Earnings Call Transcript - MMYT Q2 2022

Jonathan Huang, Vice President of Investor Relations

Hello, everyone. I'm Jonathan Huang, Vice President of Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal Year 2022 Second Quarter Earnings Webinar. Today's event will be hosted by Deep Kalra, our company's Founder and Group Executive Chairman. Joining him is Rajesh Magow, our Co-Founder and Group Chief Executive Officer; and Mohit Kabra, our Group Chief Financial Officer. As a reminder, this live event is being recorded by the company, and will be made available for replay on our IR website shortly after the conclusion of today's event. At the end of these prepared remarks, we will also be hosting a Q&A session. Furthermore, certain statements made during today's event may be considered forward-looking statements within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance, are subject to inherent uncertainties, and actual results may differ materially. Any forward-looking information relayed during this event speaks only as of this date and the company undertakes no obligation to update information to reflect changed circumstances. Additional information concerning these statements are contained in the Risk Factors and Forward-Looking statements section of the company's Annual Report on the Form 20-F filed with the SEC on July 13, 2021. Copies of these filings are available from the SEC or from the company's Investor Relations department. I would now like to now turn the call over to Deep to begin our webinar for today.

Deep Kalra, Founder and Group Executive Chairman

Thank you, Jonathan. Welcome everyone to our second quarter earnings call for fiscal year 2022. I'd like to begin today by wishing everyone good health during the ongoing COVID-19 pandemic. On our last call in late July, we shared that India was already seeing a massive reduction in the number of daily new infections since the second wave peaked in early May this year. The good news is that new daily infections have remained relatively muted with about 16,000 daily new cases on a seven-day average basis. We believe helping to drive this progress has been the dramatic increase in vaccinations since late July, along with natural immunity from unreported infections during the second wave. As of last week, over one billion doses of the vaccine had already been administered across the country, which is a significant global landmark. Nearly 300 million of our own citizens are now fully vaccinated, and we expect that number to rise as many will receive their second dose in the coming months. It's encouraging to see that promoting social distancing and the use of masks is gradually helping to restore normalcy, which has quickly spilled over to travel demand. As of last week, the Directorate General of Civil Aviation or DGCA had lifted the cap for domestic flights, restored domestic seat capacity back to 100%, and done away with many other restrictions. While scheduled international flights remain suspended for now, India has implemented travel bubble arrangements with 28 countries, including the US, Canada, the UK, many EU countries, the UAE, Qatar, and the Maldives. With declining COVID cases across India starting November 8th, the US will allow fully vaccinated Indian travelers to enter. Similarly, the UK had already relaxed quarantine requirements since October 11. India has also reopened its borders to fully vaccinated inbound tourists on chartered flights in mid-October. Furthermore, all fully vaccinated inbound travelers can now forgo mandatory home quarantine if they upload a negative COVID-19 RT PCR report conducted within 72 hours of travel, helping to further ease the hassle of travel during the pandemic. As for our domestic accommodations business, more than 90% of our top-selling hotel properties are open and actively taking bookings. The availability of hotel supply is helping to serve the strong recovery across leisure cities as we recently registered our highest single day of check-in since the pandemic started. In fact, across many leisure cities, we have now surpassed pre-pandemic room nights booked on our platform. As for our domestic bus business, we've also witnessed a steady recovery in supply with more than three quarters of the private bus operator capacity and about 85% of government-operated bus capacity restored entering October. As you can see, we believe that domestic travel is rapidly coming back owing to high vaccinations and low daily new infections. As we sit here today, the team and I are increasingly excited about the prospect of rising travel activity starting with this current festive season and in the quarters to come, especially once more people are fully vaccinated and cross-border travel becomes safe and nearly as effortless as it was before the pandemic. As I've shared before, travel is innate in all of us. Our mission is to help facilitate the best possible end-to-end experience for our customers from travel research and booking all the way through to on-trip support to help fulfill this need in the digital age. We hope we've seen the worst of this pandemic and we'll get back close to pre-pandemic domestic demand recovery