Earnings Call Transcript - MMYT Q1 2024

Vipul Garg, Vice President, Investor Relations

Hello everyone. I'm Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited, and welcome to our fiscal 2024 First Quarter earnings webinar. Today's event will be hosted by the company's leadership team comprising of Deep Kalra, our company's Founder and 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 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 the information to reflect changed circumstances. Additionally, information concerning these statements is 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 25th July 2023. 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 to Rajesh. Over to you, Rajesh.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Vipul. Welcome everyone to our first quarter call of fiscal 2024. We have started this financial year on a strong footing, as evident from our Q1 results. Travel demand was robust in the leisure-heavy seasonal quarter despite high fares due to short-term supply-side challenges in the aviation market. We witnessed strong traction in leisure travel during the quarter, aided by seasonality, coinciding with summer holidays, while business travel continued its recovery trajectory. All segments have now grown beyond pre-pandemic levels, resulting in our strongest ever quarter, both in terms of gross bookings and profitability. Gross bookings for the quarter reached an all-time high mark of approximately $2 billion, growing at a faster pace than the market growth rate. Our adjusted profit, operating profit or adjusted EBIT of $30.1 million and GAAP profit after tax of $18.6 million were also record milestones for us. India is still an underpenetrated travel market and is well poised for long-term growth. Despite the challenges posed by the pandemic, the sector has demonstrated remarkable resilience and adaptability. Other macro factors in India, such as strong GDP growth, increasing earnings in the hands of the middle-class population, rising propensity to travel, and improving transport infrastructure and last-mile connectivity, will help fuel travel sector growth in India. Consumer preferences are evolving, with experiential travel now emerging as one of the preferred areas to spend from the growing disposable income of consumers. As a result, both domestic tourism and international outbound travel are expected to grow at a faster pace in the next 10 years compared to the last 10 years prior to the pandemic. Infrastructure investments are boosting domestic tourism growth, while aspirational Indians are looking to travel to various international destinations. According to the IPK World Travel Monitor, India generated Asia's highest outbound travel volume for the first time in 2022, exceeding those of China, South Korea, and Japan, partially aided by the lagged recovery of outbound travel in China. All major Indian airlines have placed record numbers of orders for new planes to cater to this demand. Similarly, all hotel chains have announced expansion plans, increasing the supply over time. We continue to be excited about future opportunities and are fully geared up to leverage new technologies to provide more convenient and personalized experiences for travel planning and booking. Our depth of travel-related offerings, quality customer experience powered by robust tech and product innovations, along with strong brand strength, are helping us cater to evolving consumer preferences and stay ahead of the market. As for our business segments, starting with air business, we witnessed strong growth in air ticketing driven by leisure travel during this high season quarter and continue to record a 30% plus share in the domestic flown passenger market. Domestic supply was affected during the quarter due to Go First issues, leading to higher airfares. The supply gap was partially offset by higher load factors and additional supply deployed by other airlines. With the DGCA approval granted to Go First for the resumption plan and additional aircraft expected to arrive for other airlines, we hope to see the supply situation improve in the coming quarters. Seasonal demand also helped our outbound travel segment finally recover to pre-pandemic levels after almost three years, while long-haul destinations still haven't recovered fully due to supply constraints and visa-related issues. Short-haul international travel has surpassed pre-pandemic levels. We expect the overall international air ticketing segment to continue to grow as the supply situation eases further. We continue to innovate our products to cater to a larger variety of use cases. During the quarter, we launched an inspirational travel discovery product called 'Incredible India At Incredible Prices,' which offers results to leisure travelers about the most economical airfare to multiple destinations in India from their chosen origin. The early results are encouraging, as we have observed a significant increase in searches for leisure destinations on the Incredible India funnel. During the quarter, we also launched an industry-first student festival for international flights in June, offering special relevant benefits to students traveling to international destinations for college studies, coinciding with the commencement of the academic session during the period. This was highly appreciated and helped us increase our student-led contribution to overall business. Our accommodation business, which includes hotels, home stays, and packages, witnessed strong growth this quarter, aided by robust demand in both leisure and corporate travel. We continue to focus on supply expansion and improving discovery. As a result, during this quarter, we sold more than 56,000 unique properties in over 1,700 cities, which is the widest spread achieved in the business. This supply expansion, along with improved personalization in search results, has helped us improve online buying behavior in an underpenetrated category. While our gross booking value crossed pre-pandemic levels a few quarters back, during this quarter, room nights have also recovered to pre-pandemic levels. We've also seen good momentum in our international hotel business in line with the recovery in outbound travel. Many countries like UAE, Indonesia, Vietnam, and Maldives have already surpassed pre-pandemic volumes. We introduced several industry-leading features in hotels to ensure a delightful and high-quality experience for the end consumer. 'Book with Zero Payment' was launched last quarter, which received a fantastic response from our users. With no upfront payments required, customers can now confidently plan their trips in advance, benefiting from exclusive deals and avoiding price fluctuations. This innovative feature has significantly helped improve adoption rates in Tier 2 and Tier 3 cities. We continue to scale our homestays business with increasing coverage of leisure destinations. Learning from consumer insights, we have enhanced our offerings for consumers, providing final details around meal options such as the availability of chefs at the property, meal options, kids meals, and extended cooking kitchen amenities at one place before booking. This is helping us to specifically target the mid to premium segment of stays. Our packages business witnessed strong growth this quarter, where we successfully conducted three campaigns, helping us significantly scale the business. We have partnered with Europamundo, a leading global player in the tourism and travel industry, to bring the latest international holiday packages to India online. With this partnership, over 600 new itineraries will be added to MakeMyTrip's existing catalog of nearly 5,000 holiday package options. The partnership further strengthens our portfolio and