Covid-19 impact: CRISIL downgrades Thomas Cook India's rating to A+

The continued travel restrictions and negative customer sentiments have severely impacted leisure and corporate travel.
Rating agency CRISIL has downgraded Thomas Cook India Ltd’s (TCIL) bank facilities from “AA-” to “A+” on the weakening of the company’s business and financial risk profiles due to Covid-19 pandemic.

The continued travel restrictions and negative customer sentiments have severely impacted leisure and corporate travel, and the foreign exchange (forex) business. This may lead to operating losses during fiscal 2021 and substantially reduce the net free cash (over Rs 200 crore reported as on March 31, 2020), CRISIL said in a statement. TCIL is part of Prem Watsa controlled Fairfax Financial Holdings Ltd (Fairfax) group.

During the first quarter (June 2020) of the fiscal, TCIL reported EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of Rs 80 crore. It also reported reduction in cash & cash equivalents of around Rs 240 crore due to the lockdown.

While economies are gradually opening up since the last quarter, domestic remains significantly lower than pre-pandemic levels and international travel is yet to resume.

TCIL is undertaking several cash preservation measures including optimisation of payroll cost, reduction in marketing and overhead costs, renegotiation of lease rentals and supplier contracts. These steps are expected to result in savings of more than Rs 550 crore during the fiscal.

Additionally, recent withdrawal of the share buyback offer will further reduce cash outflow by around Rs 180 crore (including tax on share buyback). Further, the company is looking to reengineer the business, focusing on aspects such as contactless customer experience, increased digitisation and process efficiencies, rating agency added.

The forex business, classified as an essential service, resumed operations since mid-April 2020. The gross volume in forex business has been lower than pre-pandemic levels. But, it has picked up on a month-on-month basis and the business has turned cash positive since June 2020. The continued ramp-up in both the travel and forex volume remains a key monitorable.

TCIL's rating factor in expectation of strong support from Fairfax Financial Holdings during the current fiscal, towards revival of business and strengthening of liquidity and financial profile.

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