What’s cooking in Thomas Cook?

On Tuesday, November 22, 2011, the shares of the 170 year-old travel company Thomas Cook lost about 10% in the Indian markets after the UK listed Plc, which plunged 75% on rising debt worries. Today, the stock closed down 5.14% on the BSE, at Rs 37.85.

Thomas Cook Plc's shares nosedived after the news came in that the company is again in talks with banks about the debt burden for the 2nd time in a month. The company was witnessing deterioration of its cash, which resulted in liquidity issues.

Thomas Cook Plc's behaviour has also changed in recent times, which is evident from the fact that it suspended dividend payments to protect its balance sheet. It also abandoned the Rights issue that it was planning for, and postponed its full yearly results declaration.

The company's business has been affected as people cut their expenses or postponed their vacation plans in uncertain times. It is facing headwinds from the European sovereign debt crisis, the political unrest in the Middle East and Africa (MENA), flooding in Thailand, as also the Arab Spring.

One should watch out for the full year results (of Thomas Cook Plc), which are going to be declared soon, and the management's action that could give further cues about the company. We are of the opinion that the travels business is not in good times, and will definitely be affected by an uncertain global environment.

On the other hand, the Indian listed entity gave a decent performance for the first 9 months of FY11 (the company closes its books in the calendar year). On a consolidated basis, it has witnessed a topline growth of 14% to Rs 286 cr, while its bottomline witnessed a growth of 12% to Rs 51 cr on a YoY basis. We, at DSIJ, feel that the problems of the parent company (Plc) will also affect the Indian entity in the coming quarters.