Earnings Call Transcript - MMYT Q3 2023

Vipul Garg, Vice President of Investor Relations

Good evening, everyone. We'll just give a minute for everyone to join and then we will start. Hello, everyone. I'm Vipul Garg, Vice President of Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal 2023 Third Quarter Earnings webinar. Today's event will be hosted by 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 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 in Forward-Looking Statement 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 CEO

Thank you, Vipul. Happy New Year and welcome everyone to our third quarter earnings call of fiscal 2023 or the last quarter of 2022. '22 started with cautious optimism amid the Omicron third wave, but as the year progressed, we witnessed steady improvement in the COVID situation in India and most countries in the world, which helped demand, led by leisure-related travel. Indians increasingly took to traveling during the year, and the demand recovery trends improved with each successive quarter. The reported quarter is the second-high leisure travel season quarter of the year, aided by winter and festival breaks and long weekends. We leveraged this demand and executed our business strategies well to get back to full recovery over pre-pandemic levels in gross booking terms while driving operating leverage from the cost optimization initiatives over the last few years. As a result, this has been our highest-ever quarterly performance, both in terms of gross bookings and adjusted operating profit. Gross bookings for Q3 stood at $1.74 billion, witnessing an increase of 64.4% year-on-year and 15.9% quarter-on-quarter in constant currency terms. Adjusted operating profit stood at $19.7 million versus a profit of $13.2 million in Q3 of fiscal year 2022. As we enter 2023, consumer sentiment continues to stay positive for travel while we watch the COVID situation with China opening its borders, global inflation, and other macro challenges in the world closely. Trends suggest that travelers are back on all travel segments with leisure, business, pilgrimage, and corporate events and will continue to drive growth in the coming years as well. While domestic travel led the recovery in 2022, we believe that full restoration of supply aided by some fair rationalization and easing of visa processes could help international travel recover to pre-pandemic levels soon with improved traveler sentiment. During this quarter, the industry witnessed strong recovery in domestic aviation traffic, which is good news for the airlines and the other partners. The government is committed to the growth of the sector, and it is projected that in the next five years, government and other private entities are going to spend up to $12 billion on the infrastructure development of the airports. As per plan, in the near future, there will be capacity expansion in many of the existing airports, and new greenfield and brownfield airports will be set up. Recently, a second airport was operationalized in Goa with an annual capacity of 4.4 million passengers. Goa is among the most popular tourist destinations in the country, and this will help drive tourism growth. A new terminal in Bangalore is now functional, and expansion work in Delhi airport is underway. India is now the third-largest aviation market globally, as per government data, and initiatives are being taken to drive tourism and attract travelers to smaller cities. In the last eight years, 72 new airports have come up in the country. In the coming years, air travel growth will be driven by the addition of new airports, infrastructure growth, and increasing disposable income. All Indian Airlines place record orders for new aircraft, and this will help drive penetration further into smaller cities. The outlook for the aviation market is favorable, and we expect a prolonged period of sustained growth on the back of these initiatives. Another important pillar for domestic tourism growth is ground transport, and world-class highways are a prerequisite for fast and seamless movement. This has been a focus area of the government. The length of national highways has gone up by more than 50% from 91,287 kilometers as of April 2014 to more than 140,000 kilometers in March 2022. The government has set an ambitious target to develop 200,000 kilometers of the national highway network by 2025. Similarly, for accommodations, the outlook continues to be robust. Almost all hotel chains have announced expansions, increasing their footprint in India. In the next couple of years, there is an estimated increase of 25% in the number of hotels for these hotel chains. Coming to highlights of the reported quarter now, we restarted our brand campaign both on TV and digital media platforms for both MakeMyTrip and Goibibo. After a gap of 2.5 years, we launched a 360-degree campaign to capture a large chunk of festive demand. That campaign focused on relevant value propositions such as enhanced flexibility, booking hotels with no upfront payment, and numerous choices best suited to varied customer needs. For Goibibo, we ran a promotional campaign promoting daily steel deals on both hotels and flights, a collection of deals unique to Goibibo. We deployed a digital focus campaign across platforms to target relevant consumer segments to drive efficient conversions. As for