Earnings Call Transcript - MMYT Q1 2023

Vipul Garg, Vice President, Investor Relations

Hello, everyone. I’m Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited. And welcome to our fiscal year 2023 First Quarter Earnings Webinar. Today’s event will be hosted by Deep Kalra, our company’s Group Chairman and Chief Mentor, 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 safe harbor provision of the U.S. 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 the 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 Form 20-F filed with the SEC on July 12, 2022. Copies of these filings are available from the SEC or from the company’s Investor Relations department. I would like to now turn over the call over to Rajesh. Over to you, Rajesh.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Vipul. Welcome everyone to our first quarter earnings call of fiscal 2023. We are glad to report a robust quarter-on-quarter growth of 63.3% in gross bookings on a constant currency basis signaling strong recovery in travel sentiment and demand post the third wave of COVID-19 infections in India. I shared earlier we have built significant operating leverage in our business over the last few years, which has helped us deliver our highest quarterly adjusted operating profit of over $16.5 million compared to about $12 million in the last recorded quarter. It is heartening that after two years of being under the impact of the COVID-19 pandemic this new fiscal year has started on a strong note with public behavior and sentiment back to pre-pandemic normal given the comfort of strong vaccination coverage in India, and the latest variants of COVID-19 reporting milder infection with minimal hospitalization and fertility rate. Accordingly, we have seen strong recovery in leisure travel in domestic destinations as well as improving demand in short haul international destinations in Southeast Asia, UAE, and Nepal etc. Globally, and in India, governments and central banks have increased the efforts recently to tame inflationary pressures that had built up over the last few quarters. As the effect of these measures become more visible in the coming quarters, there is likelihood that airfares, which have been higher than normal during Q1 due to high oil prices, will become more attractive leading to improved domestic and international travel demand. Further considering the consumer sentiment for travel is still very positive. With work patterns gradually getting back to pre-pandemic normal while we have seen increased demand for office commute during the quarter. We also expect corporate travel demand momentum to further pick up in the coming quarters, aiding overall demand recovery for the travel industry. Overall, our current estimate is that travel both domestic and international should recover fully to pre-pandemic levels by the end of this year. Apart from the short term positive outlook on demand recovery, we believe there are significant tailwinds supporting robust growth in the travel industry over the medium term of the next three to five years. Firstly, due to the pandemic, the travel industry saw a significant temporary decline and hence the pent-up demand is likely to drive accelerated growth with the return of normalcy. Secondly, post the pandemic there is a permanent shift in how people perceive travel with a propensity to travel being much higher, and experiences becoming even more important. Thirdly, there is also a secular uptick in the online buying behavior, which bodes very well for us as most segments of the Indian travel industry have traditionally had low online penetration. Lastly, and most importantly, India is still an under-penetrated travel market with a huge scope of growth. Some of the factors favoring these growth trends are expansion of infrastructure, increasing per capita income, increasing disposable incomes, and higher willingness to travel and book online among the young working population. As per the Ministry of Civil Aviation estimates, Indian aviation will become the world’s third largest aviation market by 2024. Development of new airports, highways, and addition of hotels will help grow domestic tourism many fold in coming years. Almost all the airlines have placed orders for new planes over the years. On the other hand, few hospitality chains have also announced their expansion plans which should add to capacity and fuel domestic travel growth. As a comprehensive travel service provider, we hope to leverage these macro growth trends. Let me now talk about the performance in the key travel segments, and I would then share the prospects on some of the future growth areas both on the supply side and demand side. Coming to business segments. In our air business, we continue to maintain our leadership position and market share. We are recovering faster than the market. During the quarter we witnessed over 90% recovery as compared to pre-pandemic levels. This is majorly on account of travel demand opening and more people traveling during the summer holiday season. I talked about high air fares earlier. This has affected recovery momentum to some extent, leisure destinations like Srinagar, Deheradun, Leh have shown more than 100% recovery, while business in metro destinations like Delhi, Mumbai, Bangalore etc. have lagged a bit due to high