The September quarter results reveal a company struggling to maintain profitability momentum despite operating in a structurally favourable environment for travel services. Net sales in Q2 FY26 stood at ₹2,073.84 crores, marking a 13.88% sequential decline from Q1 FY26's ₹2,407.96 crores, though showing a modest 3.50% year-on-year improvement. The sequential revenue contraction reflects typical seasonality in the travel business, but the magnitude of decline raises concerns about market share dynamics and pricing power.
More worryingly, profitability metrics deteriorated across the board. Consolidated net profit of ₹66.44 crores represents a 2.39% year-on-year gain but fell sharply from the previous quarter's ₹72.05 crores. The company's operating margin excluding other income compressed to 5.22%, down from 6.46% in the corresponding quarter last year, signalling intensifying competitive pressures and potential cost management challenges.
Financial Performance: Margin Erosion Undermines Growth
A granular examination of Thomas Cook's quarterly financials reveals troubling trends beneath the surface. Revenue growth, whilst positive on a year-on-year basis, has decelerated sharply from 14.34% in Q1 FY26 to just 3.50% in Q2 FY26. This slowdown suggests either market saturation in key segments or loss of competitive positioning to newer, technology-driven travel platforms.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 2,073.84 | -13.88% | 66.44 | -7.79% | 5.22% |
| Jun'25 | 2,407.96 | +22.30% | 72.05 | +11.58% | 5.25% |
| Mar'25 | 1,968.86 | -4.47% | 64.57 | +30.23% | 4.99% |
| Dec'24 | 2,061.01 | +2.86% | 49.58 | -23.59% | 5.62% |
| Sep'24 | 2,003.76 | -4.85% | 64.89 | -13.81% | 6.21% |
| Jun'24 | 2,105.94 | +26.57% | 75.29 | +32.88% | 6.46% |
| Mar'24 | 1,663.82 | — | 56.66 | — | 5.48% |
The operating profit before depreciation, interest, and tax (excluding other income) stood at ₹108.20 crores in Q2 FY26, yielding a margin of 5.22%—a substantial compression from the 6.21% achieved in the year-ago quarter. This 99 basis points margin erosion is particularly concerning given that employee costs as a percentage of revenue remained relatively stable at 13.49%, suggesting the margin pressure stems from other operational inefficiencies or pricing concessions to maintain market share.
The company's reliance on other income remains elevated and somewhat concerning. Other income of ₹38.83 crores in Q2 FY26 constituted 46.14% of profit before tax, indicating that core operating profitability remains fragile. Whilst such income streams are not unusual for companies with substantial balance sheet investments, the proportion raises questions about the sustainability of reported earnings quality.
Operational Challenges: Return Ratios Signal Weak Capital Efficiency
Thomas Cook's return on equity (ROE) of 4.91% on an average basis ranks amongst the weakest in its peer group and falls substantially short of the company's cost of capital. This anaemic ROE suggests the company is destroying shareholder value rather than creating it, with each rupee of equity capital generating less than five paise of annual profit. The latest quarter's ROE of 11.46%, whilst an improvement, still lags significantly behind industry leaders like IRCTC (35.32%) and BLS International (24.97%).
The company's return on capital employed (ROCE) presents an even more troubling picture. On an average basis, ROCE stood at a negative 0.35%, indicating that the company has historically failed to generate adequate returns on the total capital deployed in the business. Whilst the latest ROCE figure of 20.69% shows improvement, the volatility in this metric raises questions about earnings sustainability and the company's ability to consistently convert capital into profits.
Capital Efficiency Concerns
Key Issue: Thomas Cook's average ROE of 4.91% and average ROCE of -0.35% indicate historically weak capital efficiency. Whilst recent quarters show improvement, the company must demonstrate sustained enhancement in these metrics to justify its current valuation. The substantial gap between Thomas Cook's ROE and peer group leaders suggests structural challenges in converting shareholder capital into profits.
On a more positive note, the company maintains a robust balance sheet with minimal debt. As of March 2025, long-term debt stood at just ₹99.39 crores against shareholder funds of ₹2,259.61 crores, translating to a debt-to-equity ratio of 0.04. The average net debt to equity ratio of -0.29 indicates Thomas Cook is actually a net cash company, providing financial flexibility to weather short-term operational challenges or pursue growth investments.
Employee costs in Q2 FY26 totalled ₹279.73 crores, representing 13.49% of revenue—relatively stable compared to recent quarters. This suggests the company has not resorted to aggressive cost-cutting measures that might compromise service quality, though it also indicates limited scope for near-term margin expansion through labour cost optimisation.
