandy: Thank you Madhavan. This is Debasis. I will just quickly highlight the financials for the quarter and for the year before I handover to Mahesh. So, we have had a great year, in the financial year 2023, our income from operations grew by 163% from Rs. 1,946 crores to Rs. 5,111 crores and we will get into details business‐by‐ business, in the course of the next half an hour or so. Our costs remained under control as Madhavan pointed out leading to very healthy EBITDA. If you look at our operating EBITDA and I'll explain that in a minute. Our operating EBITDA as Madhavan pointed out was about Rs. 277 crores. We had made a loss of Rs. 126 crores last year but more importantly, this is even better than the pre‐pandemic year of FY2020. In FY2020, we made an operating EBITDA of Rs. 251 crores which was at a margin of about 3.6%, and this year in spite of the top‐line not being

comparable to what it was in FY2020 our operating EBITDA is at Rs. 277 crores which is a 5.4% EBITDA margin. We will keep on talking about operating EBITDA and let me just explain why we qualify this. So, there is an item in our financials that was given separately as a disclosure which is a mark‐to‐market loss on investment. This is the holding that we have of shares in Quest Corp. These shares are not held by Thomas Cook. The shares are actually held by the Thomas Cook Employee Trust, which is a separate entity. However, for accounting purposes, this is clubbed as part of the standalone and the group. The shares held by the trust are meant for allotment and distribution to employees over a period of time based on the way their ESOP mature and this cannot be used for anything else. There has been a significant change in values in the price of Quest shares during the year. Leading to mark‐to‐market and we have to measure the impact of this on the overall value of the investment made by the trust. So, this amount works out to a reduction in value, a notional loss of Rs. 35.3 crores. This was only foreclosed last year. So, while we have to consider that as part of EBITDA it does not impact operations in any way, which is why we are making a distinction in our conversation with an operating EBITDA and the reported EBITDA. As the volatility in the Quest shares stabilizes this amount will become immaterial hopefully in the years to come. And also, the other factor that influence is as and when the ESOP matures these shares would be given out to employees and therefore, we would not need a mark‐to‐market valuation anymore. Coming to the reported profit at an EBIT level and this is a reported EBIT and level we generated Rs. 117 crores against a loss of Rs. 258 crores showing the turn around with the business has made and at a PBT level our consolidated business made a profit of Rs. 26 crores against the loss of Rs. 323 crores last year. So, all‐round improvement across. I will not take too much of time on this. The numbers are there in the investor presentation which has been circulated to you. And let us talk a little more about the business and handover this to Mahesh so that he can take you through that.

Mahesh Iyer: Thank you Debasis and good afternoon, everyone. I would now quickly jump into the segmental numbers and I think that is where the business essence lies. So, I will kind of walk you through each of the segments that we have and I will kind of move you through the full year that is FY2023 as well as Q4 FY2023. To begin with foreign exchange, the segment that we have had a stellar year in the year that went by FY2023. If you look at income from operations grew almost 2X from about Rs. 110 crores to Rs. 246 crores that is more than 100% growth as far as the revenue from income from operations is concerned and if you look the same number on quarter‐on‐quarter basis moved from Rs. 38 crores to Rs. 65 crores. Now if I look at the profitability for the same period. For the full year FY2023 it moved from a loss of Rs. 3 Crores in FY2022 to a profit of Rs. 72 crores and income from operations point of view moved from about Rs. 110 crores to about Rs. 246 crores. So that is almost doubling in terms of income from operations and almost like four times or 5X in terms of profitability. The underlying thread to this performance has been very steady combat as far as volumes are concerned. Further full‐