fares and corporate demand still short of full recovery. On international travel, short haul destinations like Southeast Asia, Maldives, UAE and Nepal witness strong recovery. In the next few months as the Visa backlog gets cleared, and new Visa issuances for European and American destinations streamline, we expect to see stronger demand recovery in these long haul destinations as well. Coming to our hotels packages and alternative accommodation business. We witnessed a strong recovery driven by leisure travel. Supply side services have now stabilized. In the top selling hotels, 90% of the rooms are open and almost all chain hotels are now fully functioning. Many of the leisure destinations we are now seeing growth over pre-pandemic levels, which have helped taking the overall volumes recovery in the segment to around 87% of the pre-pandemic volumes. Accommodations focused on building home stay supply has helped us improve supply in leisure cities such as Rishikesh, Srinagar, Shimla, Manali, Mussoorie, McLeod Ganj, and Leh, which has helped us surpass pre-pandemic volumes in this category. We also launched Home stay Awards, which are one of a kind in the country, and we’ll help popularize this category further. The awards attracted nominations for up to 2,500 home stays across the country, consumer voting is ongoing, and more than 460,000 votes have already been cast by the users. We continue to add more properties on our platform and increase our supply mode. It is encouraging to see that more and more properties in smaller towns are keen to come on our platform and sell online. In Q1 we sold rooms in over 43,000 properties spread over 1,900 plus cities, which reflects the extensive support being provided to small accommodation service providers, particularly in the remote towns and building deeper engagement with suppliers and customers in larger part. Coming to our bus ticketing business we maintained our recovery momentum in the seasonally strong quarter. Demand and supply recovery has been lagging in certain states of Tamil Nadu, Karnataka and Kerala. In the coming quarters reopening of offices and gradual move away from remote working in the corporate sector, especially in the IT sector should help drive full restoration of demand. On the product side we launched a project aimed at increasing the last minute booking share of Red Bus through targeted interventions on select routes by ensuring price competitiveness and pricing advantage with offline channels. Additionally, interventions such as keeping the booking window open at a boarding point until the actual time of departure based on real-time delays, as well as showing the earliest available bus at the nearest boarding points have helped improve conversion rates for us. We launched new initiatives to differentiate our driver experience. Seven Red Bus lounges across top boarding points pan India including four Cafe Coffee Day lounges in Bangalore are now functional. Let me now share more details on the current areas of investment which would be growth drivers in the next few years as we scale up. These include both supply side initiatives and demand side initiatives apart from small inroads in adjacent markets like GCC. On the supply side, our investments are primarily towards bringing more and more small service providers and accommodations onto our platform and ground transport services like rail and intercity cabs. We now have accommodation service providers in about 1,900 cities up from 1,600 cities earlier. We aim to have accommodation supply in over 2,000 cities before the end of this fiscal year. On the airport transfer use case we recently piloted to promote carbon-efficient services particularly in the metro cities, starting with a partnership with Blue Smart Ride-sharing company with electrical vehicles, offering our customers hassle-free guaranteed and on-time pickup and drop experience at Delhi airport. We are looking to expand the supply at the other locations through similar partnerships. One of the key objectives around our ground transport services is to acquire customers particularly in the hinterland and eventually get them to buy other travel services on our platforms. Our key initiatives on the demand segments as shared earlier are focused on catering to the corporate travel demand and demand segments via our MyBiz platform for SMEs and Q2T platform for large corporates. We have added notable clients like CI Infotech, Grant Thornton, Gati Logistics, etc. during the reported quarter. Coming to our foray into the GCC market. Our first focus has been the UAE market and it continues to scale. Q1 has been a good quarter for us with the market showing strong recovery post the Omicron wave and seasonal customer demand around Eid holidays. During Q1, our gross bookings grew 2.3x quarter-on-quarter organically albeit on a low base. We have made significant progress in building supply strength and automation. Our first target is to be the leading OTA in UAE by the end of this fiscal year. Before I wind up, I would like to reiterate that the outlook for the travel industry has improved considerably. And we have started the fiscal on a strong note with robust top line recovery and growth in profits. With this, let me now hand over the call to Mohit for financial highlights of the quarter.