business segments now, starting with the air business, we continue to add value for our customers through our industry-first features. The QuickBook feature for frequent fliers, which was launched last quarter, has led to a reduction of 15% in the time taken for bookings for these travelers. During the quarter, we strengthened our free cancellation flow within 24 hours of booking. This is again an industry-first initiative. All these innovations help us remain the first choice of our customers. We continue to maintain our leadership position in our market share in domestic air ticketing. This quarter stood at 30.3%. We witnessed a jump in domestic air traffic during this high season quarter. Domestic air ticketing for us has gone beyond pre-pandemic levels while international air ticketing recovery is still lagging. Traffic to most of the domestic leisure destinations has now surpassed pre-pandemic levels and has started to grow. For international destinations, we witnessed steady recovery for short-haul tourist destinations across Southeast Asia, including the Maldives and the Middle East due to tourism demand. Demand for international long-haul destinations, however, improved in this quarter but still faces high fares and visa backlog headwinds to full recovery. We expect this to normalize during this year, as stated earlier. Our accommodation business, which includes hotels, packages, and the homestay segment, is now focused on expanding the accommodation offering on our platform. Our inventory is now comparable to pre-COVID levels. This has helped us offer stay options in more than 2,000 cities. Aided by seasonality, this quarter, we sold more than 53,000 unique properties, which is at par with pre-COVID levels. The recovery continues to be strong across all price points, barring the super budget segment of $20 or lower per room night stay. Overall gross booking for hotels has recovered to pre-pandemic levels on a constant currency basis, on the back of strong growth in the premium and medium premium segments, and partially aided by higher room tariffs. We continue to innovate and invest in our product. Book @Rs.1, which was launched last quarter, offered flexibility to the customers, which helped drive growth in longer advanced purchase bookings. goStays, our flagship program for certified budget hotels, is now contributing to over 40% of the overall budget volume with much better customer experience and NPS. International outbound travel opened in March 22, 2022, and since then, we have been witnessing a steady recovery for short-haul destinations. While we saw some slowdown in international travel bookings with COVID scare as China opened at the end of the quarter, we witnessed good traction. During 2023, we hope to see travel to Europe and long-haul destinations also return fully. Homestays continue to lead recovery in the overall accommodation category. More than 10,000 unique properties across 640 unique destinations have been sold during this quarter. During this quarter, we launched a new section of properties called Hidden Gems, where every property in this set has unique USPs and is away from the center of the city. We also launched our brand campaigns specifically for homestays to create more awareness among travelers that the campaign emphasized the concept of stays for every need and highlighted various options, including pet-friendly villas, pool villas, and villas best suited for large families. Moving to the packages business, you would recall that last quarter we talked about how we scaled up this business with the addition of holiday experts and franchisees; we are now reaping the dividends in the high season quarter. Total packages bookings are now more than 150% of pre-pandemic volumes, with the online channel leading the growth. Domestic packages are now more than twice the pre-pandemic volume, and the recovery for international packages is now picking up. Our bus ticketing business revenue recovery was at around 113% as compared to the same quarter pre-pandemic on a constant currency basis. This quarter saw growth in inventory compared to pre-COVID with both the number of private bus operators and the number of schedules being higher. Recovery in the southern market, which has been traditionally strong for buses, is slower than expected as the large IT workforce is still working remotely. This slowness has been made up by non-traditional markets in Central, North, and East, which have witnessed growth, and an increasing number of bus operators are adopting online channels for their distribution in these regions. Our initiatives to drive high revenue through value-added services for our customers and partners have gathered steam in Q3. The RedBus assurance program that protects customers from bus cancellations has also seen increased traction. Our other ground transport services, such as intercity cabs, rail tickets, etc., continue to scale well, and gross booking value touched an all-time high. We have now opened up our trip guarantee product for non-bookers. Also, wherein a user who has a waitlisted train ticket booked from any channel outside MakeMyTrip can buy a trip guarantee product by paying a small fee; if the ticket remains waitlisted at the time of charting, the user is eligible for 3X refund, which can be used to book an alternative mode of transport. Business travel