bolsters our capability to unlock global destinations and new combinations to cater to every traveler's preference. Our bus ticketing business continues to deliver strong results. Q1 saw a significant addition of supply across the country, and our daily life schedules for private bus operators have increased significantly due to high occupancy across most regions. During April and May, we expect fleet additions to be strong in the second half of the year. Our ground transfer services, such as intercity cabs and rail tickets, continue to scale well. This segment is helping us acquire new users for the platform. We are gaining market share in the rail ticketing business, and organic downloads for the standalone redRail app, with an app rating of 4.5, continue to be high on both iOS and Android. Now, a quick update on myPartner and Corporate Travel business. Our myPartner B2B2C platform, where we offer both flight and accommodation booking, is gaining positive traction from our partners. Our travel partner count is now over 38,000, expanding every quarter. We recently launched myPartner in the GCC and already have more than 1,000 partners live on the platform. Our Corporate Travel business is scaling up, with our active customer count on myBiz now exceeding 49,000. The active customer count for Q2T has reached 271, with strong additions every quarter. We continue to add more capabilities on both myBiz and Q2T platforms. We completed automated integration with multiple HRMS and Expense Management platforms, thus reducing onboarding time for corporates and simplifying overall travel and expense management for employees. Our OTA business in the GCC is growing steadily, with gross booking value doubling over the same quarter last year. Strong momentum in the last quarter was driven by significant progress in building key product features, supply richness, and creating new growth avenues. Along with revenue growth, we have been working on improving efficiency in acquisition and pricing management, driving significant improvement in unit economics. While the overall contribution of GCC remains small, it shows good traction organically. 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 and hello everyone. The strong business performance in the first quarter of the new fiscal year 2024 indicates that the pandemic is now well and truly behind us. Although, we continue to leverage the cost rationalization initiatives we rolled out during the pandemic-impacted period. During this period, taking a longer-term view, we have also invested behind three or four key strategies or areas which are as follows. Firstly, technology upgrades on the supply side to drive synergies across brands, while enhancing the stability and scalability of the underlying platforms. On the customer-facing side, we made significant enhancements to deliver a highly personalized customer experience, driven by data science and machine learning abilities, and on the tech backend, providing online resolution for a wider variety of post-sales service requirements. Secondly, we increased the travel and travel-related service offerings on our platforms to create a One Stop shop or Travel Super-App for Indians to explore, book, and manage all their travel needs. Thirdly, we focused on supply side expansion, particularly in the accommodation space, getting more and more hotels and alternative accommodations across price points and across the length and breadth of the country, so our customers can have more options to choose from. Lastly, we targeted various customer segments by leveraging new generative Artificial Intelligence tools and scaling up new demand segments through our curated platforms, aiming to increase our outreach, particularly beyond the Tier 1 cities through offline agents and other online affiliates. As a result of the above, the business is well positioned to leverage demand recovery and outpace market growth, while improving profitability. We are therefore pleased to report a strong quarter as we begin the new fiscal year 2024, both in terms of business growth and profitability. While there were certain supply side hiccups during the quarter, demand for travel continues to be robust, backed by seasonality and positive consumer sentiment. We have witnessed strong year-on-year growth across all segments, which has helped us achieve milestone numbers in terms of gross bookings as well as profitability, marking one of our best quarters to date. During the reported first quarter, gross bookings came in at approximately $2 billion or $1987 million to be precise, witnessing a growth of over 31.4% year-on-year in constant currency terms. We delivered GAAP EBITDA of $25.9 million for the quarter, witnessing a growth of around 31.7% year-on-year. EBITDA margin was at 13.2% for the quarter, which is an expansion of about 530 basis points compared to the same quarter last year. Adjusted operating profit or adjusted EBIT stands at about $30.1 million, compared to $16.5 million during the same quarter last year, marking an improvement of almost 83% year-on-year. As already highlighted by Rajesh, these are our highest ever quarterly numbers. While focusing sharper on profitable growth, we are glad to achieve our medium-term margin targets ahead of our expectations, backed by strong business growth and our continued focus on cost efficiencies. Our air ticketing gross bookings for the quarter stood at $1.2 billion, witnessing a growth of 30.9% year-on-year on a constant currency basis. Adjusted margin stood at about $74.5 million, registering strong growth of 30.4% year-on-year on a constant currency basis. The take rates for margins for the quarter stood at about 6.1%. This was lower optically due to the higher Average Selling Prices because Q1 is a seasonally strong quarter and a contraction in margins aligned with supply constraints due to the shutdown of operations by one of the low-cost airlines in the country. Gross bookings for the quarter in the hotels and packages segment stood at about $498 million, witnessing a strong growth of 36.5% year-on-year in constant currency terms, in line with demand trends. The adjusted margin for H&P business stood at $85.6 million during the quarter, witnessing a growth of over 36% year-on-year in constant currency terms. Margins for the quarter were 17.2%, an expansion of almost 90 basis points over the previous quarter. In our bus ticketing business, gross bookings for the quarter were at $276.8 million, growing at 24.7% year-on-year in constant currency terms. The adjusted margin stood at about $27.3 million, registering a strong growth of over 39.7% in constant currency terms. Margins in our bus ticketing business stood at about 9.9% for the quarter. We continue to be prudent and efficient with our expenses, specifically our customer acquisition costs, as reflected in our marketing and sales promotions. During the reported quarter, we went live with our brand campaign to drive top-of-mind recall and accelerate call-to-action in a seasonally strong quarter. Overall marketing and sales promotion costs for the quarter, including the brand campaign, came in at about 4.6% of gross bookings, compared to 5.1% in the same quarter last year and 5% during the previous quarter. Most of the other operating expenses continue to align with previous quarters. As of the end of this quarter, our cash and cash equivalents stand at about $522 million. The potential deployment of the free cash in the future could be in pursuit of growth opportunities or towards capital restructuring via share repurchases. During the last quarter, we had also notified that we widened our share repurchase plan to include the repurchase of convertible bonds. With that, I would like to turn the call to Vipul for Q&A.