in the coming quarters. We're even more enthused by the fundamental shift in buying behavior that has taken place during the last six quarters. A recent comment from RedSeer Consulting is predicting that e-commerce users in India will reach 500 million to 600 million by 2030, up from the roughly 150 million to 200 million today. This prediction, which is likely to play out will place India only second to China in terms of the overall size of online shoppers, equating to an expected total addressable market of $350 billion. We fundamentally believe that the long-term upside for our business remains huge, and we continue to adapt and drive innovations to keep pace with ever-changing online travelers' needs. I believe that it is in this relentless focus on customer experience with our brands that will help cement the MakeMyTrip Group's market leadership position in the long run. Now, I'd like to ask Rajesh to share some more color on our fiscal second quarter.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Deep. Hello and happy festive season to everyone. I sincerely hope you're all staying safe and healthy during this ongoing pandemic. As Deep mentioned, we are very enthused by this strong pent-up demand seen for travel following the devastating second wave. The good news is the momentum we had seen immediately following peak infections in early May has continued throughout the reported quarter. Even better news is that the country has so far managed to prevent any flare-up of a third wave of infection, thanks to the quick and large-scale vaccination program that has seen over a billion doses of approved COVID-19 vaccines administered so far. Throughout much of Q2, we have also seen the gradual and steady return of domestic travel supply to help meet the strong pent-up demand. As mentioned earlier, with demand recovery, we were confident of getting back to turning profitable with our optimized cost structure; hence we declared positive adjusted operating profits in the quarter. As you can see in Q2, we continue to ride the strong recovery momentum that began following the early May infections peak. For the lean travel quarter when compared to the same quarter a year ago, we managed to achieve nearly 2.6 times the volumes in segments in our air ticketing business, nearly 4.8 times the volumes in room nights in our hotels and packages business, and nearly 2.9 times increase in volumes of tickets within our bus ticketing business. When compared to the previous quarter, we managed to achieve nearly 2.5 times the volumes in air ticketing, nearly 2.8 times the volumes in hotel and packages, and nearly 2.1 times increase in volumes of tickets within bus. This was achieved as the country did not fully shut down during the second wave and as the business recovery momentum seen in June continued sequentially throughout Q2. Now allow me to provide some current quarter-to-date trends by line of business. Starting with domestic hotel and packages, which is seeing an 80% recovery in October so far. Today, nearly 90% of domestic hotel room capacity is open at our top selling hotels, which includes virtually all chain hotels across the country. While the early phase of recovery was driven by the higher end branded hotels and drivable leisure destinations, we are happy to see that the domestic recovery is now broadening out to include budget hotels, business destinations, and flyable leisure destinations. In addition, we are seeing domestic room nights booked at all major chains on our platform growing year-on-year, and also seeing business in many leisure destinations have either fully recovered or exceeded pre-pandemic levels of volumes. As for our alternative accommodation business, in October, we've seen recovery of nearly 85% when compared to the same month pre-pandemic, with bookings at villas significantly higher than pre-pandemic. Following the peak of the second wave, our team prepared for further expected pent-up demand for domestic travel. We launched the Luxe Hotels collection by curating and offering customers over 250 ultra-premium hotels and enhanced the listings content to drive better conversions. We also launched Luxe packages with these premium hotels to offer special amenities and features to enrich customer stay experience. As for brand Goibibo, we improved the location and points of interest to help customers find hotels easier. Within the booking funnel, we introduced travel insurance to aid in cross-selling. Similarly, for our alternative accommodations experience, we improved the discoverability of properties with a new landing page in our dedicated home stays funnel and introduced a new entry point within our main hotels funnel. Now let me share some of the highlights from our air ticketing business, where the market's recovery of passengers flown now stands at 63% versus pre-pandemic peak in January of 2020. As expected, the domestic air market had steadily improved as demand for travel sharply returned in line with the containment of new infections. Even more encouraging is that on a booked basis, October, months to-date, we are seeing a 90% recovery so far, indicating the strong travel demand for this