is now normalizing, and both our corporate platforms are growing at a robust pace. The active corporate count for myBiz has crossed 42,000, while on Q2T, which is our platform for large enterprises, the active customer count has reached 231 as compared to 114 in December 2021. We have doubled the number of customers in the last year. On the product side, on myBiz, we went live with enhanced workflows to support in-app approval and easy reconciliation, and we went live with our reporting module. The new reporting module allows corporates to customize and schedule reports according to the needs of different corporates and their departments. myPartner, our travel agent platform, added 2,892 agents during the quarter, taking the overall number to over 34,600. The quarterly repeat rate for buying travel agents is at a healthy 80%. Coming to international businesses, our OTA business in GCC is growing slowly and steadily, with gross booking value growing 29.6% quarter-on-quarter. We launched our first radio brand campaign in November to increase MakeMyTrip awareness amongst Emiratis, Arabs, and Western expatriates in the UAE. We reached about 780,000 audiences with presence across English and Arabic radio stations. Our RedBus international business is showing robust recovery in Malaysia. RedBus has more than doubled its business in Q3 as compared to the same period pre-pandemic and emerged as a clear market leader with a 25% share of the overall market, running profitably. The same playbook is being replicated in other big bus markets in emerging countries in Southeast Asia and Latin America. With this, the contribution of international to the overall bus business has now crossed double digits in Q3. 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 and Happy New Year. With improved travel sentiment, we witnessed good uptake in this seasonally strong quarter and have delivered strong performance both in terms of business growth and profitability. Q3 gross bookings were at $1.74 billion, witnessing a growth of 64.4% year-on-year and a 15.9% growth quarter-on-quarter in constant currency terms. Adjusted operating profit was at $19.7 million as compared to $20.2 million during the same quarter last year, an improvement of 48.6% year-on-year. As stated by Rajesh earlier, this is the highest level of quarterly gross bookings and adjusted operating profit achieved by the Company. For the nine months ended 31st December '22, YTD gross bookings grew by 141% in constant currency terms and came in at $4.9 billion, while our YTD adjusted operating profit came in at about $51.3 million as compared to $11.2 million for the same period last year, witnessing a jump of over 4.6 times. Our air ticketing gross bookings for the quarter were at $1.1 billion, witnessing a growth of 71.6% year-on-year and 7.5% quarter-on-quarter on a constant currency basis. As this was a high season quarter on expected lines, take rates normalized to about 6.6% compared to about 7.4% in the previous quarter. As a result, adjusted margin stood at about $70.2 million, registering strong 45.2% year-on-year growth in constant currency terms. Gross bookings for the hotels and packages segment were at $445.7 million, witnessing strong growth of 55.4% year-on-year and 36.9% quarter-on-quarter on a constant currency basis. Q3 is a seasonally strong quarter for tourism and travel. We recorded a strong growth of over 150% year-on-year in our packages business due to the increase mix coming in from the packages business margins or take rates from this segment stood at about 16.2% as compared to 17.2% in the previous quarter. Adjusted margin for our hotels and packages business stood at $72 million in Q3, witnessing a growth of 45.3% year-on-year and a 28.8% growth quarter-on-quarter in constant currency terms. In our bus ticketing business, gross bookings for the quarter were at $227.1 million, growing at about 51.9% year-on-year and 24.1% on a quarter-on-quarter basis on a constant currency basis. Take rates were at about 9%, which is in line with the previous quarters. The adjusted margin stood at $20.3 million with an extremely strong year-on-year growth of 57.6% and a quarter-on-quarter growth of about 24% in constant currency terms. Our existing margin in all the other businesses in Q3 was at $9.6 million, which is a 79.1% growth on a year-on-year basis and a 30.6% growth on a quarter-on-quarter basis in constant currency terms. In terms of operating expenses, the operating leverage in terms of rationalized fixed costs during the last few years and more efficient customer acquisition spends are helping us drive bottom-line gains with improving skill. The high season quarter also saw us start our brand campaigns across the brands after a gap of over 2.5 years. Also, the higher brand marketing expenses were more than offset by efficiencies in other marketing and promotional costs. Accordingly, overall marketing and sales promotion costs for the quarter came in at about 5.2% of gross bookings, lower than the 5.4% in the previous quarter and lower than 5.6% in the same quarter last year. This has helped us achieve the highest level quarterly gross bookings, surpassing the pre-pandemic peak, and at the same time achieving our highest-ever quarterly adjusted operating profit of $19.7 million. With that, I'd like to turn the call back to Vipul for Q&A.

