Yatra Online - Q2 2024

Transcript

Operator (participant)

Hello, everyone, and thank you for joining today's Yatra Fiscal Second Quarter 2024 Earnings Call. We are currently just pausing for a couple of minutes to allow a few more participants to connect, but we will be getting underway shortly. During the call, if you'd like to ask a question, please press star followed by one on your telephone keypad. Thank you again for your patience and for standing by. We will be getting underway shortly. Hello, everyone, and welcome to today's call titled: The Yatra Fiscal Second Quarter 2024 Earnings Call. My name is Ellen, and I'll be the call operator for today. During the presentation, all participants will be on mute. However, at the end of today's presentation, there'll be an opportunity to ask a question. If you'd like to ask a question at this time, please press star followed by one on your telephone keypad.

If at any point your question's been answered or you change your mind and would like to revoke your question, please press star followed by two. I would now like to turn the call over to Manish Hemrajani, Vice President of Corporate Development and IR to begin. Please go ahead whenever you're ready.

Manish Hemrajani (VP of Corporate Development and Investor Relations)

Thank you, Ellen. Good morning, everyone. Welcome to Yatra's Fiscal Second Quarter 2024 Financial Results for the period ended September 30, 2023. I'm pleased to be joined on the call today by Yatra CEO and Co-founder, Dhruv Shringi, and Group CFO, Rohan Mittal. The following discussion, including responses to your questions, reflects management views as of today, November 17, 2023. We don't undertake any obligation to update or revise the information. Before we begin our formal remarks, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially. For a description of these risks, please refer to our filings with the SEC and our press release filed earlier this morning.

These filings are available from the SEC and also on the Investor Relations section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

Dhruv Shringi (Co-Founder and CEO)

Thank you, Manish, and good morning, everyone. Thank you for joining us for our second quarter earnings call. It is my pleasure to share that for the third consecutive quarter, we have expanded our market share in the air travel sector. In the second quarter of 2024, our Air Passenger Bookings surged by 31.2% year-over-year, far outpacing the industry's growth rate of 22.7%. This not only underscores the Yatra brand's resilience but also highlights our competitive edge in capturing market share. International travel has also shown a steady improvement during the quarter ended September 30, 2023, reaching approximately 90% of the pre-COVID levels. As we move forward, we remain optimistic and committed to leveraging these positive trends to drive further growth and success.

In the corporate travel sector, we further strengthened our position by securing 13 new corporate accounts in the quarter. These accounts carry a potential annual billing of about INR 813 million, which is roughly $10 million.... reflecting our platform's capability and leadership in the market. Beyond the quarter, we have continued our momentum in closing deals with significant clients like Wells Fargo and a major multinational corporation, wherein we will manage their travel needs across various regions in Africa, in Asia, further expanding our influence and operational footprint. Additionally, as some of you may have seen in our press release this morning, I would also like to share that the board has authorized a share repurchase of up to $5 million of our NASDAQ-listed YTRA shares, underscoring our confidence in Yatra's future and our steadfast commitment to delivering shareholder value.

This authorization represents approximately 5% of Yatra Online, Inc.'s market capitalization based on the current share price. Now, let me provide some more color on the macro picture. According to the International Monetary Fund, global inflation is projected to gradually decrease from 8.7% in 2022 to 6.9% in 2023, and further to 5.8% in 2024. This trend is attributed to the implementation of tighter monetary policies and the stabilization of international commodity prices. Amidst this backdrop of softening inflation, India's economic landscape remains particularly robust, buoyed by a significant public capital expenditure initiatives and a strong domestic economy. The Indian economy is poised for consistent growth, with projections estimating 6.3% increase over 2023 and 2024. This positive trajectory underscores the resilience and dynamic nature of our economy.

Travel does tend to be closely linked to the growth in GDP, and over the past decade, we have seen travel growing anywhere between 1.5x-2x of GDP growth. India's per capita GDP has also witnessed an extraordinary growth trajectory. Increase in GDP per capita has required four decades, from 1960 to 2000, to achieve a fivefold increase, but the same fivefold increase has been achieved in just the last two decades. This is growing at a compounded annual growth rate of 25%. This surge in per capita income is a key driver for heightened discretionary spend, with travel and dining out emerging as the primary beneficiaries. Amidst this landscape of an escalating rise in discretionary income, we are confident in our potential to surpass market growth rates.