year's peak travel festive season, where we are seeing top sectors booked like Delhi-Goa, Mumbai-Goa, and Hyderabad-Goa, all exceeding pre-pandemic levels already. Naturally as the clear market leader, our performance outpaced the market, as we have logged a 72% recovery so far in October on a daily flown basis. While international outbound flights are still fairly restricted, we have also seen traction in destinations that have opened to vaccinated Indian travelers. We expect as more countries open their borders, outbound travel will once again be a fast driver of growth for our air ticketing business. In the meantime, during Q2, we continued to enhance our shoppers experience by introducing a quick book feature on Goibibo's mobile website. Furthermore, we continue to broaden our offerings with armed forces, student, senior citizens, and other special fares. We also launched a 100% refund policy to travelers who tested positive for COVID-19 and also enabled the upload of vaccination cards into our apps, making transit a bit more effortless. We also recently announced our partnership with Hopper, one of the top travel booking apps in the US for flights, hotels, and car rentals to help travelers save money with personalized recommendations and flexible booking capabilities. Through this partnership, we aim to further enhance the flight booking experience by boosting our recently launched Price Lock feature. Hopper's Price Freeze Technology will power MakeMyTrip's Price Lock feature and enable customers to lock-in flight fares for up to seven days while they are in the process of firming up their travel plans. Now I would like to share an update on our redBus business, where recently in late October, we've seen a recovery of about 70% of pre-pandemic levels, with some regions like Eastern and Northern parts of the country seeing 130% and 90% recovery, respectively. Today, nearly 75% of all private bus operators and 84% of government and regional transport corporation operators' supply is back online. During the quarter, we worked closely with multiple operators, leveraging our real-time demand data to help them add the right inventory on key routes to better optimize resources during the ongoing recovery. Within the bus ticketing business, we also witnessed firsthand the rapid digitization caused by the pandemic, which has helped us gain new customers. Lastly, we had previously announced Primo, the program for top-rated bus operators to showcase their onboarded services. I am glad to announce that today we have more than 800 buses co-branded as Primo buses on the road across India. Naturally, we have also seen a great amount of interest and bookings for this experience from our user base. Now I would like to move on to share an update on our other ground transportation business, which includes rail ticketing and cab rides. During the second quarter, our standalone other ground transportation business also recovered to 85% of pre-pandemic levels and has also helped contribute to nearly 25% of overall new users to our platform. Within our intercity and airport transfer cabs business, we have reworked the funnel's functionality to offer greater categories of cabs and vendors, introduced premium cab offerings with standardized amenities and trained drivers. As for our rail ticketing business, we also launched trip guarantee bookings, which offers three times the value back to customers in case the desired rail ticket remains unconfirmed, allowing them to book last minute and more costly alternatives, like flights, cabs, or buses to undertake their journey. Given the early successes we've seen for this product on MakeMyTrip, we are now rolling it out to Goibibo users as well. Additionally, the free cancellations feature available with rail ticketing offers greater flexibility to customers to cancel rail tickets at the last minute, if they wish to without paying high penalty charges. Lastly, we're seeing good traction on corporate and SME travel revival. In fact, in October we've seen nearly full recovery versus pre-pandemic, helping to drive the strong recovery; the conversion of our new accounts pipeline during Q2, as the team acquired nine new large enterprise accounts, 201 new mid-sized accounts, and 385 new SMEs, helping us to surpass pre-pandemic levels of active customers using our services and reach an all-time high inactive accounts in September. We continue to see industries like e-learning, real estate, biotech, and IT services making a full recovery in corporate travel relative to pre-pandemic days, as clients see the need to deploy their sales team for in-person client meetings. As you can see, we are excited to see the very fast and strong recovery for travel demand as shown in our results for Q2 and continuing into the festive season of Q3 so far. Going forward, we plan to continue to position our products and experiences to capture this inevitable pent-up demand for travel, whether leisure or business, and leverage our optimized operating costs to retain and expand our market leadership in the years to come. With that, I would like to hand the call over to Mohit to share more color on our financial results in Q2.