Vipul Garg, Vice President of Investor Relations

Thanks, Mohit. Anyone who wishes to ask the questions now can click on the raise hand icon on their application, and we will take the questions. We'll just wait for a minute for the queue to assemble. The first question is from the line of Sachin Salgaonkar of Bank of America. Sachin, your line has been unmuted. You may unmute yourself and ask your question now, please.

Sachin Salgaonkar, Analyst

Thanks, Vipul. Good evening everyone. I have three questions. First question, Mohit, more of a follow-up to the comments you made looking at the take rate at both air ticketing and hotels and packages. Clearly, it looks like this time around, as compared to historical 3Q, the decline was slightly higher. So, I just wanted to check apart from seasonality, is there anything else which is impacting these margins? And how should ideally one look at going ahead? Should we see normalization now that the seasonality gets behind us?

Mohit Kabra, Group Chief Financial Officer

Sure, Sachin. If you like, like I was mentioning, particularly if you look at the hotels and packages business, overall, due to the high seasonality, packages kind of came in much stronger in terms of the overall mix, and packages, as you know, is a low margin business. That contributed significantly to a little bit of a drop in margins for the segment as a whole. The other thing that we have been calling out is, if you will recollect, during the entire recovery process, the mix of the budget segment of hotels has been coming down, and therefore to some extent that's also kind of keeping the overall margins on the hotel side on the lower end of our range. There is a good probability of overall margins improving on two fronts: one, as the mix kind of gets restored more in favor of hotels, as we get to regular seasonality; and the second is, as the mix from the budget segment keeps improving. So, I would say, possibly, there remains an upside of about a percentage point or so for the margins to improve in the hotels and package segment, overall, compared to this particular quarter for the reasons that I've just explained. On the air ticketing side, again, if you look at on a normalized basis, possibly we have been guided that the 6% plus kind of margins is where we see longer-term air ticketing margins stabilizing, and tactically or kind of based on a quarter-on-quarter basis, depending upon how the load factors are and what is the kind of promotional activity that the airlines want to try in terms of driving load factors through our platforms, that will kind of marginally tweak the overall take rates for the domestic air ticketing business. But otherwise, air ticketing business in the longer term, I think this is a healthy margin to remain at, and we believe, unless there is a significant drop in the load factors, our margin should largely remain in line with this with a plus or minus kind of half a percentage point range. So, very broadly, this is how I would put it.

Sachin Salgaonkar, Analyst

Thanks, Mohit. Second question, clearly this, as you rightly indicated, was a seasonally stronger quarter. Despite that, we did see the air ticketing revenues being down Q-o-Q. I did see the bookings are up. So just wanted to understand what happened and why was air ticketing revenue down?

Mohit Kabra, Group Chief Financial Officer

Yes, it's the same situation. The link to the previous quarter indicates that gross margins in the air ticketing business have decreased. This is reflected in the revenue, with volume-adjusted margins showing a slight decline. However, overall growth in segments and gross bookings is on the rise. Additionally, marketing and promotional expenses have decreased compared to the last quarter, even with ongoing marketing investments. Some of these promotional expenses from airlines might appear to increase margins and overall marketing costs. This quarter, the promotional incentives offered by the airlines were lower, which is why we are observing a reduction in both the adjusted margin and marketing expenses.

Sachin Salgaonkar, Analyst

So, Mohit, thanks for that. I did look at that, obviously, there is a margin dip that's happened last quarter, 3Q, and so on and so forth. How there, the airline revenues did not dip despite the take rate going down? So this time around, it has more to do with the promotional expenses, what you mentioned.

Rajesh Magow, Co-Founder and Group CEO

And maybe if I can just add an additional point, Sachin. If you look at the numbers on the gross bookings side and the air segments growth, it is positive. It's not a decline. It's like on a constant currency basis. It's 7%, 7.5%. The only additional point that I will make to what Mohit has already said. As I was indicating earlier as part of my script as well, that while domestic flights have recovered or domestic traffic has recovered, actually more than recovered to the pre-pandemic levels, international is still lagging behind. So, international bookings, especially long-haul flight bookings have not necessarily fully recovered. And in fact, towards the end of the quarter, the second half of December, because of the China opening up, there was a bit of a scare on COVID as well. Thankfully after one week, it sort of died down and things got started to get back to normal. But all things considered, because of the high fares with fuel prices going up or the overall focus being on yield by all the airlines and the backlog of operational issues like backlog of visa clearance, etc., it continued to sort of play in terms of just putting international bookings under pressure. And that's really just one more additional factor on just overall air despite being the high season, while the consumer sentiment is positive and people want to travel. But if you continue to see high fares on the international side, then sort of plans get pushed if they are not necessarily essential travel-related and stuff. So, I think that's the additional point you should keep in mind.