year FY2023 foreign exchange volumes are back to 82% of the pre‐pandemic level whereas for the quarter that is Q4 for FY2023, the volumes are at 93%. So, when I compare it to quarter‐on‐quarter, we have seen improvement but as you would know that the recovery to pre‐pandemic in the previous quarter was lower, but for the full year it stands at 82% and for the last quarter it stands at 93%. Now when we look at recovery within the segments of foreign exchange the retail segment is actually on top of the pre‐pandemic level. We are at about close to 103% of the pre‐pandemic level driven by the student segment which is operating at about 35% higher than what it was in the pre‐pandemic level. The travel‐related segment which is a part of the retail form exchange segment continues to be lagging and it is close to 75% kind of trailing the kind of numbers we would see in terms of travel. If I look at the prepaid card business, which largely is reflective of the cooperative movement that is happening, our prepaid portfolio has grown by about 80% as compared to the previous comparable quarter for Q4 FY2023. In terms of share volumes, we did about $81 million in Q4 FY2022 and the same volume in the current year is at $141 million. For the full year, we are at about $550 million of prepaid card loans and I think that is one of the best that we have done in a very, very long time. If I look at the float of the business, we are sitting at about close to Rs. 850+ crores of float that is there as a part of the prepaid portfolio. Again, noteworthy here to mention is the digital transformation. Madhavan spoke about the investments that we have made and how it is paying out for us. If we look at our digital adoption rate which is customers coming and doing digital transactions from us which is about 11% of our total retail portfolio. For the B2B business that we conduct through the same digital route, we have about 10% options. So overall about 20% or 21% of the overall retail business is actually happening through digital channels and we continue to invest in it. The recent directive from RBI in terms of e‐ KYC being enabled to authorized dealers like Thomas Cook, I believe will allow us to further invest in the technology and reduce the friction that comes in completing the last mile fulfillment as far as the customers are concerned so clearly from a growth perspective foreign exchange is set well. We believe as travel happens in the next quarter, which is traditionally the largest seasonal quarter for the holiday business, we would see the recovery on the travel side of retail for foreign exchange and that should add to the profitability going forward. Coming to the segments on travel and travel‐related services obviously, there are multiple segments in there. As you know it comprises of holidays which is B2C, we have got holidays that is B2B that we call as MICE, it has got corporate travel and we have got DMS which is overseas inbound business as well as India inbound business. Each of them as Madhavan told are in different stages of recovery and I will try and give you a sense on each of those verticals. To begin with I think from a recovery point of view, overall recovery for the travel business stands at about 78% this is an overall sum which includes India inbound, overseas inbound as well as domestic and international outbound. Now if I break that up into each of the segments, to begin with from corporate travel, we are already trending as we have been saying in the last two quarters, corporate travel was very quick to combine

both from a volume and value perspective, we are trending above pre‐pandemic and we continue to see momentum in terms of the growth that we see in this business. This is also at the backdrop of new acquisitions our new clients that you acquired during the quarter and they have started to trade full throttle in the current quarter. Also, important to mention here that the mix of business between international and domestic which used to be skewed towards domestic in the previous quarter has now found balance and we are trending at similar ratios that used to be pre‐pandemic which is 60% to international and 40% to domestic. Though volume wise there are skewed 90:10 but in terms of value international now counts for about 60%. Now from a yield point of view this international traffic or international volumes is almost very well because that is where we make our margins and clearly the comeback on that volumes will add to our bottom‐line going forward. Also, to mention here that we are also doing some real high‐tech integration in terms of technology for some of our large customers, which will then eliminate the need of people related touch for transactions, as you know these are travel management services for large corporate again happens to be little more people intensive. We are bringing in technology which then talks to the employee self‐service portal that each of the corporates have and that will kind of ease out the journey in terms of booking of tickets, booking of hotels and more importantly the way we invoice customers and collect payments. So clearly it is an end‐to‐end journey. We have started the pilot on it with few of our customers and we expect to continue that journey going forward. Coming to the B2B business of MICE which is the holidays, we have had a very good set of numbers both from SOTC and Thomas Cook, the two brands that represent this business in the market. This is against the backdrop of some large wins we have had. As you would know, we have been speaking about the Government contracts that we have got. This is a new set of business segments that we have entered in the last three quarters. We managed the Khelo India games that happened in MP. We also won the mandate for the Khelo India games that are going to happen in Uttar Pradesh towards the end of this month. We are also one of the three vendors who provide services for the G20 event that is happening including the World Tourism Council that is going to happen in Jammu and Kashmir between the 22nd and 24th of May so clearly the Government business has become a sizable portion of our MICE portfolio. It is a very profitable segment, makes us money and we kind of diversified our portfolio not only on the international side but also on the domestic side. Also, important to mention here that on the MICE side, we have brought in new technologies which automates a lot of processes more importantly because it involves dealers far and few, and it is important that the entire process of collection of documentation processing of visa is all routed through a centralized system. So, we made that customer self‐service app enabled for this set of customers also which has bought in productivity benefits on the MICE side of the business. Coming to the leisure side of the business again from a recovery point of view the overall business is about close to 65% recovery, but for the current quarter, we are seeing a recovery close to about 69%. Now you must also keep in mind that this quarter which is the quarter