Vipul Garg, Vice President, Investor Relations

Thank you, Mohit. The first question is from Sachin Salgaonkar of Bank of America. Sachin, please go ahead with your question.

Sachin Salgaonkar, Analyst

Thanks, Vipul. Congratulations on a great set of numbers. I have three questions. First question, clearly one sees in this quarter a strong growth in hotel and slightly subdued growth in air. Because of the mix shift in favor of hotels, perhaps the margins also have improved. So, the question here is how should one look at the sustainability of these EBITDA and EBIT margins going ahead. To Mohit, your point that you achieved your medium-term margin targets in this quarter. Let me pause here.

Mohit Kabra, Group Chief Financial Officer

If you look at it from a mix point of view, the H&P business is now kind of in the early 40s. Historically, even in the pre-pandemic period, we have seen H&P contributing to close to 50% of the mix. So I think there is still further potential for holidays & packages, which are not going to improve in the mix. While we could see better growth coming in from air ticketing in the coming quarters as some of the short-term supply constraints get lifted, we believe blended margins should continue to be in the range that we've posted. We have seen slight marginal improvements coming through over the last few quarters that should potentially sustain.

Sachin Salgaonkar, Analyst

Got it. Mohit, pretty clear actually at that. The second question just wanted to understand how one should look at the industry growth for the next six to nine months. Comes from a context that last year was more like a low base kind of a year, but this year in the first quarter you guys are more like at a 27% growth. So is the 25% plus growth for the industry sustainable?