Sachin Salgaonkar, Analyst

Thanks, Rajesh. And last question is now that you guys got the incentive approval for MakeMyTrip ibibo, looks like the key regulatory hurdle for a potential India listing is behind. So any thoughts in terms of timeline and how you guys are thinking about it?

Mohit Kabra, Group Chief Financial Officer

So from a regulatory hurdle point of view, I think this is kind of an incrementally good step to kind of taking in the direction. But, like we have been calling out, tapping into the Indian capital market is probably there on the agenda, but not necessarily in the near future. So, we are going to remain open to it. And we'll clearly come back and update as and when we are able to crystallize our plans around it.

Vipul Garg, Vice President of Investor Relations

Thanks, Sachin. The next question is from the line of Gaurav Rateria of Morgan Stanley. Gaurav, you may unmute yourself and ask the question.

Gaurav Rateria, Analyst

Thanks, Vipul, for giving me the opportunity. So, I have a couple of questions. Firstly, when I look at the volumes in each of the individual segments, they haven't reached the pre-COVID levels compared to the same quarter during the pre-COVID. So, somehow, the recovery has been a little slower than expected. So, is it largely because of international in each of the segments? Or is there some other phenomenon going on?

Mohit Kabra, Group Chief Financial Officer

Two reasons, Gaurav, if I could call it out. You will look at it overall, in terms of the market recovery. So if you look at even domestic air, the overall market recovery is at about 90%, whereas our recovery is kind of close to about 100% plus. So therefore, while we are growing ahead of the market, the market recovery itself at the industry level is lagging the pre-pandemic segmented volumes. So that's one reason, and secondly, if you look at it in terms of the overall air ticketing kind of pace, like Rajesh was calling out, international hasn't really kind of bounced back as strongly. So that's the other reason for the lag in the overall recovery for the air ticketing business as a whole.

Gaurav Rateria, Analyst

Second question, how should one look at the lower customer inducement charge as a percentage of gross booking? Is it that the competition or the competitive activity has subsided in the market? And hence, there is no need for that high customer inducement charge? Is it more tactical, like shift between branding versus customer inducement charge? How should one think about overall ad and promotion spend? You have always been saying 5% to 6%. But it's kind of come out of the lower end. So how should one think about it on a sustainable basis?

Mohit Kabra, Group Chief Financial Officer

No, I think on a sustained basis, the range would be more like 5% to 6%. There are a couple of factors contributing to this. One is the level of competitive activity we're observing in the market, which does make a difference. More importantly, it also involves establishing a solid volume base in key segments, especially in hotels and package deals within the overall accommodation sector. Over the past six to seven years, we have gradually and significantly increased our volumes in these areas. In e-commerce and online models, as volumes grow, customer acquisition costs improve. This is about reaching a certain volume threshold, which is why there has been a consistent decline in marketing and promotional expenses. This reduction has become more pronounced in recent years, especially as we crossed that threshold, which was largely before COVID. Additionally, there is now lower competitive intensity, particularly in the hotel segment.

Gaurav Rateria, Analyst

Last question, the cash balance if I compare versus last quarter, I think has come down from 466 to 449. Is there something missing? You have generated lots of large EBIT during the quarter should have cash flow and should have gone up. So, how should one read the decline in cash?

Mohit Kabra, Group Chief Financial Officer

You are right. This being a seasonally high quarter, usually we do see deployment in working capital during peak seasonality. And then you also see releases happening as you kind of move into the lower seasonality quarters. So it's kind of largely linked to seasonality per se and nothing else over there.

Vipul Garg, Vice President of Investor Relations

Thanks, Gaurav. Just to remind the participants, anyone who wishes to ask a question can click on the raise hand option. Next question is from the line of Aditya Suresh from Macquarie. Aditya, you can please unmute your line and ask the question now.

Aditya Suresh, Analyst

Thank you, Vipul. I have a few questions. First question was just on the competitive dynamics that you mentioned. Can you elaborate a bit about kind of what's happening in the air segment in particular with Tier 3 getting kind of a new lease of life perhaps? So can you maybe speak about that a little bit? I do note that your customer inducing cost, it could have marketing spent that it's kind of come down, but in absolute terms is still a fairly chunky number, particularly in an environment where some of your competitors maybe kind of challenge for funding, at least the conditions are a bit tighter. So can you speak a little bit about that? One is the competitive intensity in Air or Cleartrip, etc.? And two is, I think, part fiscal '24 fiscal '25, are you sticking with this 5% to 6% as growth of gross bookings as a guide? Or is there any kind of absolute numbers I think about this as well?