Mohit Kabra, Group Chief Financial Officer

Thanks, Rajesh. Hello everyone. I hope you're all staying safe and healthy. We report the first full recovery quarter following India's highly infectious second COVID wave in April and May earlier this year. It's a good solace to see that the travel recovery as anticipated has been stronger than the pace of recovery experienced, post the first wave of COVID during the similar period last year. Ever since the onset of the COVID pandemic last year, our focus has been on tight cost control during the ongoing journey to full business recovery. And as a result of our cost rationalization efforts, during the last six quarters, we have been able to significantly bring down fixed costs and also build efficiencies in variable expenses, like marketing and sales promotions. The highlight of this quarter is that with approximately just about 50% business recovery compared to the same quarter of pre-pandemic fiscal year 2019 and 2020, we were able to deliver adjusted operating profits of about $6.6 million. Adjusted for the non-cash depreciation and amortization expenses, the adjusted operating cash profit is about $10.5 million for the reported quarter. Total gross bookings are over $734 million, but nearly at the same level achieved in Q4 of FY 2021, just before the second wave of pandemic hit us in India. Gross bookings have increased by over 243% year-on-year in constant currency terms and increased by over 156% on a quarter-on-quarter basis, thanks to the strong business recovery post the second wave. The recovery versus the same quarter of pre-pandemic fiscal year 2019-2020 is about 49%, what is encouraging is, that the exit recovery rate in September 2021 was stronger at 62%. Moving on to our business segments; air ticketing adjusted margin stood at about $38.6 million, representing an increase of over 3.2 times the level achieved during the same quarter a year ago and more than doubled from the previous quarter in constant currency terms. Our sustained strong market share in the domestic air ticketing business continues to help us, as this line of business has proven to be a lot more resilient when compared to other travel services during the initial recovery phases post the pandemic waves. Our market share in domestic flights continues to be close to 30% of all tickets booked. The September exit recovery in domestic air segments compared to the same quarter of pre-pandemic fiscal year 2019-2020 stood at about 68%. We are hopeful that domestic air business will get to full recovery by the end of the next quarter or by December 2021. The adjusted margin for our hotels and packages business increased to $35.5 million in Q2, which is 6.4 times the adjusted margin achieved in the same quarter a year ago and nearly tripled the adjusted margin achieved in the previous quarter in constant currency terms. The September recovery exit compared to the same quarter of pre-pandemic fiscal year 1920 stands at about 60% and we are hopeful to see a full recovery by the end of this fiscal year. As for our bus ticketing business, the quarter's adjusted margin stood at over $7.9 million and represented a 3.2 times improvement from year ago levels and double the adjusted margins achieved in the previous quarter. Lastly, the adjusted margin in the other businesses was $4.4 million representing a year-on-year improvement of recovery of about 1.4 times and increased by over 75% over the previous quarter in constant currency terms. During the reported quarter, while we continued to invest behind gaining share in the rapidly recovering travel market, we also witnessed operating leverage kicking in from our optimized fixed cost structure helping us to return to positive adjusted operating cash profit for the quarter. As for fixed costs, our adjusted personnel and SGA expenses came in at $30.2 million, which is a slight increase of over $2 million compared to the previous quarter, but still significantly lower than the same quarter pre-pandemic fiscal year 2019-2020 expense number of $46.7 million. During the quarter, our marketing and promotional expenses stood at about 5.4% of gross bookings compared to the same quarter pre-pandemic fiscal year 2019-20, when it stood at about 9% of gross bookings. With the rapid scaling of vaccinations and medical infrastructure post the learnings from the second wave, we believe we could see a full domestic travel recovery well before the end of this fiscal year. We hope to see gradual relaxation in international travel post the festive season in India if the infections remain under control. In the meantime, we continue to focus on maintaining strict cost discipline while making the right long-term investments toward business recovery. We believe our cost optimization efforts, along with improving market shares and best-in-class customer experience with three strong brands have laid the foundation for the next cycle of profitable growth for the group. While redBus continues to be the leading bus brand with potential foray into all forms of ground transport services, both MakeMyTrip and Goibibo continue to be the top two leading OTA brands based on gross bookings or registered margins or OTA margins in the Indian travel market. With profitable operations at even 50% of pre-pandemic levels, we believe that MakeMyTrip Group is very well poised to ride the ongoing recovery in India's travel industry in the quarters to come with its leading OTA brands and bus brand, as well as the balance sheet strength of about $0.5 billion in cash and cash equivalents. With that I would like to turn the call over to the operator for Q&A.

Jonathan Huang, Vice President of Investor Relations

Hi Gaurav. Please carry on with your question.

Gaurav Rateria, Analyst

Hi, am I audible?

Jonathan Huang, Vice President of Investor Relations

Yes.