Mohit Kabra, Group Chief Financial Officer

Thanks, Rajesh. Hello, everyone. I hope you’re all staying safe and keeping healthy. During the last two years under the pandemic, we have been focused on tight cost control to get to operational profitability while being in the business recovery phase. This year, the objective will be to improve profitability, along with the strong bookings growth over the previous year. Before getting into the financial highlights, I’d like to call out two specific things. One, while our operating business is largely in Indian currency, our financial reporting is in U.S. dollars. Significant weakening of the INR versus USD during the quarter had a translation or restatement impact, and hence that focus on growth in constant currency to reflect the stronger underlying growth in the operating currency. The year-on-year growth metrics during this reported quarter look very high because Q1 last year was significantly impacted by the second wave of the COVID-19 pandemic and therefore focus on quarter-on-quarter growth to reflect the continued strong momentum in travel demand recovery. I’m glad to report that during the reported quarter, we posted very strong growth and profit numbers. We have achieved 63.3% quarter-on-quarter growth in bookings on a constant currency basis apart from posting our highest quarterly adjusted operating profit or adjusted EBIT of $16.5 million adding for non-cash expenses the adjusted cash operating profit or adjusted EBITDA stood at about $20.1 million. During the quarter, our air ticketing adjustment margin has stood at $60.6 million registering a 38.7% growth over the previous quarter on a constant currency basis. We’re glad to share that our domestic flight segments have nearly recovered to pre-pandemic levels of the same quarter in fiscal year 2019-2020, although the recovery on international flights is still around the halfway mark for mostly the reasons that Rajesh has already mentioned. The air ticketing margins for the quarter were unexpected lines at about 6.1% in view of the high air fare and therefore, you can see that the average selling price in domestic flights was up almost 18.6% versus last quarter. And just in margin, in our hotel and packages business, they stood at $66.9 million, witnessing a growth of 62.3% quarter-on-quarter in constant currency terms. We witnessed a surge in bookings this quarter, aided by the holidays or vacation seasonality. The margins in the segment came in line with our expectations at about 17.2%. The average selling price for domestic hotels was up almost 11.5% over the previous quarter. In our bus ticketing business, the quarterly adjusted margin stood at about $20.8 million, registering very strong quarter-on-quarter growth of about 72.3% in constant currency terms. The margins were in line with our expectations at about 8.8% and the average selling price increase in the domestic bus ticket rate was about 15.6% over the previous quarter. Adjusted margin in our other businesses was $7.9 million, which is a 42% quarter-on-quarter growth in constant currency terms. Coming to our operating costs we continue to be prudent with our variable expenses, especially the customer acquisition costs. Marketing and sales promotion expenses stood at about 5.1% of gross bookings in line with the 5.1% reported during the last fiscal year. While it has been reported earlier, during the quarter, we took a majority stake in India’s leading online Forex provider Book My Forex to help build ancillary Forex services as a part of a trip money FinTech platform to meet the growing needs of our travel customers. As international travel picks up, this will allow us the opportunity to service the Forex requirements of our customers. We will continue to leverage our strong brands and cash position to drive investments in the areas of future growth already outlined by Rajesh. With that, I’d like to turn the call back to Vipul for Q&A.

Vipul Garg, Vice President, Investor Relations

Thank you, Mohit. If any of the attendees want to ask questions, please click on the raise hand button on their screen and we will take the questions one-by-one. We’ll just give a minute for the question queue to assemble. First question is from the line of Vijit Jain of Citi. Vijit, you may please ask your question now.

Vijit Jain, Analyst

Thank you. Can you hear me? Okay. Thanks Vipul. Congratulations on great numbers. My first question is just the average ticket size of the air transactions, how much of it is being driven by the price increases in domestic aviation and how much of an impact from international improvement and if you can clear, if you can talk about overall, how much has international improved on a Q2 basis?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

So, like it was called out, on the domestic side the domestic fares on an average have increased by about 18.6% over the previous quarter. So that's the kind of increase in trends that we’re seeing on the domestic side. International clearly, the recovery has been muted, like I called out. International recovery is kind of in the 50s right now. Therefore, it's lagging. A couple of reasons over the while we’re doing quite well on the short haul destinations, individual destinations like Southeast Asia, etc, we are doing well; however, recovery in the long haul destinations, particularly Europe, U.S., etc., is yet to pick up. Multiple reasons over there, including high air fares, and also the fact that issuances of new Visa have been severely impacted because of the large backlog that these embassies have. I believe the improvement of recovery in the long haul destinations will actually be something that we look forward to in the coming quarters.

Vijit Jain, Analyst

Correct. Thanks. My second question is, within the domestic hotel business, are the budget segments lagging relative to the premium segment, because there’s a fairly decent jump in average ticket size there as well? And just a clarification question to what Rajesh said earlier. You mentioned new channels, and you aim to have their contribution doubled from 7% to 15%. I just wanted to understand what you are including in that 7% number?

Deep Kalra, Group Chairman and Chief Mentor

Sure, I could take both. I mean when it comes to the domestic hotels also, there has been a bit of a kind of inflationary impact, like I called out ASPs have increased by about 11.5%. As far as recovery is concerned, while the budget segment was lagging very significantly over the last fiscal year, or the last two years, it’s actually kind of now improving. So while pre-pandemic, it used to be more in the 40s to kind of close to the 2% mark, it’s already gotten into the 30s. So I would say it’s more the inflationary impact rather than a kind of mix impact which is reflected in the ASPs. So that’s more on the hotel side. The second question, if you could just repeat that. Okay. So the 7% going to 15, like we should get called out, we kind of tap into a lot of new demand segments. And as Rajesh has mentioned in a narrative that we’ll be looking at three channels of new demand segments to kind of tap into. One is the corporate segment, which is being catered to by MyBiz platform for small corporates and Q2T for large corporates. The second one is the entire franchisee network that we’ve kind of been looking at expanding, and the third is the entire small travel agent network being tapped into alongside powering a lot of the affiliate channels. So looking at all of these channels together, because traditionally, they’ve been more focused on the retail customer, which kind of comes in directly and books on the app or the platforms. So these new demand segments that we’re tapping through the non-retail kind of platform. These we believe, should kind of keep increasing in the mix, and these were counting close to about 7% last year. We believe we can possibly look at doubling the entire mix coming in from these new demand segments.

