Margins are low, but foreign exchange services are seen to hold potential

Travel major Thomas Cook is ready to offer online buying of foreign exchange as long as consumers pay 4 per cent advance to block the rates. It claims it is offering the best rates with free doorstep delivery to make it convenient for travellers.

Earlier this year, the Fairfax-promoted company acquired Tata Capital’s travel and forex businesses to give an added impetus to the segment.

The other listed travel company, Cox & Kings, decided to demerge its forex business from travel as it wants to function like an NBFC in the travel business and at the same time unlock value for its shareholders.

“Travel companies are now complementing their travel offerings with financial services, which is not as well penetrated as travel,” observed Kaustubh Pawaskar, Research Analyst at Sharekhan by BNP Paribas.

“Forex and travel are connected businesses and financial services is an opportunity for both these companies.

“While Thomas Cook is adding muscle to its existing financial services, Cox & Kings would be unlocking value for its shareholders by looking at the forex business separately.”

New focus area

Offering financial services — which includes forex — has become a focus area for travel companies who are looking to supplement their existing travel products.

Margins in forex may not be as high as travel packages but these listed travel companies see potential ahead.

“We expect the forex business to become big in future and the demerged company will have a new management team with its own board of directors,” said Peter Kerkar, CEO, Cox & Kings, while announcing the demerger of the forex business from the parent company.

For Cox & Kings, forex currently contributes a larger turnover at ₹5,500 crore and is growing at almost 30 per cent compared to travel at ₹3,500 crore with a CAGR of 15 per cent.

Pure vanilla product

“Margins in the forex business are lower than travel since it is a pure vanilla product unlike travel, where there is value addition. The business was growing faster than travel for us so we decided to spin it off as an independent entity which would function like an NBFC,” said Anil Khandelwal, CFO, Cox & Kings.

Thomas Cook, which is already a big forex player, decided to expand the business by buying out Tata Capital’s forex business recently .

While addressing analysts post its Q2 results, Debasis Nandy, President & CFO, Thomas Cook, said: “Foreign exchange is a large business for the group and is an engine of growth. We completed the acquisition of Tata Capital’s forex business last month and are expecting $100 million of extra volumes to come in, which would also include business from non-Tata Group companies.”

About 60 per cent of Tata Capital’s travel and forex business comes from the Tata Group companies and Thomas Cook is also eyeing more business from non-Tata companies as it grows its retail footprint and distribution along with an omni channel strategy for the business going forward.