Gaurav Rateria, Analyst

Hi, congrats on a great set of numbers. A couple of questions. The first question is, would like to better understand how has MakeMyTrip's competitive positioning changed within the budget and the alternative accommodation markets, where penetration rates may be much lower? I understand that the large chains and the mid-segment is a sweet spot that MakeMyTrip has, has always been the case, but within the budget and alternative accommodation how has the competitive positioning changed compared to the pre-pandemic?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yeah, hi Gaurav. Maybe I can take that. As far as alternative accommodation is concerned, as you know the story has been actually very, very positive both on account of the new consumer trend sort of emerging in a big way where the preference was also to go in for secluded accommodations just more from a safety standpoint and so on. And on the other hand, also on the supply side, we've been ramping supply on alternative accommodations all through in a much more accelerated fashion from the pre-pandemic levels given the fact that a lot more properties are now coming into the supply ecosystem. So it's been a great story so far on both accounts, even with respect to competitive positioning in the market, you know, from our growth standpoint in that segment, we are already doing similar to, from a recovery standpoint almost close to the same numbers on a run rate basis that as you know if we compare that to the pre-pandemic level. So we are quite happy as we had also called out in the past that we were investing behind in this segment in any case for the last couple of years in terms of just product experience enhancement. We also launched a dedicated funnel as we pointed out, as well as the supply ramp up. So all-in-all, the story is very positive and we are quite optimistic even in the future; this segment is going to grow and we are definitely going to have a very strong position in the market with respect to this segment. As far as budget is concerned, as compared to the last quarter where the recovery was mostly led by the chain hotels, the premium category hotels, even the super-premium category hotels this quarter that we're reporting out and as we see and even in the current month, the budget segment also seems to be now recovering nicely with all the demand segments, which are sort of focusing on more budget segment category of hotels and accommodation, be it students slowly, and gradually also the small and medium enterprises who almost like from a consumer behavior standpoint behave like the retail customers. That's also beginning to come back as we were sort of alluding to earlier. So definitely a much better position to what it was in the previous quarter and in the coming days and weeks and quarters, it is only going to sort of go back to normal.

Gaurav Rateria, Analyst

Great, Rajesh. Second question for Mohit, specifically, and Mohit alluded in his comments of next cycle of profitable growth. So with the optimized cost structure and further improvement in recovery rates and business, do we expect to stay profitable in the near-term? And secondly, how should one think about the capital allocation given such a strong balance sheet we have? And we are already turned profitable so any capital allocation strategy in the new areas of investment use of cash that will be helpful? Thank you.

Mohit Kabra, Group Chief Financial Officer

Hi, Gaurav. As you've pointed out, the pandemic has significantly influenced our profits, typically swinging within a $10 million range per quarter based on the state of recovery. We've experienced two waves of the pandemic already. Looking at the last fiscal year, which was greatly affected by COVID, the first half was quite challenging, but we managed a strong recovery in the second half, resulting in a cash break-even year for us operationally. In this fiscal year, the first quarter suffered from the second wave but our cash operating losses were slightly under $5 million, keeping us in a narrow range. We've observed about a 50% recovery from pre-pandemic levels, with profitability beginning to emerge. Our expectation is positive due to the vaccination progress and the containment of infection rates, even during high-risk periods like festivals. If this trend continues, we anticipate a stronger recovery next quarter, which coincides with winter vacations, suggesting we should remain on a profitable path unless there is a major disruption from the pandemic. Regarding capital allocation, we are not pursuing any large consolidation opportunities, but we are actively exploring small niche investments. We're focusing on growth areas such as expanding into the alternative accommodation sector, scaling our ground transport business, and enhancing our presence in existing markets like GCC, where we launched last year. We are also considering expanding the redBus business internationally. These represent our growth areas and potential investment strategies, though we do not have any finalized significant plans at this time.

Gaurav Rateria, Analyst

Thank you so much.

Jonathan Huang, Vice President of Investor Relations

Next question comes from Vijit Jain of Citigroup. Vijit, go ahead with your question please.

Vijit Jain, Analyst

Okay. Hi. Can you hear me?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes, Vijit.

Vijit Jain, Analyst

Yeah sir. Hi. Congrats on a great set of numbers. I have a couple of questions from the A, on the domestic slide side, did I get, Mohit, right your market share in there is about 30% on a booked basis?