Operator, Operator

Thank you, Vijit. The next question is from the line of Amol Desai. Amol, please ask your question now.

Guarav Rateria, Analyst

Congratulations on great performance in this quarter. So a couple of questions. Firstly on advertising and sales promotion. Mohit you have always intended to go back to 6% to 7% while 1Q has kind of remained much lower than that despite cross bookings improving quite a bit. So how should one think about this number going forward? Has there been any material change in the competitive intensity which kind of changes your view? Second related question is you had made remarks on the investment. So how do you think about balancing those investments and operating leverage benefit? You earlier had given an outlook of EBIT margins closer to 2.5% of gross bookings. Does that change after what you have done in 1Q?

Mohit Kabra, Group Chief Financial Officer

Well, I’m going to take both of these. On the first one, which is on customer acquisition costs, like I called out during the quarter, these are largely trended at similar levels to the previous fiscal year at about 5.1%. We’ve been calling out that, we do expect that this could kind of slightly go up. And this will be linked to a couple of things. One, it will be linked to kind of the overall business mix getting restored to pre-pandemic levels where hotels used to contribute almost like 50% plus of the mix. Right now, hotels are still in the 40s because generally the recovery pattern we’ve seen air leads the kind of recovery, and the other segments kind of tend to lag a little bit. So, as this mix gets restored over the next few quarters, I think we should possibly see this kind of number increasing, because the amount of kind of customer division costs that we incur on the hotel side are slightly higher, in line with the larger margins that we make in those businesses. The second point is we’re also kind of not getting into any significant brand kind of expenses which are more longer term in nature keeping in mind that we still haven’t crossed the pre-pandemic kind of volumes, and once we kind of get beyond the pre-pandemic volumes, I think there will be a requirement to kind of if we start on the brand expenses. And therefore, these two factors, keeping in mind is where we have called out that we could see a little bit of increase coming in the marketing kind of costs. But the good part is, we should also see, with the improvement in the mix, towards hotels we should also see the blended margins going up marginally as well. So, some part of the increase in the promotional expenses will be offset from the improved blended margins as well. Moving on to the second question, on the investment like we’ve said I think that the business now firmly kind of having established which kind of profitability, and the cost levers, kind of well in control, also the fact that the larger investment in terms of opening up the larger segments, like air ticketing or for instance, hotels, etc, that investment is already behind us. What we are now curating is a variety of demand segments, which will kind of be very useful from the longer term growth point of view. And secondly, getting into a lot of interesting kind of travel services or travel-related services, again where in both of these kinds of demand and supply side kind of increases, we don’t necessarily need to kind of invest in a big way. So, the size and scale of investments is going to be much lower compared to the kind of investments we have been doing in the hotels business over the last four or five years. So I think, a large part of these investments practical will keep getting funded out of the operating cash profit generation that we’ll see on a quarter-to-quarter basis. And keeping that in mind is where we have kind of pretty much given a broader guidance that we do believe we should be able to see overall EBITDA getting to kind of close to about the 1% levels of gross booking and kind of, we’ll be good if we can establish that kind of profitability, and then we’ll gradually look at scaling it up further.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

And maybe Mohit, another thing to add, Guarav, just one more point on the marketing spend. I think that’s an important one, I thought it’d be interesting to sort of call out that as well. See, we have also seen the organic traffic growth in the last quarter, which has been very robust. I mean, our marketing spend levels that, and that's how we’re sort of evaluating if we have to up the ante on the marketing spend on all just looking at what the traffic trends are. So quarter-on-quarter our traffic growth on these spends, which is a large part of our traffic is organically as we mentioned earlier as well, was about 40%. So, which was very, very robust quarter-on-quarter. And just keeping that in mind and also the fact that just the overall, like I called out earlier as well, the macro headwind on high fares sort of look at that and look at the organic traffic growth that is already happening we ended up sort of balancing our overall marketing spend which is what we ended up doing in this reported quarter.

Guarav Rateria, Analyst

Thanks for the detailed responses. Just a follow up, Mohit, you said 1% of gross bookings. Is it for EBITDA or is it for adjusted EBIT number? Just wanted to clarify that?

