How the boring old Thomas Cook is turning out to be a Master Chef – Big Investor Blog

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Some companies first get exciting and then get confusing. Not too long ago Fairfax got us all excited with Thomas Cook and then got us ecstatic with Quess and Sterling before becoming a sort of Crystal Maze. Recently however, after the Quess demerger and a few quarters passing the dust seems to have settled down and we once again have a good amount of clarity on the prospects and philosophy of Thomas Cook. These updates are from a recent interview with Madhavan Menon.

  • 30% of the business of TC comes online. The goal is to take it to 50:50.
  • A majority of travellers of SOTC and TC are first time travellers. These guys do not want to take risk.
  • Zero debt company.
  • Focus to be selling holidays only and not sell individual segments of a holiday.
  • Will not give incentives just to sell.
  • 2nd largest player in the domestic space. Make my trip, which is not direct competition is the first.
  • Will not compete with OTA in their space. Instead we are making them compete in our space.
  • Moving from selling products to selling experiences.
  • Earlier TC spent a lot of time explaining travel destinations to customers at the offline centres. Now after people do research they come to us for experience.
  • The new AI implemented by Accenture is teaching how to milk a customer who wants a domestic holiday to an international holiday.
  • Mom and pop shops can’t survive the technology.
  • TC is in between the mom & pop travel agents and online travel agents on the other side.
  • All big players have only 5-6% of marketshare. Huge potential to consolidate with the travel space/.
  • Competing brands 
    • Thomas Cook and 
    • SOTC
    • Will continue to run both brands like volkswagen and skoda.
  • Fairfax role
    • Is like any other shareholder.
    • Fairfax – fair and equitable acquisitions
    • Not actively involved in the day to day
    • Fully involved in acquisition decisions
    • Acquisition team is fully in house like a consultant
  • businesses
    • Foreign exchange – legacy business – SOTC will also start now
    • Inbound business – was SITA
    • Outbound – SOTC and Thomas cook
    • B2B and B2c
      • B2C – Outbound and FX business
      • B2B – In bound
    • Investment in 
      • Sterling and DEI
  • Domestic travel industry changes
    • Domestic travel will continue to boom for years to come
    • Add railways
    • Add buses
    • Add self travel holidays is masssssssssive !
    • Want to be involved thru transactional or touch 
  • Consumption slowdown
    • 2019 the toughest year in the travel industry – EVER
    • Funny but had the record year
      • Foreign exchange business – 18.8% increase
      • Holiday business – 
        • Suffered due to plc problem
    • Making things a lot lot more pocket friendly
    • Mass premium
    • Using the 10 -90 payment schedule
      • Not looking at taking up all the money up front.
  • Inbound growth – just 2%
  • Outbound – mostly double digit growth
  • Still selling above the market in both segments
  • 2020
    • Sustained profitability
    • margins
    • Cost management
  • We measure ourselves on FREE CASH.
  • Our costs are growing are less than inflation
  • Our growth may not be sexy – but we are sustainable and stable
  • DEI – Menon is fucking visibly excited
    • The new baby on the block
    • Photography business
    • Memory of the experience is probably as important as the experience
    • Disney Shanghai the latest project
    • Ramakrishna is another Ajith Isaac 
    • Can take a selfie from 200 meters and get the rest of the background along with it
    • contracts
      • Theme parks 
      • resorts
      • Historic locations
    • 2020 will be a record year for them.
    • Very high entry barriers
    • Facial recognition technology ?
  • Forex
    • Banks now have the forex cards
    • Cross selling is 40% which banks don’t have.
    • 60% is still leftest to max out.
    • Prepaid card
      • Now not a monopoly
      • Still a retail player
      • Banks have been more as a B2B player
      • 20% marketshare in retail.
      • Multi currency as well as a one currency card.
      • Partnership is with MasterCard.
      • Float levels are 15-18%
        • Remain fully hedged in all forex transaction
      • We keep money in dollars only and dont bring back all the money. 
      • Primary product for us. Add on product for the bank
  • Acquisitions Strategy for FAIRFAX SUBSIDIARIES
    • Will only make ones that we are capable of making
    • Will not take a loan and make it
    • We don’t provide additional capital to them.
    • Will be negative working capital
    • And be cash generators
    • When we acquire companies, the promoters returns are based and linked to shareholders returns
  • Sterling
    • Moving into hospitality business model as TC is making holiday packages around it as well.
    • Small debt.
    • Cash flow positive.
  • future
    • Top line may not grow much
    • But bottomline should grow due to cost Management 
    • Increments will be reflective of inflation and not standard
    • Use tech to sell experiences
    • Bought the brand for 15 cr for perpetuity
    • Brand + tech + experience
    • Will not be merely transactional
  • Investor perception
    • Dust has to settle around Quess demerger
    • In isolation TC is a super strong balance sheet
    • Not a single year in history where they made a loss
    • India is the primary source of revenue
    • 40% Fx 60% travel – revenue
    • 70% fx and 30% travel bottom line
    • Change the perception from holiday resorts to a hospitality company
      • If they are not losing cash – its sorta fine to make
    • Not a short term stock
  • With the entire corona virus outbreak, sterling might have a record break this year .
Also Read on FinMedium:  Wolf in Sheep’s cloth- An investor’s eye for the detail – Master Moves

The biggest excitement for me is the investment in DEI Global. It is increasingly important for people to capture what they have experienced. Actually i might even be right in saying it is more important today to act like you had a great time than having a great time.

Thank you Instagram !

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Nitin Siddamsetty

Nitin Siddamsetty

Nitin invests across various sectors - Consumer, Food Processing, Real Estate, and many others. He is a CA and manages his family office. He loves to write about Stocks, Businesses, and other Financial Concepts.
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