Mohit Kabra, Group Chief Financial Officer

Yes. Vijit you are right. The market share actually stands out is given out more on a flown basis because DGCA numbers are on flown basis.

Vijit Jain, Analyst

Right.

Mohit Kabra, Group Chief Financial Officer

But it won't be much of a difference between flown and booking item.

Vijit Jain, Analyst

Right. So it does look like you gained market share in the flight business, because your number before this quarter used to be around 27%, 28% odd levels, right, so pretty decent jump in market share in that. Is that understanding correct?

Mohit Kabra, Group Chief Financial Officer

I believe we have gained market share. Please continue, Rajesh.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yeah. I was just going to add, Vijit if you compare it with the pre-pandemic level, actually it's a gain of about three percentage points, it used to be about 26.5%.

Vijit Jain, Analyst

Thank you for that, Rajesh. The second question is specifically about the train side. In your opinion, is the train booking business significantly shifting away from IRCTC? Are direct bookings on IRCTC moving to OTAs, and has this accelerated during the pandemic? Additionally, could you provide some more details on product development for the train side? I know you’ve mentioned it briefly, but I’d appreciate more insight.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

During the pandemic and even before it, overall, IRCTC has maintained a strong position in the market. Although there are ongoing trends related to market share shifts, I believe these changes have been limited. There are two key reasons for this: first, IRCTC continues to dominate as the sole supplier, and second, the product experience does not offer a level playing field since users must still log in through IRCTC. While we have managed to grow in the rail segments, the overall market share has not shifted rapidly away from IRCTC due to the uneven product experience. As of the latest figures I have seen, IRCTC holds about 85% of the online market share, with the remaining 15% shared among all other players. Additionally, rail bookings have largely transitioned online, as traditional travel agents are not involved. That's my take on the share shift. What was your second question, Vijit?

Vijit Jain, Analyst

Yeah. Just on the product side and the rail business, I know you spoke about it in brief about trip guarantee. So, just a little bit of color on that because I don't think I understood that completely.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Sure, I'm happy to explain. Essentially, while I mentioned the shift in transaction shares, we're still receiving a significant amount of traffic on our rail platform. Customers are visiting not just for transactions but also to check PNR status and other information related to railway services. Our goal is to convert that traffic into actual transactions. As a comprehensive travel platform with various options available, we believe it's beneficial for waitlisted candidates, who often face challenges when their tickets are canceled or not confirmed. We aim to provide them with alternative modes of transport, like flights or cabs, so they can complete their journey without disappointment. This process is supported by data science models that analyze cancellation trends, and we've been seeing promising early results, which is why we want to promote this offering further.

Vijit Jain, Analyst

All right. Thanks Rajesh. So Rajesh, just one question, one final question on the train side. So, I think you mentioned you're getting 25% of your new customers from this funnel...

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Of the new users. Of the total new users, about 25% are coming through the rail, yeah.

Vijit Jain, Analyst

Okay. Got it. And so just one final question from my side, on the Hopper deal that you've done for cancellation protection, I think, a fair lock in, right? Can you talk a little bit about what the initial uptake for that has been? I know it's still early days, but...

Rajesh Magow, Co-Founder and Group Chief Executive Officer

It's actually very encouraging. We had previously built our own product based on our data and modeling, and we saw promising results during the early days. However, the pandemic caused some disruptions, leading to fluctuations in performance. Nevertheless, we experienced decent initial traction from consumers. We tested the product in the market and received positive feedback from consumers. This led us to consider strengthening our product offering with Hopper, as they have successfully scaled in their market in the US. We believe that by collaborating, we can enhance the overall product by sharing insights from our experiences and leveraging their market knowledge to improve our offering.

Vijit Jain, Analyst

Got it. Thank you, Rajesh. Thank you. Those were my questions.

Jonathan Huang, Vice President of Investor Relations

Next question comes from Ashwin Mehta of Ambit. Ashwin, please go ahead with your question.