Mohit Kabra, Group Chief Financial Officer

Yes, I mean, that's an additional EBITDA. I mean, although the EBITDA, kind of GAAP will not be very large going forward. It’s usually around a 3 billion mark per quarter. So, that may not be very material going forward, but yes, more in terms of EBITDA.

Guarav Rateria, Analyst

Secondly, just wanted to get a sense on the cash balance came down quarter-on-quarter. So, what’s kind of going on there? Ideally, it should have gone up with the strong positive adjusted EBIT number. Thirdly, a question for Rajesh on the market share, if you had shared I kind of missed out on the airline domestic air segment, what is the market share this quarter compared to what you shared last quarter? And last year data point, just a bookkeeping question, how should one like look at the UAE bookings? Is this a part of the overall booking number on the respective segment for us, and how big is that any quantification there if possible? Thank you.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Sure. So in terms of cash balance, Gaurav actually, a large part of the increase that will otherwise come through is kind of getting impacted because of the translation kind of with the rupee weakening. So, the balances that we have in India, and the kind of the payables, intercompany payables that India has to some of the other kinds of overseas companies in the group, that is what is kind of creating a translation issue and a drop in the cash balance. Otherwise, and this is more a notional kind of one, because, guess what, none of these payments are due anytime soon. Therefore, this is more a temporary kind of drop coming in because of the change in exchange rate, the INR dollar exchange rates vary significantly during the quarter. So, that voting should kind of integrate course corrected over the next few quarters. Moving on to the market share again, it’s kind of remained around the 30% mark and like I called out. We kind of are more in terms of making sure that we are able to retain a strong market share in the segment and not necessarily looking at very significant gains in the market share on a year-on-year basis. It will be a very different approach in some of the under-penetrated segments like hotels accommodation, or bus ticketing etc., where we are clearly looking at significant market share gains and the growth is kind of far outpacing the growth not just in the market, but also in the online market. Lastly, on your question on UAE again, like I said, this is, again, more foray into the adjacent market where we believe we have a reasonable kind of a brand resonance. The approach is to kind of do a kind of a gradual, slow investment kind of buildup rather than a big bang kind of a market entry. Therefore, looking at this being part of our respective segment reporting, and so, you will see those numbers kind of coming in as part of the respective segments and therefore, the declining segments also kind of combined with the overall operating metrics being shared for segments.

Guarav Rateria, Analyst

Thank you. I’ll get back in the queue for further questions. Thank you.

Operator, Operator

Thank you, Gaurav. The next question is from the line of Ruchi Seth. Ruchi, please ask your question now.

Ruchi Seth, Analyst

Hi, my question was on the hotel segment. I just wanted to understand as part of the overall market, what is the current market share that we have in the hotel segment and specifically the divided hotel segment into budget? What is the market share there and how are we looking to gain share over there especially given some of the material competitors in the budget segment may be scaling back their marketing efforts?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

And maybe I could take that, Ruchi. Ruchi, I think it will suffice to say, I guess in line with our previous quarters' comments as well, that we do have a leading market share in the online market across the hotel segments. But quantifying that is very, very hard given the fragmented nature of the market, especially now, as we call it out our focus also increasingly, to build a supply on the alternative accommodation side as well done whether it is home stays, or the apartments or the villas or the hostels. Now, if you start looking at all this even more fragmented nature of the supply, it becomes very hard to be able to sort of quantifiably understand, but we do know sort of the data that we kind of estimate and collect from the supply side with our partners on our basis, various discussions and conversations, etc, that our wallet share across the segments has only been improving.

Operator, Operator

Thank you, Ruchi. The next question is from the line of Mithun of GC Ventures. Mithun, you may please ask your question now.