Mohit Kabra, Group Chief Financial Officer

Aditya, maybe I'll take the second part, and I'll invite Rajesh to kind of share more color on the first one. But on the second one, it may not be kind of relevant to kind of look at the absolute number per se, and therefore looking at it in terms of a percentage of spend might be a better way to kind of look at it? And yes, we do kind of expect this to remain in the 5% to 6% range going forward as well. I'll just invite Rajesh for the first one.

Rajesh Magow, Co-Founder and Group CEO

Sure, Aditya. To address your first question, I want to emphasize a couple of key points. Our market share in domestic flights remains strong at approximately 30%. Additionally, our flight product has reached a mature stage. We continue to innovate and launch unique features each quarter, which boosts customer confidence and solidifies our position as a market leader. Despite competitive dynamics, we've either increased our market share or maintained our steadiness around 30%. These points are crucial, as they tend to get overlooked. From our observations, these strategies have positively impacted our repeat rate over time, fostering customer loyalty to our platform as we consistently deliver on our product promises. While we don’t focus excessively on daily discounting trends or competitive actions, our clear strategy emphasizes continuous improvement in product experience. This approach helps us attract more customers and gain additional market share while managing our financials according to market dynamics. Looking back at recent quarters in the domestic air market, we've noticed some volatility, with increased competitive activity in certain periods. However, over time, the market tends to stabilize, as aggressive discounting is not sustainable. We are not planning any shifts in our strategy regarding the domestic flight market or our offerings.

Aditya Suresh, Analyst

Thanks, Rajesh. That's clear. I guess the second question was me trying to think about incremental EBITDA margins or incremental profit. You did kind of mention that there were quite a few growth levers across different products. Now overtime, I think your employee expense has been a fairly large part of at least as a proportion of revenue. Can you maybe touch on two things? One is, in terms of incrementally, how are you thinking about kind of staff expenses? That's one. And two is, therefore, do you have any guide in terms of incremental EBITDA margin, let's say, add $100 million next year? Incrementing, I think it should be much more than that. But let's say, you did add 100. How much of that do you think is EBITDA?

Mohit Kabra, Group Chief Financial Officer

Hi, Aditya, maybe I'll take that. If you are looking in terms of fixed costs overall and growing kind of people costs in particular, they are now despite, like, almost three rounds of inflationary increases going through, they are still below the pre-pandemic levels in that manner of sorts and almost getting closer to that. But it's still slightly behind the same quarter numbers for pre-pandemic. So that way, I think we have done a significant number of rationalizations on the fixed costs. Clearly, it's not that they'll remain completely constant; they'll possibly increase at a lower proportion than the growth in the volumes of the business. And secondly, large part of the increase is going to come in more in terms of inflationary increases because we don't really plan any significant headcount increases per se in the business in the quarters or years to come. So, that's one part of the question that you asked. The other is, what is the margin expansion opportunity? Again, we would kind of refrain from getting into shorter-term kind of margin gain opportunities. But the longer-term opportunity, clearly, we are looking at is this is clearly an opportunity to take this business to at least possibly getting to about 1.5 percentage points of adjusted operating margin on a gross booking basis. Now whether that happens in a few quarters or in a couple of years, clearly, it will depend on multiple factors. But you can see this as in terms of the volume change that you see even on a year-on-year basis in terms of fiscal year '23 versus fiscal year '22. And then the corresponding changes that you see playing out through an operating leverage on the bottom line. That would be quite an indicative trend. I mean, I wouldn't necessarily say the same trend would continue, but it would be indicative in nature.

Vipul Garg, Vice President of Investor Relations

Thanks, Aditya. Next question is from the line of Puneet Saraogi of Hill Fort Capital. Puneet, you can unmute yourself and ask the question now.

Unidentified Analyst, Analyst

This is Hari for Hill Fort Capital. I had a couple of questions. My first question is on the working capital. Can you just double click on the working capital and why it's higher in this quarter, seasonally? And how do we generally think about OCF in relation to EBITDA on an annual basis? My second question is whether an India listing is on the anvil at all or not?