Ashwin Mehta, Analyst

Hi thanks and congratulations on a good set of numbers. Rajesh one question in terms of consumer behavior especially on air ticketing and hotel so in terms of people planning say short-time frame bookings versus planning over a longer time frame have you seen a change in terms of pattern given that the COVID infections have fallen? How would it kind of compare with quarters that have gone by?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you for the question, Ashwin. You're absolutely right. Until the last quarter, bookings were often made at the last minute. Consumer behavior indicated minimal trip planning, with people frequently deciding on travel last minute, taking advantage of the flexibility to work remotely. However, in the quarter we're currently reporting, and into the beginning of the current quarter, we are observing positive changes. There are signs of normal behavior returning, as the advance purchase window has improved. Customers, especially within the leisure segment, are starting to plan their trips ahead of time. This shift is partly due to the recovery in the market and the stabilization of fares. As news of fare increases circulates, we see an uptick in advance bookings for the winter and holiday seasons, with planning levels approaching those seen before the pandemic. While we have not fully returned to pre-pandemic trip planning behavior across all segments, there is a noticeable improvement compared to previous quarters.

Ashwin Mehta, Analyst

Okay, fair enough. The second question was in terms of hotels where you talked about that even budget hotels are starting to come upstream in terms of booking, so in that light, do you think the net revenue margins and take rates start to move up for us? You've historically been in the 22%, 23% range as well. So, how should we look at that in a scenario where budget starts to come in?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Ashwin, on the margin, in fact, even if you go back in history, our longer term outlook has been in the range of 18% and thereabouts in any case. I mean, you might get because of one reason or the other and sometimes it's sort of supply-side upside also; sometimes, you end up getting in a quarter which could look higher than the number, which was the case I guess in the last quarter. Last quarter the gross take rates were actually pretty good both for air segments as well as hotel packages, and then that hotel and packages were not necessarily driven out of the budget segment. So, those kind of aberrations might play out, but I think from a long-term sustained basis, margins, we should just keep around the same sort of range that we've reported out around the 18% mark kind of number plus or minus is going to be the general outlook on the take rates.

Ashwin Mehta, Analyst

Okay. And just the last question in terms of alternative accommodation I might have missed that number, where are we in terms of number of properties and how do we compare with competition across say the large guesthouses and service apartments?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

We have been increasing our inventory, and we are currently close to about 30,000 properties. It can be challenging to compare our property counts directly with our competitors due to the various ways properties are listed. They might be represented differently, such as rooms only or entire villas. However, from an overall perspective, we are competitive in terms of the number of properties available, and we will continue to expand. Additionally, we ensure sufficient inventory for nearly every city and destination we target, providing ample selection for customers looking for alternative accommodations. We feel well covered in this area and will keep expanding as new opportunities arise.

Ashwin Mehta, Analyst

Okay. Thanks, and all the best.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you.

Jonathan Huang, Vice President of Investor Relations

Last question comes from Manish Adukia from Goldman Sachs. Manish, please go ahead.

Manish Adukia, Analyst

Thanks, Jon. Good evening, team. I have three questions. First, can you provide some insight into the competitive intensity following Cleartrip's acquisition of Flipkart? Have you noticed any changes in on-ground competition since then? Also, if you had to identify one specific competitor, whether it's Cleartrip, Booking, ixigo, or another, which one are you most concerned about or monitoring closely in case competitive pressure increases in the coming months or quarters? That's my first question.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

No, interesting question, Manish. Regarding your first question, we have observed some activity increasing on Cleartrip, which coincided with their sale events like Big Billion Day. This increase was primarily limited to domestic flight activity. It's worth noting that Flipkart had similar promotions in the past, so this isn’t their first time engaging in such activities, as there was another entity supporting their flight offerings at that time. In comparison, I don't see anything particularly different in their approach this time. As for your second question about which competitors we are cautious of, the competition landscape is quite fragmented right now, and some competition is healthy to a degree. Different segments may have varying competitors; for instance, in the hotel and packages sector, we face competition primarily from global online travel agencies like booking.com. In the alternative accommodation market, we can learn from Airbnb, not just in terms of competition but also by being inspired by their successes. In the transportation segment, particularly for buses, we don’t face significant competition—only a few distant competitors exist in that area. In the domestic flights market, as we've discussed before, there are players like ixigo and EaseMyTrip, but the market remains divided and fragmented. We monitor competition closely, but our strategies are not solely informed by them. As a market leader, we focus on developing our strategy independently, aiming to stay ahead of our competitors at all times. That's how we approach the competitive landscape.