Mithun, Analyst

Yes. Congratulations on good numbers. So I have a couple of questions starting with hotels and business. I want to understand if you’re going to give the picture, how has the mix change compared to last year in terms of the combination for us and in the same way and how do we see it changing over the next one or two years? One question also seeing that they are also pushing a lot more directly booking through their own website. How do you see that impacting our business and in the same way with Google also trying to give the pricing packages, price comparisons on their platform? How does it change the business dynamics for us?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes. Mithun your line was really poor. But I think I got your question. The various segments, how has the mix changed in this quarter between the premium segments and the mid segments or the budget segments, as I were just sort of mentioning in response to the earlier question. What we have witnessed during COVID, as the recovery was happening in between after wave one and wave two, and after that for the last couple of quarters now, when the COVID restrictions are lifted, and businesses coming back to normal. What we have seen is that our wallet share, which is sort of defined more as what percentage of sort of bookings that we end up doing as part of the different sort of segment of hotels, at a defined occupancy level has only improved across the segments. Now, it is not necessarily only on premium segment and not necessarily on a mid segment or independent hotels, as well as the budget segment. As Mohit mentioned earlier, and we reported that out earlier as well, that budget segment growth was or the recovery rather was lagging behind that also is as we’ve seen in April, May, June quarter. That’s also come back nicely. And hopefully, the momentum will continue going forward as well. So I guess net-net, I would say the mix hasn’t really changed significantly. Now, coming to the direct to hotel supply bookings on the Marriott’s and others who try to push direct bookings on their platform, this has been the phenomena for forever, actually, a global phenomena to some extent even in India. From the way we have seen our numbers sort of growing as an intermediary like literally quarter-on-quarter over the years, I think both the platforms have their own sort of independent role to play. There is a set of value that we bring it for the customers clearly in the form of selection, choice and convenience, and hopefully, the best pricing. From a brand loyalty standpoint, every hotel chain, global chain will have their own loyalty sort of program as well to attract their customer directly on their platform. We haven’t really, over the years, seen this queue moving towards it, given the fact that the customers end up choosing to see, especially in a market like India, to compare it with many other hotels before they sort of make their decision to book. We’ve seen our platform growing much faster than what our understanding is on the supplied direct growth. During the difficult times, we’ve seen the chain of hotels, in fact, across the board working a lot more closely and a lot more deeply with us, in terms of just sort of leveraging the traffic that we get on our platform, which is huge. To get the benefit of them and doing all those promotions, etc., on our platform rather than doing their own platform. So, from a priority standpoint, we end up getting parity to their platform as well. I don’t think and they may be some anecdote that you might have observed, but as a trend, I don’t see any of that.

Mithun, Analyst

So just coming to just finish this point. Basically, I try we keep doing as internally, to compare with MakeMyTrip and booking.com as a comparison, to see how are things, how our pricing, how is it compared to Google, that. Now one.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

No, I understand that. I mean, we do that as well. So I understand.

Mithun, Analyst

Now my question is in Europe, alternative accommodation on booking platforms is quite a big business for them. How do we see that for us over the next three to five years? You have already said, but if you can give some more color as to what will be the proportion, what can be the proportion of that for us?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes Mithun. No, that is absolutely right. And that is the reason why we started focusing on this segment now for the last several quarters. That's like a 360-degree focus. We’ve been building supply, we’ve been getting all the kind of alternative accommodations from Pan India, premium, super premium, mid segment, budget segment and all of them together. From an opportunity standpoint, I think it’s a big opportunity. It’s just early days of evolution in India, but catching up really fast in terms of just the emerging trend in consumers' minds. Part of that was also, in fact, ironically thanks to the pandemic as well, where people were looking for safe, secluded sort of stays that they wanted to get in. But I can tell you on our platform we’ve been adding sort of accommodations like hundreds every quarter literally and also in terms of bookings from our pre-pandemic, last year level, we have already in this segment, sort of done 125% growth on that. Of course, it’s a smaller base. It’s not comparable to the hotel base that we have, but directionally, it is very, very encouraging. Last but not least, I will make the point, even on our platform, given that you’re quite familiar with our product, you will notice that we actually have a dedicated funnel for this called home stays, which will give the customer experience specific to these sorts of property types with the differentiated experience. It’s a journey. There are a few things that we’ve already done. A few features that we’ve already included, and there are many, many more that are waiting to come on that funnel for.

Mithun, Analyst

Fair. And one last question, if I can. Now discounts, and it has come back a little bit, both in the hotel segment and primarily the hotel segment. So should we say that this is now the new base? Because now we are almost there in the market, like full-fledged or is there still the scope for the discounts or the promotion expenses to go up in the hotel segment?

Mohit Kabra, Group Chief Financial Officer

Mithun, I think I just kind of answered that one of the earlier questions possibly from Vijit.

Operator, Operator

The next question is from the line of Aditya Chandrashekhar of UBS Securities. Aditya, you may please ask your question now.

