CRISIL Ratings has reaffirmed its ratings on the bank facilities, debt programmes and corporate credit rating of Thomas Cook India Limited (TCIL) at 'CRISIL A+ / CCR A+ / Negative / CRISIL A1'.
The reaffirmation reflects strong parent support from Fairfax Financial Holdings, healthy liquidity in the form of cash & cash equivalents against limited external debt supporting the capital structure. The ratings also factor in the Thomas Cook India group's dominant position in the forex business and strong brand equity in travel-related services.
The group's foreign exchange (forex) and travel businesses were significantly impacted by the covid-19 pandemic in fiscal 2021, with TCIL reporting consolidated revenue of Rs 946 crore in fiscal 2021, about 85% lower than previous fiscal. This resulted in TCIL's consolidated EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of more than Rs 250 crore in fiscal 2021 against EBITDA of Rs 222 crore in fiscal 2020.
However, the business witnessed sequential recovery during the last nine months of fiscal 2021, which along with continued cost reduction measures (total cost savings of more than Rs 650 crore in fiscal 2021) resulted in sequential reduction in operating losses. Further, as expected, TCIL received significant fund infusion from its ultimate parent, Fairfax - Rs 436 crore of optionally convertible cumulative redeemable preference shares (OCCRPS), during March 2021. The said fund infusion mitigated impact of operating losses during the previous fiscal and provided necessary support to TCIL's liquidity.
TCIL's limited external debt and healthy liquidity in the form of cash & cash equivalents, results in comfortable cash to total external debt ratio of about 2 times as on March 31, 2021 (2.3 times as on March 31, 2020).
That said, the sector has currently been hit by an intense second wave of the pandemic from April this year. The first quarter of the current fiscal, which is typically the peak season for domestic summer holidays, is expected to be very weak given state-level lockdowns.
However, states are witnessing easing of travel restrictions as the impact of second wave is receding. Further, driven by high pent up demand and an expected improvement in vaccination rates, domestic travel is expected to pick up from second quarter of fiscal 2022 onwards and will be the major driver of recovery in travel segment.
The company is also looking to realign its strategy to increase focus on the domestic market. However, segments such as international holidays and inbound travel, which has historically constituted major portion of TCIL's travel business, may see material recovery only from third quarter onwards with expected easing of restrictions in foreign countries. Expected improvement in international travel and increased economic activity will also support recovery in TCIL's forex business. The pace of recovery in both the travel and forex business will remain a key monitorable.
Overall, while fiscal 2022 would still be significantly lower than fiscal 2020 levels, TCIL's business is expected to witness material improvement over the past fiscal. This, along with continued control of costs (cost savings of more than Rs 650 crore in fiscal 2021) should result in significant improvement in operating profitability over previous fiscal, with expectation of positive EBITDA during second half of the fiscal. However, slower than expected business ramp-up or reduced cost efficiencies, resulting in operating losses for the current fiscal could result in a rating downgrade and hence will be a key rating sensitivity factor.
The 'Negative' outlook continues to reflect the risk of slower-than-expected recovery in the travel and forex business owing to a prolonged pandemic.
CRISIL Ratings has also withdrawn its rating on proposed long-term bank facility of Rs 306 crore on receiving confirmation from the company, as the same was unutilised. The ratings are withdrawn in line with CRISIL Ratings' rating withdrawal policy.