Industry Context: Navigating Post-Pandemic Travel Normalisation
The Indian travel and tourism sector has witnessed a remarkable recovery from pandemic-induced disruptions, with domestic and international travel volumes surging over the past two years. However, the industry is now entering a phase of normalisation where the easy year-on-year comparisons are fading, and companies must compete on fundamentals rather than riding the wave of pent-up demand.
Thomas Cook operates in a highly fragmented and increasingly competitive landscape. Traditional travel agencies face mounting pressure from online travel aggregators and direct booking platforms that offer superior price transparency and convenience. The company's modest 3.50% year-on-year revenue growth in Q2 FY26 suggests it is struggling to capture its fair share of market growth, particularly concerning given that overall travel industry growth rates remain robust.
The company's five-year sales compound annual growth rate (CAGR) of 23.04% appears impressive on the surface, but this figure is heavily distorted by the pandemic-related collapse in FY21 and FY22 revenues. Normalising for these aberrations, the underlying growth trajectory appears more modest and in line with, or slightly below, overall industry growth rates.
Competitive Positioning Under Pressure
Thomas Cook's deceleration in revenue growth from 14.34% in Q1 FY26 to just 3.50% in Q2 FY26, coupled with persistent margin compression, suggests the company is losing competitive ground. The travel services industry is witnessing rapid digital transformation, with technology-enabled platforms gaining market share at the expense of traditional players. Thomas Cook must accelerate its digital initiatives and enhance customer experience to remain relevant in this evolving landscape.
Peer Comparison: Lagging Industry Leaders on Key Metrics
A comparative analysis of Thomas Cook against its peer group reveals significant performance gaps across critical financial metrics. The company's ROE of 4.91% trails substantially behind sector leaders, with IRCTC delivering an impressive 35.32%, TBO Tek at 19.48%, and BLS International at 24.97%. Even Yatra Online, which operates in a similar business model space, manages an ROE of 4.60%, nearly matching Thomas Cook despite its own challenges.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Thomas Cook (I) | 29.14 | 3.11 | 4.91 | -0.29 | 0.30 |
| IRCTC | 42.60 | 15.50 | 35.32 | -0.57 | 1.13 |
| TBO Tek | 76.97 | 14.31 | 19.48 | -1.04 | — |
| BLS International | 22.32 | 6.31 | 24.97 | -0.52 | 0.31 |
| Le Travenues | 251.21 | 19.09 | 7.60 | -0.52 | — |
| Yatra Online | 54.06 | 3.69 | 4.60 | -0.02 | — |
From a valuation perspective, Thomas Cook trades at a price-to-earnings ratio of 29.14x, positioning it in the middle of the peer group range. However, this multiple appears elevated given the company's weak return ratios and deteriorating operational trends. The price-to-book value of 3.11x, whilst lower than high-growth peers like IRCTC (15.50x) and TBO Tek (14.31x), still implies the market is pricing in significant future value creation—an expectation that recent performance trends struggle to justify.
The company's dividend yield of 0.30% is amongst the lowest in the peer group, with IRCTC offering 1.13% and BLS International providing 0.31%. The modest dividend payout ratio of 8.32% suggests management is retaining most earnings for reinvestment, though the poor return ratios raise questions about the wisdom of this capital allocation strategy.
Valuation Analysis: Attractive Entry Point or Value Trap?
Thomas Cook's shares currently trade at ₹153.00, representing a 32.14% decline from the 52-week high of ₹225.45 achieved earlier in the year. This substantial correction has brought valuation multiples down to levels that appear superficially attractive, with the stock rated as having "Attractive" valuation by proprietary scoring models.
The enterprise value-to-EBITDA multiple of 14.19x and EV-to-EBIT ratio of 21.24x suggest the market is pricing in moderate growth expectations. However, these multiples must be evaluated in the context of the company's deteriorating margins and weak return profile. The EV-to-sales ratio of 0.75x indicates the market values the entire enterprise at just 75% of annual revenues—a low multiple that typically signals either a commodity business with limited pricing power or a company facing structural headwinds.
The stock's book value per share of ₹36.09 provides a floor valuation reference point. At the current market price of ₹153.00, the shares trade at 4.24 times book value, implying the market expects the company to generate returns significantly above its cost of capital over time. Given the current ROE of just 4.91%, this valuation premium appears difficult to justify unless investors believe a substantial turnaround in operational performance is imminent.