Aditya Chandrashekhar, Analyst

Just a very quick question from my side. So when we look at adjusted margin percentage, so for air, it’s down from around 7.1, last quarter to 6.1. And hotels, it’s down from 17.7 to 17.2. I understand this is because obviously, the transaction sizes have increased a bit this quarter. How do we look at this number going ahead, because as long haul international kind of grows, etc., transaction sizes are probably going to increase further. Is there some kind of way to think ahead?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Sorry Aditya, you kind of broke out a little in between, but I think I got the question. You broke up in the last few seconds. But I think if it’s about the trends on the existing margins Yes, you’re absolutely right. That is kind of largely kind of moving in tandem with the change in the average selling prices. If you look at on the international side also, margins are largely in line with the domestic market and there also unless there is a very significant change in the ASP the overall kind of take rates would kind of largely remain on similar lines. So don’t expect too much of a change. Overall if the fares come down as is expected, hopefully with some relief on the crude oil side, and therefore kind of, the impact passing through in terms of ETF costs and therefore on the overall phase, then I believe we should, we could possibly see an optical kind of increase on the air ticketing margins. Coming on the hotel side again there has been, like I called out, almost like an 11.5% quarter-on-quarter impact on pricing, which has come in, but hotels overall, we do believe will kind of remain in that broad range of about 17% to 19%. So, I think so long as we are in that range, this seems pretty much in line or in line with expectations.

Aditya Chandrashekhar, Analyst

Just a quick follow up, maybe. So, on the hotel side, it used to be between, say, 20% to 22%, odd pre-COVID, right. But that has kind of come down to the 17% - 18%. So this is the sustainable number kind of going ahead, or how do we look?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Around 2018 about 23% and get called out back then that we would gradually want to bring it down to about into the high teens, rather than being in the 20s. Because you don’t want high take rates being an issue in our line entry for other platforms to kind of make inroads with the suppliers. Therefore, this was a conscious attempt to kind of integrate it into the 17 to 19 range over the last few years. This is also happening in tandem with the significant shift in the promotion expense that we’re doing in that category. So as we can reduce the quantum of promotional expense but we are incurring, we kind of pass on some part of that back into the margin relief to the suppliers as well because guess what, the suppliers are now kind of front-ending a lot of these consumer promotions. So we’ve got to kind of keep looking at it in that context. So yes, pretty much happening in an organized manner.

Operator, Operator

Thank you Aditya. The next question is from the line of Santosh Sinha of Capital. Santosh Sinha please ask your question now.

Santosh Sinha, Analyst

Thank you. My question is regarding the finance cost actually. It has gone up during this quarter. So can you tell me the reason for that and also, on the employee side, what is the outlook of the company, because you’d had optimized the employees to enter in FY '21, so are you ready to add back to employees? And the third question is regarding cash spending. So what exactly is the plan of the company regarding the cash balance that the company has, whether it plans to give dividend or want to invest back into the company? So these are my three questions.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I will take those. On the finance cost like I had called out, our other significant impact this quarter has been the translation impact of the INR balances into dollar because the INR became very significant. So there’s almost $11.5 million of a Forex restatement of liabilities, which is sitting in the finance cost, and that’s the reason that you see the overall finance cost at a high of about $16 million. So, it’s more of a one-off for the quarter, due to the significant weakening of the rupee. Again, these are largely intercompany kind of payables, and therefore, not a realized kind of cost; more like a translation cost. So, that is one part of it. On the employee side, like we had called out, the only place where we had kind of done a little bit of a pruning on the overall employee numbers was on our flying channel. We used to have close to about 20 stores across the country. We were already kind of in a program where we were trying to kind of convert many of them into franchisee stores, and also onboard new franchisee stores. So, as part of that effort was accelerated when we kind of, when the COVID pandemic hit, and therefore, quite a few of these stores are actually now turned into franchisee stores for us. They’ve not gone out of the system completely. But yes, they’re no longer kind of the folks on the payroll of the employer but working on a franchisee model. So that was predominantly the kind of change in the employee kind of structure that we have done through the pandemic. We are not looking at any kind of significant changes to the employee strength. We would have possibly marginal kind of increase in headcount as the volume picks up, but nothing in large numbers. Lastly, on the cash balances, we kind of have a good cash balance and also we remain in the scouting mode for any investment opportunities. We’ve already called out a few in the last few quarters and we’ll keep kind of remain open to that. No real kind of plans or thoughts around any dividend payouts currently.

Operator, Operator

Thank you, Santosh. The next question is from the line of Brian of Maximum Asset Management. Brian, you may please ask your question now.

Brian, Analyst

Thank you very much for the presentation, congratulations on the strong results. I have two questions, please. First one is on the air ticket economics again. Could I please clarify, how does this work? Is it fixed fee per booking or is it a percentage of transaction basis? And the second one is on domestic accommodation supply especially as it relates to hotels? Could I please ask, what are the plans to grow domestic hotel supply? And why have the number of domestic accommodations been flat since FY 2019?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I can think the first one, on the side like I mentioned the changes are largely because our peak rates are largely flat. Therefore, as the SP kind of the selling price kind of increases, optically the peak rate percentage goes down or the margin percentage goes down. So that’s to address your point whether this is largely the effect of the increase in the selling price. Yes, it is likely coming in from there. On the second point I think clearly through the pandemic, there has been some amount of disruption. We kind of seeing most of the top selling kind of hotels have now kind of been a comeback on the platform. We continue to kind of increase more and more, particularly on the budget side and also on the alternative accommodation side.