Mohit Kabra, Group Chief Financial Officer

Growth is a factor of one, the industry growth plus the kind of incremental growth that we get by increasing online penetration. We continue to leverage the trend of increasingly consumers getting comfortable with online buying behavior, particularly in the underpenetrated segments like accommodation, so that should continue to fuel better-than-industry growth for us in the coming years.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

As historically, we've seen the thumb rule typically is that the overall industry growth online/offline together, if it is about 10% CAGR, then online typically will be 2x. We have always historically, even in this quarter, our growth rate has typically been faster than the overall industry growth rate as well. So, that's the way to sort of directionally think about the growth.

Sachin Salgaonkar, Analyst

Thanks, Rajesh and Mohit. My last question is, I just wanted to understand a bit more on the book with zero payment, what you guys launched last quarter. How should one look at the impact of this on your numbers, i.e., what kind of balance sheet risk or are you taking or anything to explain the economics of that would be helpful.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

There is no balance sheet risk on this for sure, because this is just a feature of back-to-back work with the partners where it offers more flexibility to the consumers. The idea is to provide the flexibility to the consumer, allowing them to plan for their trip without upfront commitment. The cancellation happens automatically if the payment is not received from the customer, ensuring that we don't incur losses.

Sachin Salgaonkar, Analyst

Got it. Thank you and all the best for the future.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you.

Vipul Garg, Vice President, Investor Relations

The next question is from the line of Vijit Jain from Citi. Vijit, you may please ask your question now.

Vijit Jain, Analyst

Thanks, Vipul. Hi guys. Congratulations on a great set of numbers. Two questions from my side. One, is I know you mentioned targets with free cash of buybacks and I know you have that convertible debt that you would want to buy back. But aside from that $136 million authorization, have you settled on the use of cash between buybacks and dividends in favor of buybacks? Is that how I should understand it?

Mohit Kabra, Group Chief Financial Officer

What we've called out currently is the share repurchase plan and we widened this plan to include the convertible bonds. We haven't made any comment around any dividends as such. The plan is existing and has been carried forward for several years, where the balance is about $136 million, but we are open to increasing the overall plan outlay once closer to exhausting the available within the plan.

Vijit Jain, Analyst

Okay.

Mohit Kabra, Group Chief Financial Officer

Our preference would be to repurchase the convertible bonds provided they're available at a meaningful discount. Currently, it's been difficult to get them at a discount as they are trading strong about almost 99% to 100%. So the first preference would be repurchasing the convertible bonds, and thereafter, we could look at the repurchases on the share side.

Vijit Jain, Analyst

Got it. But my second question is just on the quarter. I see that other expenses this quarter are somewhere around 2.4% of GBV, quite a bit of a jump there. I know you mentioned areas where you're investing behind, but if you can give more color on where this increase is coming from outside payment gateways related fees.

Mohit Kabra, Group Chief Financial Officer

This is also a result of a reclassification of certain expenses which were earlier considered as other costs of services and have now been reclassified as distribution expenses under the other operating expenses category. This is largely coming from the bus ticketing business and also our affiliates business. This is a bit of an optical issue coming from the reclassification.

Vijit Jain, Analyst

Got it.

Mohit Kabra, Group Chief Financial Officer

We have been guiding that we're gradually scaling up on profitability. Over the last few quarters, we've mentioned that we would like to get to teens of adjusted operating margin as a percentage of gross bookings, aiming for about 1.5% of gross bookings. We've kind of hit that level this seasonally strong quarter, and we would like to maintain this momentum moving forward.

Vijit Jain, Analyst

Got it. Mohit, my last question is on the Cricket World Cup in November. Is that a significant business driver in general? We have seen news about bookings in certain places going to high levels already. Your thoughts on that?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes, there's a lot of hype and noise around it already, so I'm not surprised that you're asking this question. Given the immense interest in watching cricket in India, there will be excitement around traveling to where the matches occur. This will definitely act as a booster for the travel industry and overall domestic travel. Fares are starting to rise for those dates and hotel room rates have also gone up due to the anticipation of increased demand. We are fully preparing to tap into this opportunity, ensuring we have ample inventory in place, specifically on accommodation, including homestays.

Vijit Jain, Analyst

All right, thanks Rajesh. Those were my questions. Thank you so much.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Vijit.

Vipul Garg, Vice President, Investor Relations

Thanks, Vijit. The next question is from the line of Manish Adukia from Goldman Sachs. Manish, please ask your question now.

Manish Adukia, Analyst

Hi, thanks Vipul for taking my question. This is actually a follow-up to Vijit's previous question. When we look at your marketing spend, Mohit, it used to be around 6% to 7% of gross bookings, then the guidance was lowered to 5% to 6% and now you're saying 5% to 5.5%. So, do you think there is room for it to come down even further?