Our strategy to capture a greater share in the corporate travel market, coupled with the sustained strength of our consumer brand, positions us well for continued expansion and success. Now, let me provide you with some more details on our second quarter. Our revenue for the quarter ended September 30, 2023, was reported at INR 947.6 million, approximately $11.4 million, up 14% year-over-year. Adjusted margins from air ticketing of $12.3 million were down by 4.8% year-over-year, largely on account of almost 15% decline in air ticket prices year-over-year. Adjusted EBITDA for the quarter reached INR 35 million, approximately $400,000. This was lower versus the September 2022 quarter at INR 77.7 million, or approximately $900,000.

We incurred IPO-related listing fees during the quarter of INR 68.2 million, or $0.8 million, which are one-time in nature. Moving on to further details of the quarter. The corporate segment was somewhat impacted in the September quarter, with softness in travel spends in the IT and ITeS sectors. We are confident, however, of the recovery in the near term from our largest contributing sector. We expect that the new business that we have won is likely to offset the drop that we have seen on account of the softness in the IT, ITeS segment by the first quarter of calendar year 2024.

On the hotel front, revenue from our hotel and packages business was INR 366 million, which is approximately $4.4 million, in the three months ended September 30, 2023, as compared to INR 267 million, or $3.2 million, in the three months ended September 30, 2022. This reflects a 37% increase year-over-year. The increase in revenue is attributable to recovery in domestic travel, along with the addition of new distribution partners and the focus on selling better quality hotels aimed at business travelers. From a competitive standpoint, the intensity has remained stable from the last quarter and remains manageable overall.

With the positive macro backdrop, and given the ongoing recovery in corporate and leisure travel and the rise in discretionary spend, and now a significantly bolstered balance sheet, we believe we are poised for a strong FY 2024 and FY 2025. Aside from seasonality, we expect our results to benefit from accelerating growth in both our corporate business and consumer business as we continue to add to our formidable blue-chip customer base and leverage the strength of our brand. Just to reiterate, today, Yatra India serves one out of every four of the top 100 listed companies in India, three out of the Big Four accounting firms, and three of the top five technology companies in India.

In addition, as part of the IPO, we have also earmarked INR 1.5 billion, approximately $19 million, towards M&A, and are evaluating opportunities in the B2B space that allow us to expand our product platform for our business travel customers. Given our stronger balance sheet following the IPO, we've already begun to see early signs of improving supplier margins in the current quarter and expect this to gain further momentum in the quarters ahead, and have a meaningful positive impact on our operating performance going forward. In addition, we have also seen the positive impact from the IPO and a stronger balance sheet in one of our large corporate customer contract discussions, which has had a favorable outcome for Yatra, and we expect to see more of these in the quarter to come.

With these positive tailwinds, we expect our operating performance to continue to improve quarter-on-quarter in the near term. With that, let me hand it over to Rohan to walk you through the details of the financial performance. Rohan?

Rohan Mittal (Group CFO)

Thank you, Dhruv. I will now review our quarterly numbers for the quarter ended September 30, 2023. Our gross booking for quarter two was INR 17.5 billion, which is roughly $211 million. This was up by 10% on a YoY basis. Our two main segments, air and hotels and packages, both grew by 12% on a YoY basis during this period. For this quarter, our revenue grew by 14% to INR 948 million, which is about $11.4 million, on account of sustained elevated travel demand. Our adjusted margin from the air ticket business reduced by 5% YoY to INR 1 billion, due to limited access to airline deals in quarter two.

The adjusted margin from hotel and package business increased by 16% YoY to INR 278 million, which is about $3.3 million. The increase is on account of recovery in the domestic travel, along with addition of new distribution partners. Adjusted margin from other services increased by 21% on a YoY basis to INR 50 million. This increase in adjusted margin is due to the increase in revenue from our other B2C services. The total adjusted margin for all the three segments put together remained flattish. Our other revenue increased by 43% on a YoY basis to INR 144 million, primarily on account of increase in advertisement revenue.

Moving to the expenses, our quarter two marketing and sales promotion expenses, including the consumer promotion loyalty program costs, increased by 4% on a YoY basis to INR 832 million, which is about $10 million. This marketing increase lagged the overall gross booking growth of 10%, which is a positive sign. Our personnel expenses, excluding the share-based payment expenses, increased by 11% YoY to INR 279 million, which is roughly $3.4 million, primarily on account of the annual appraisal cycle. Payment gateway costs as a percentage of the total gross bookings remain range-bound. Other expenses, excluding payment gateway, reduced by 16% on our YoY basis. In quarter two, we have completed the cost accounting of IPO expenses and taken a one-time charge of INR 68 million, which is a little below $1 million.