Manish Adukia, Analyst

Thank you so much Rajesh, very helpful. My second question is just on the shift to online; you've talked about in the Air business where now the market share is 30% on an overall basis, probably some of it are also due to the shift in online, but if you can talk about the hotels and the bus business in particular where online penetration at least pre-pandemic used to be in the sub-20%, so is there anything to suggest in the data points or anything your own sense that during the pandemic there's been like a pretty rapid shift to online in the hotels and buses segment which in your view could potentially stay as demand recovers? So anything or any color you can provide on that?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Certainly. This number will become clearer as we return to a fully normal state, allowing us to see how much penetration has increased. Online penetration has undoubtedly risen, reflecting trends seen in other categories, not just products or services. There will be a lag effect due to travel recovery after previous restrictions. As travel recovers, online penetration will likely accelerate. However, to quantify the percentage increase, we need to return to a more normal situation to accurately determine that number from the marketplace. It certainly has increased. If I refer back to a Google BCG report from before the pandemic, it predicted that online penetration would reach 30% by 2023 or 2024. We might be close to 25% or nearing that mark. With more certainty, we'll be able to see and calculate this once the entire market rebounds, which I hope will be within the next couple of quarters.

Manish Adukia, Analyst

Got it. That's helpful.

Deep Kalra, Founder and Group Executive Chairman

I wanted to add one point to what Rajesh said. Manish, we can use two different surrogates here; while it’s difficult to get an exact number like Rajesh mentioned, one of the surrogates worth considering is the doubling of the size of the e-commerce market. There seems to be a consensus that 110 million buyers likely exceeds 220 million to 230 million, with some suggesting it could reach 250 million and continue to grow. This is a solid surrogate across the board, although it might vary in different sectors. We are seeing a range of products from low-value items like rail and bus tickets to international services, which will benefit from this growth. Another important point is that one of the major challenges consumers faced before the pandemic was trust in online payments. This barrier has been largely overcome, as many individuals have made online payments for the first time for various services, which will provide significant advantages. Historically, the issue was not with shoppers or researchers but rather with the purchasing side, specifically the final step of the buying process. Early indications show that we’ve seen a notable increase in new buyers in certain segments. After the second wave, we noticed a significant influx of first-time buyers in the bus segment, particularly on redBus. We are also witnessing similar trends on our vernacular platforms, which is quite interesting. A conservative estimate would suggest that there could be an increase of 50% to 60% more buyers ready to make purchases, and hopefully even an increase of 100%.

Manish Adukia, Analyst

Thank you so much, Deep, for that color. Just last question from me, if I may; advertisement revenues has started becoming a focus area for the company over the last couple of years, but on an absolute basis obviously, quite small right now. Now we globally see for at least e-commerce companies advertisement revenue at a proportion of GMV can be anywhere between 1% to 2%. When you think about MakeMyTrip as a platform, is there any reason where let's say over a three-year to five-year period, let's say 1% to 2% of your GMV can't be advertisement revenues? I mean, is that something like how do you think about the runway for the advertisement revenues is what I'm trying to understand.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I believe that's why we initiated this project, and we've seen very encouraging early signs. Looking long-term, whether that's three to five years or longer is uncertain because we still need to make specific investments in this platform, which are expected to materialize in the next quarter. This will help us gauge its true potential. Initially, we approached it with high expectations based on benchmarks, but we will need to wait another quarter or two to gain clarity. Currently, we’re analyzing its performance within the travel sector and also need to consider its applicability outside of travel. So far, we’re optimistic about what we’ve launched, and I believe it’s heading in the right direction. However, I will refrain from specifying a percentage of GMV until we’ve gathered more data over the next couple of quarters.

Manish Adukia, Analyst

That's very helpful. Thank you so much for answering all of my questions and all the best.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Manish.

Jonathan Huang, Vice President of Investor Relations

Ladies and gentlemen, that concludes our webinar for today. Thank you for joining. If you have any follow-up questions, please feel free to reach out to any of us, and you may now disconnect.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you.

Deep Kalra, Founder and Group Executive Chairman

Thank you, everyone.