Historical valuation trends show the stock has oscillated between "Attractive" and "Fair" valuation grades in recent months, with multiple grade changes in October 2025. This volatility in valuation assessment reflects the market's uncertainty about the company's earnings trajectory and the appropriate multiple to assign to those earnings.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
Thomas Cook's shareholding structure reveals a stable promoter base with Fairbridge Capital Mauritius Limited maintaining a consistent 63.83% stake across the past five quarters. This unwavering promoter holding provides governance stability and alignment of interests with minority shareholders, though the lack of any open market purchases by promoters suggests limited conviction about near-term value creation opportunities.
| Quarter | Promoter | FII | MF | Insurance | Other DII |
|---|---|---|---|---|---|
| Sep'25 | 63.83% | 5.32% | 6.17% | 0.12% | 1.17% |
| Jun'25 | 63.83% | 4.41% | 6.60% | 0.11% | 1.20% |
| Mar'25 | 63.83% | 4.52% | 6.90% | 0.11% | 1.19% |
| Dec'24 | 63.83% | 4.37% | 8.29% | 0.10% | 1.19% |
| Sep'24 | 63.83% | 3.57% | 8.83% | 0.02% | 1.07% |
Foreign institutional investor (FII) holdings have shown gradual improvement, rising from 3.57% in September 2024 to 5.32% in September 2025. The sequential increase of 91 basis points from June to September 2025 suggests some foreign investors are taking contrarian positions, potentially viewing the recent share price decline as an attractive entry opportunity.
More concerning is the steady decline in mutual fund holdings, which have dropped from 8.83% in September 2024 to 6.17% in September 2025. The sequential decrease of 43 basis points in the latest quarter indicates domestic institutional investors are reducing exposure, likely reflecting concerns about the company's operational trajectory and competitive positioning. With just 12 mutual funds holding positions, institutional conviction appears limited.
Insurance company holdings remain negligible at 0.12%, whilst other domestic institutional investors maintain a modest 1.17% stake. The relatively low institutional ownership of 12.77% in aggregate suggests the stock lacks strong backing from sophisticated investors who conduct rigorous fundamental analysis.
Stock Performance: Significant Underperformance Across Timeframes
Thomas Cook's share price performance has been decidedly lacklustre across most relevant timeframes, with the stock delivering negative absolute returns and substantial underperformance relative to the Sensex benchmark. Over the past year, the stock has declined 22.65% whilst the Sensex gained 8.45%, resulting in a negative alpha of 31.10 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.77% | +1.11% | -2.88% |
| 1 Month | -6.93% | +2.57% | -9.50% |
| 3 Months | -3.44% | +4.39% | -7.83% |
| 6 Months | +6.58% | +3.45% | +3.13% |
| YTD | -21.76% | +7.68% | -29.44% |
| 1 Year | -22.65% | +8.45% | -31.10% |
| 2 Years | +4.01% | +29.57% | -25.56% |
| 3 Years | +102.51% | +36.53% | +65.98% |
The year-to-date decline of 21.76% has erased any gains from earlier in the year, with the stock now trading 32.14% below its 52-week high of ₹225.45. The recent price action suggests investors are losing patience with the company's inability to translate top-line growth into sustainable margin expansion and improved return ratios.
On a longer-term basis, the three-year return of 102.51% appears impressive, but this figure is heavily influenced by the pandemic-depressed base in 2022. The five-year return of 312.96% similarly benefits from the pandemic trough, and when adjusted for the extraordinary circumstances of 2020-2021, the underlying return profile appears far more modest.
The stock exhibits high volatility with a beta of 1.35, indicating it tends to amplify market movements in both directions. The risk-adjusted return of -0.48 over the past year places the stock in the "high risk, low return" category—an unattractive combination for most investors. The stock's volatility of 47.07% is nearly four times that of the Sensex (12.26%), suggesting substantial price risk for those considering positions.
"With margins compressing, return ratios languishing below 5%, and the stock delivering negative returns whilst exhibiting high volatility, Thomas Cook presents a challenging risk-reward proposition for investors."
Investment Thesis: Mixed Signals Across Key Parameters
The investment case for Thomas Cook presents a complex mosaic of conflicting signals across the four key pillars of fundamental analysis: valuation, quality, financial trends, and technical momentum. The company's overall Mojo score of 42 out of 100 places it firmly in "SELL" territory, reflecting significant concerns that outweigh potential positives.