Adjusted EBITDA profit stands at INR 35 million, as compared to INR 78 million in the quarter ended September 2022. Lastly, as of September 30th, the balance of cash and cash equivalents and term deposits on our balance sheet was INR 7.1 billion, which is roughly $86.4 million. This reflects the proceeds from our recently concluded IPO, while our gross debt was INR 1.74 billion. With this, we come to the closure of our prepared remarks. I'd like to hand it back to the moderator for opening the questions now. Thank you.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now to join the question queue. Our first question today comes from Scott Buck from H.C. Wainwright. Scott, your line is open. Please go ahead.

Scott Buck (Managing Director of Equity Research Technology)

Hi. Good morning, everyone. Thank you for taking my questions. Dhruv, can you give us a little bit more color on what's driving the softening in air ticket prices? And, you know, it sounds like that's kind of dragged a little bit here through the fiscal third quarter as well, correct?

Dhruv Shringi (Co-Founder and CEO)

Hi, Scott. Good morning. Yeah, you're right that generally air ticket prices have softened significantly, especially on the international travel front. Here, we've seen a lot more deployment of capacity. So last year, as we were coming out of COVID, capacity was really limited in terms of airlines deploying aircraft on the India route. We've seen a significant expansion of that playing out during the last 12 months, and that incremental supply is what's resulting in prices rationalizing and coming closer and closer towards where they were in the pre-COVID environment. On the domestic front as well, we've seen supply expansion play out. In fact, you know, even going forward, it's expected that over the next six months, Air India will add more than an aircraft a week, right? So we will continue to see more capacity expansion happening.

The good thing about that is that while on the one hand it does depress air ticket prices, it does stimulate demand. So if you look at from an overall perspective, the industry grew almost 23% year-over-year. We grew 31%. So from a volume growth perspective, this is actually a great sign that prices are rationalizing. Going forward, we expect prices to remain range-bound because the vast majority of the incremental capacity that had to be deployed on the international routes is already in place, and from here on, it's going to be a more gradual expansion of capacity, as opposed to the large-scale expansion in supply that we saw over the last 12 months.

Scott Buck (Managing Director of Equity Research Technology)

Great. That's really helpful color. And then I want to dig in a little bit on the M&A strategy. Are you looking to do one large deal, multiple small deals? I mean, could you give us just a little bit more color on that, and what does the timing look like there?

Dhruv Shringi (Co-Founder and CEO)

Sure. So as we've called it out in our own IPO prospectus as well in India, our endeavor would be to look at opportunities which allow us to expand the products and services that we can cross-sell into our corporate customer base. These could be, you know, anything ranging from, you know, multiple other products and services related to travel or other ancillary travel and, you know, technology-related offerings that organizations use. So from that perspective, it could, it could be either, right? So it could be a, you know, a one which has a meaningful size and scale, or it could be technologies and products that could dovetail into our offerings. The latter would be, you know, the more likely route that we will adopt, right? But I can't rule out the former either.

The strategy would be to look at, you know, things which can fit into our platform and then help scale up the revenue from those incremental services within our existing corporate customer base.

Scott Buck (Managing Director of Equity Research Technology)

Great, I appreciate that. And then last one for me, just on OpEx. I'm curious, given some of the growth projections over the next, you know, 12 months or so, how do you feel, or, or are you comfortable with the current cost basis, or do you have to do a fair amount of, hiring or additional investment in, in OpEx, to support that growth?

Dhruv Shringi (Co-Founder and CEO)

See, on the OpEx side, we've pretty much got all the main ingredients in place. There might be a little bit of incremental investment that comes in on the technology side, but it's going to be fairly, you know, marginal in the overall scheme of things. So we don't expect our cost structure to change significantly, especially, you know, if you were to look at this as a percentage of total transaction value, we don't see that changing much.

Scott Buck (Managing Director of Equity Research Technology)

Great. Appreciate the time, guys. Thank you again.

Dhruv Shringi (Co-Founder and CEO)

Sure. Thank you. Thanks, Scott.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. We'll pause for just a moment to compile any remaining questions. Okay, currently no further questions on the line, so I'd like to hand back to the management team for any closing remarks.

Dhruv Shringi (Co-Founder and CEO)

Thank you, Ellen. Thank you, everyone, for joining the call today. As always, we are available for follow-ups. Please feel free to reach out to us, and wish you all a happy Thanksgiving.

Operator (participant)

That concludes today's conference call, everybody. Thank you very much for joining. You may now disconnect your line. Have a great rest of your day.