Thomas Cook's New Journey: Canada's 'Warren Buffet' Bets on Tour Operator to Expand Investments

Over the years Thomas Cook India has diversified its business and has under its umbrella - tours, forex, visa and travel insurance business. In its latest transition the company will double up as an investment vehicle while retaining its core business.

Online PR News – 01-November-2013 – Mumbai/Maharashtra – Fairfax Holdings Ltd which owns 77% stake in Thomas Cook will make the travel company its investment vehicle in India ploughing surplus internal accruals and raising fresh equity to acquire companies.

Fairfax is run by Canadian billionaire investor Prem Watsa (referred to as Canadian Warren Buffet) who also has 26% stake in ICICI Lombard general insurance and who made it to headlines recently following his bid to acquire Blackberry, the struggling smart phone maker.

Last March it acquired 77% stake in Thomas Cook India for about Rs 810 crore sensing opportunity to acquire new business in India. The first signs of strategic shift were seen in February when Thomas Cook acquired 76% stake in Ikya, a staffing solutions firm.

Last year Thomas Cook generated about Rs 105 crore in free cash and managing director Madhavan Menon expects the free cash to keep growing due to growth in business and cash flow from investments. Till a decision is made on fresh investment the accruals will flow into savings and form the company's working capital.

"We will look at opportunities and evaluate them. If the opportunity is of interest to us we will go ahead invest. We will not go in for asset heavy investments unless it represents a huge opportunity to us. Invariably what we are looking at is service related companies..It need not be aligned to travel related services. Ikya is totally different business. Fairfax has built its portfolio by investing in variety of companies,'' said Menon.

Fairfax's mandate is clear - the target companies have to be cash generator and have to add share holder value. "You wont see us buying into constructions, no hotels....those are not the areas we will get into,'' Menon said. He also rules out investment in dot coms and said there were no plans to venture into insurance or banking sector.

"The idea of making Thomas Cook a vehicle which is publicly listed body is to buy unlisted companies underneath and create share holder value at the Thomas Cook level. The way we work at Fairfax is that we buy into the management. In Ikya 76% is our stake but 24% is held by Ikya's management team..The team has its performance linked targets. They have to deliver value. I sit on Ikya board from governance point of view and its CEO reports to Fairfax and not to me,'' Madhavan added.

Cost efficiency driving profits

Thomas Cook's pre tax profit grew 71% in quarter ended September to Rs 27 crore and Menon attributes the positive results to cost management exercise which began earlier this year. Since its core travel and forex business is sensitive to currency movements the company looked inward for cost savings. The profit growth came about despite July-September quarter being a lean season for travel and volatile rupee movement.

Restructuring was carried out in departments which were deemed over weight that is it had surplus staff. Back end was integrated and a greater focus has been given to cash flow generation. Menon says there were no staff retrenchments. "What you will see this year is saving flowing in the cost line because of greater focus on cost management,'' he said.

Menon said the company will have a double digit growth this year. "In October all the four business (forex, leisure travel, corporate travel and domestic tourism) have reported better figures than last year. Thomas Cook has always delivered 10-15% growth and we will deliver that this year,'' he said.