Deep Kalra, Group Chairman and Chief Mentor

Yes. And if I may just add Brian, just turn on top of what Mohit said, on the hotel supply. There are absolutely no plans on slowing down on that. I don’t know which number you’re looking at pre-pandemic, but like I was just sharing earlier. Today, our Pan India city-level coverage has gone up from 1,600 cities to actually 1,900 cities. So we do have more additional coverage of properties coming in from all kinds of properties, including hotels coming in from 300 more cities. Like Mohit was pointing out, it was during the pandemic, there obviously, the hospitality sector went through a huge amount of disruption. It slowly and gradually sort of coming back some of the properties. Last quarter, they became operational and functional. As it gets to the steady state, which is now increasingly getting to where our momentum will further pick up on the supply side. Therefore, there’s absolutely no slowdown on adding more and more supply on our platform.

Operator, Operator

Thank you, Brian. We’ll take the last question now from the line of Kalpit of Allianz Global. Kalpit, you may please ask your question now.

Kalpit, Analyst

Hello, hi. Congratulations on a good set of numbers and thanks for taking my question. So my first question is which, sorry, I might have missed this answer. But the margins on the air ticketing have come off 100 bps QoQ right? So this 6.1% kind of number where do you see that settling? Given the pricing trends in the air market? So the 6% margins where do you see it settling QoQ if you could answer that?

Mohit Kabra, Group Chief Financial Officer

I can kind of repeat that once more. Kalpit like I mentioned, this is largely happening because our margins on the air ticketing side are largely flat in nature. They’re not necessarily a percentage of the overall selling price. Therefore, in a higher fare regime, the optically the margin percentage kind of looks lower and in a no-fare regime, optically the margins can look a lot more robust or a lot better. That’s the reason for this change. Directionally we’ve been calling out that we do believe that the margins kind of should stabilize in the 6% to 7% kind of a range.

Kalpit, Analyst

So just a follow up, is it possible to share any kind of, what is it like, for every booking you get, like 30, 40 bucks or something like that? Is that how it works? And how is it negotiated with the airline?

Mohit Kabra, Group Chief Financial Officer

So actually, even the margin has kind of multiple revenue streams coming in. This will include what we get as commissions or incentives whether it is a friend incentives or incentives from the airlines, it will include the service fee or convenience fee that will be on the customers, it could also include the fee that we might receive from our GDS partners, or the distribution partners. So there are multiple kinds of streams that kind of make up for these. What I was saying is mostly these are largely flat in terms of per ticket, kind of amounts that we make and therefore the percentage varies a bit in keeping with the overall fare regime.

Kalpit, Analyst

Great. Thanks Mohit. And one more question from my side. So on the margins, so this quarter, you were at about 1% of EBIT margin, adjusted EBIT margins on a gross bookings basis, right? And you’re guiding going forward also potentially 1% at the EBITDA level, right? So, just to understand if, so if you see, a marketing expense is going up or 100 bps or say 6% to 7% from this right these levels, so then another 100, 150 bps in fees and marketing expenses. So which cost items or say on the mix side can you offset it by? And is it possible to give some kind of margin work where you can offset this 100% marketing, 100 bps increase on marketing?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes, that’s the reason I was saying that, while you’re apparently in this quarter also we’ve been able to kind of get too close to about one percentage point gross booking it might kind of vary slightly going forward, depending upon how the recovery patterns kind of going to shape out. As we kind of build here on, we will also want to kind of restart some of the investments that we typically do on the brand side. The brand campaigns are more like slightly longer-term impact expenses that you need to incur which you have been avoiding for the last, I would say, two years under the pandemic. This is something that will kind of possibly start incurring as we get to kind of going back to pre-pandemic levels or recovering or even kind of growing from there. I don’t think we kind of looking at offsetting this company or the other cost lines, although one part of it would get offset from the fact that as we build growth here onwards, our mix should start improving on the hotel side and hotels as a better margin structure, which would mean that the blended margins could also slightly improve. Some part of the increase in the promotional expenses will be offset from the improved blended margins as well.

Vipul Garg, Vice President, Investor Relations

Thank you, Kalpit. We are almost out of time. This brings us to the end of the call. Rajesh, any closing remarks, and then we can close the call.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Vipul. I think this was a good set of questions. So thank you, everyone. Thank you for your patience. Thank you for your time.