From a valuation perspective, the stock receives an "Attractive" grade, with the recent price decline bringing multiples down to levels that appear reasonable on a relative basis. However, this apparent valuation attractiveness must be weighed against the company's weak quality profile and deteriorating operational trends.
The quality assessment of "Average" reflects a company with structural strengths—including zero net debt, stable promoter holding, and a long operating history—but hampered by poor capital efficiency metrics. The average ROE of 4.91% and negative average ROCE of -0.35% indicate the company has historically struggled to generate adequate returns on invested capital.
The financial trend designation of "Flat" for the September 2025 quarter captures the essence of the current challenge: whilst the company continues to grow revenues modestly, it is failing to convert this growth into margin expansion or improved profitability. The profit before tax (excluding other income) of ₹45.32 crores in Q2 FY26 represents a 19.0% decline from the previous four-quarter average, highlighting the deterioration in core operating performance.
Technical indicators paint a bearish picture, with the stock in a "Mildly Bearish" trend since November 11, 2025. The shares trade below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—suggesting a lack of buying interest across short, medium, and long-term timeframes. Multiple technical indicators including MACD, Bollinger Bands, and KST flash bearish signals on both weekly and monthly charts.
Key Strengths & Risk Factors
Key Strengths
- Zero Net Debt Position: With average net debt to equity of -0.29, Thomas Cook maintains a fortress balance sheet providing financial flexibility
- Stable Promoter Holding: Consistent 63.83% promoter stake ensures governance stability and aligned interests
- Long Operating History: 47 years of operations since 1978 provides brand recognition and established distribution networks
- Valuation Correction: 32% decline from 52-week high brings multiples to attractive levels relative to historical ranges
- Diversified Service Offering: Presence across leisure travel, corporate travel, and foreign exchange services provides revenue diversification
Key Concerns
- Weak Return Ratios: ROE of 4.91% and historical ROCE of -0.35% indicate poor capital efficiency and value destruction
- Margin Compression: Operating margin declined 99 basis points YoY to 5.22%, signalling competitive pressure or operational inefficiency
- Slowing Revenue Growth: YoY growth decelerated from 14.34% in Q1 to 3.50% in Q2, raising market share concerns
- High Other Income Dependency: Other income constitutes 46.14% of PBT, indicating fragile core profitability
- Declining Institutional Interest: Mutual fund holdings dropped from 8.83% to 6.17% over past year, reflecting waning conviction
- Technical Weakness: Stock below all major moving averages with bearish momentum indicators across timeframes
- High Volatility: Beta of 1.35 and volatility of 47.07% create substantial price risk for investors
Outlook: What to Watch
Positive Catalysts
- Sustained margin expansion above 6% for three consecutive quarters would signal improved pricing power
- ROE improvement above 12% would indicate better capital efficiency and justify current valuation multiples
- Acceleration in revenue growth back to double digits whilst maintaining margins would demonstrate competitive strength
- Strategic initiatives in digital transformation or partnerships that enhance market positioning
- Increase in institutional holdings, particularly from quality-focused mutual funds
Red Flags
- Further margin compression below 5% would indicate severe competitive or structural challenges
- Continued deceleration in revenue growth toward single digits would suggest market share losses
- Increase in other income as percentage of PBT above 50% would raise earnings quality concerns
- Any decline in promoter holding or increase in pledging would signal governance risks
- Further exodus of institutional investors, particularly if FII holdings reverse recent gains
The travel and tourism sector in India remains structurally attractive with favourable long-term demographics and rising disposable incomes. However, Thomas Cook's ability to capitalise on these tailwinds appears increasingly constrained by competitive pressures from digital platforms and its own operational inefficiencies. The company must demonstrate tangible progress in margin improvement and capital efficiency enhancement to regain investor confidence.
The Verdict: Avoid Until Operational Turnaround Materialises
Score: 42/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst valuation appears attractive on surface metrics, the combination of deteriorating margins, weak return ratios, and bearish technical momentum creates an unfavourable risk-reward profile. Wait for concrete evidence of operational turnaround through sustained margin expansion and improved capital efficiency before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if the stock rallies toward the ₹165-170 zone (100-day moving average resistance). The persistent underperformance relative to both the broader market and peer group, combined with declining institutional interest, suggests limited near-term upside potential. Those maintaining positions should monitor quarterly results closely for signs of margin stabilisation.
Fair Value Estimate: ₹135-140 (12% downside from current levels), based on 25x forward earnings assuming modest margin recovery and 10% earnings growth—both optimistic assumptions given recent trends.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