Mohit Kabra, Group Chief Financial Officer

There are definitely scopes for improvement in customer acquisition costs linked to a few things. The pace of customer acquisitions and how much of our transactions come from repeats, rather than new customer acquisition, which is generally more expensive. We have witnessed increasing repeat rates, with about 70% of our transactions coming from existing customers. While we see the mix improving towards hotels and packages, it may require a larger push in marketing and sales promotion on that side, potentially impacting blended marketing costs. In this particular quarter, we tactically decreased customer acquisition costs due to supply-related constraints impacting air ticketing demand.

Manish Adukia, Analyst

Thank you for that. My second question is on the reclassification, regarding the take rate increase that we've seen in the bus segment. Is a large part of that due to that service cost reclassification?

Mohit Kabra, Group Chief Financial Officer

Not in hotels. Actually, hotels and here there's hardly any impact coming in from the reclassification. The service cost reclassification is largely impacting bus ticketing margins.

Manish Adukia, Analyst

Got it. And my last question is on the budget segment in the hotel industry, specifically regarding budget hotels and their recovery. Has there been a significant improvement in the recovery dynamics over the last quarter?

Mohit Kabra, Group Chief Financial Officer

Yes, the budget segment is recovering, and we are now close to about 80% to 85% recovery on that front.

Vipul Garg, Vice President, Investor Relations

Thank you, Manish. The next question is from the line of Aditya Suresh from Macquarie. Aditya, you may please ask your question now.

Aditya Suresh, Analyst

Thank you. I have one big picture question and then two specific questions. It's great to see the operating leverage come through. Beyond market dynamics, I'm curious to understand what's changed in terms of how you're managing the business?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I think there are two or three significant changes. I would say that including the pandemic period, sometimes a down cycle pushes you to think harder and it throws opportunities. We leveraged the availability of our technology and product teams to tap into potential opportunities on the tech front, expanding product offerings and focusing on new business segments. We deployed resources to enhance platforms like myBiz and myPartner, and increased supply on homestays and budget hotels. Secondly, we focused on building self-service platforms for post-sale customer service, significantly improving the experience while reducing outsourcing costs. Overall, these efforts have substantially improved our profitability and added new areas of growth.

Aditya Suresh, Analyst

Great, thank you for that response. My next question relates to personnel costs. How do you see this being shaped in the next couple of years regarding staff, salaries, ESOPs as you continue to grow?

Mohit Kabra, Group Chief Financial Officer

Personnel costs will largely see inflationary increases of around 15%. We don't expect significant increases on the headcount side, thus providing a lot of operating leverage going forward.

Aditya Suresh, Analyst

Thank you. I have one last question. As international and hotels are coming back into the mix, would you expect to see a positive working capital impact?

Mohit Kabra, Group Chief Financial Officer

Seasonally high quarters generally see a deployment in working capital. However, this quarter, we've managed to release working capital, which is a positive. Generally, we don't intend to build positive working capital through the accommodation business, as we're using features like Pay Later.

Gaurav Rateria, Analyst

Congratulations on a magical quarter regarding margins and cash flow. My first question is on air ticketing business trends going forward. Is this more of a second-half phenomenon, or should we expect improvements in the near term?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Most likely second half onwards, as more planes are scheduled to come in for various airlines. The immediate future will not see improvements, but trends should ease in the second half.

Gaurav Rateria, Analyst

Clear. Secondly, can you comment on volume growth from an industry standpoint in the H&P segment?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

It's hard to get structured third-party data in the hotel market; however, we look at our growth as being over 100% across all segments, except the budget, which is also recovering nicely.

Gaurav Rateria, Analyst

Got it. Lastly, regarding generative AI, how do you foresee the impact of this technology or the risks of disruption in the travel booking process?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

There are huge possibilities. We aim to lead any disruption in this area. With improvements in customer experience and productivity gains, we launched a soft version of our conversational flow and are exploring various use cases. This journey will take time; we will learn and adjust continuously.

Gaurav Rateria, Analyst

Got it. Thank you and all the best for the future.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Gaurav.

Vipul Garg, Vice President, Investor Relations

Thank you, Gaurav. This was the last question that we had in the queue. If we have no more questions, I'll hand over to Rajesh for his closing comments.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Thank you, Vipul, and thank you everyone for your time and your patience, and thank you for all the nice comments that you have made today.

Vipul Garg, Vice President, Investor Relations

Thank you everyone for joining the call. You may please disconnect.