Mohit Kabra, Group Chief Financial Officer

Puneet, maybe I'll take both and probably miss some of the earlier kinds of questions on this. But on the working capital side, like I said, this seasonality is involved in the business and generally we do see deployment happening in working capital during high season quarters and generally releases coming through in the off-season. So, I think it's better to look at it on a more like annual basis or a four-quarter basis. On an annualized basis, I would just suggest that you need to bake in some amount of deployment on the working capital linked to volume. So, that's on the overall kind of working capital in and the trend lines over there. When it comes to your second question, yes, I mean, one of the India capital markets are kind of open to e-commerce platforms, clearly, and we have seen some of the e-commerce companies kind of go and tap into the Indian capital market. From our point of view, one of the key things is that we are not necessarily looking at any fundraising in the short-term. You're sitting on a good amount of cash and cash equivalents on the balance sheet, including free cash. Even if we were to kind of potentially look at setting aside a certain amount for the convertible bonds that we had kind of raised two years back, even after setting that aside, we're sitting on a healthy cash balance of close to over $250 million. So from that point of view, tapping into the capital markets on an immediate basis doesn't seem like a requirement. But from an overall kind of investor value creation and from kind of leveraging the brand and multiple other things, we would kind of keep an eye on tapping into the Indian capital market at some point in time. But like I said, probably there is no immediacy to it, but in the longer run, from an opportunity to tap into the capital markets, I think India will be a more preferred market than tapping into the U.S. market once again. So, that's how I would put it.

Vipul Garg, Vice President of Investor Relations

Thanks, Hari. The next question is from the line of Vijit Jain of Citi. Vijit, you may please unmute yourself and ask your question now.

Vijit Jain, Analyst

Thank you, Vipul. Congrats on a great set of numbers. I have three questions. First is within the hotel segment, would you say that barring that super budget category you called out sub $20, every other category perhaps with the exception of international is now back to pre-pandemic levels? That's my first question.

Rajesh Magow, Co-Founder and Group CEO

Yes, Vijit.

Vijit Jain, Analyst

And what would be international now as a percentage of your GBP? I know last quarter, you guys had mentioned something earlier double digits? How has that moved in the last quarter?

Rajesh Magow, Co-Founder and Group CEO

Same, similar. I mean, it's not a substantial change from what we shared earlier.

Vijit Jain, Analyst

And my last question is just, saying on this international theme, now, in the last two to three years, you've launched these programs like my affiliate in myPartner, etc., you are working with a lot of offline agents as well. I guess, my question is, how are you thinking about ramping up your international business in the next one to two years? What would be the focus areas there? And if you can shed more light on how you're going to use even Ctrip partnership, etc., to kind of ramp that business up? If you can talk a little bit more about that.

Rajesh Magow, Co-Founder and Group CEO

Yes, that's a great question. Considering the recovery has been slow, we need to ensure we are prepared for the business to rebound and pursue future growth. I can assure you that we are fully prepared on our end. If you examine the potential levers for growing our international business, you'll notice that it remains an under-penetrated online segment. Pre-pandemic, our growth rate for international flights and hotels was significantly higher. We are eager for that segment to reopen. On the supply side, we have numerous sources available on our platform, and regarding customer acquisition, we have already invested in additional channels beyond our core B2C platforms. This will certainly aid in capturing incremental demand from the international segment, which is still under-penetrated. Additionally, we have a channel, myPartner, that leverages travel agents and allows us to tap into that B2B2C demand. We are also focused on enhancing our distribution channels and optimizing our supply, including utilizing the international supply from trip.com. We have made substantial investments in improving the product experience on our platform, and we are ready and waiting for the market to open up.

Vijit Jain, Analyst

Thank you, Rajesh. I have one last question for Mohit regarding the brand campaign expenditures you discussed this quarter for both Goibibo and MakeMyTrip. How should we consider these expenses moving forward? I understand you have mentioned before that some of these costs can be reallocated between areas such as customer incentives. I'm looking for clarification on how we should approach this on a quarterly basis. Additionally, you noted that overall fixed costs are still below pre-pandemic levels and that we are nearly there. Previously, you mentioned a figure of about $14 million to $15 million per month for your fixed cost base. Is that figure now closer to $17 million or $18 million?

Mohit Kabra, Group Chief Financial Officer

Hi, Vijit. The first question likely pertains to brand marketing expenses. Historically, we tend to see higher expenses in brand marketing, especially during our busiest quarters, specifically Q1 and Q3 from our fiscal year perspective. Those quarters generally see increased spending in this area. However, it's essential to focus on the overall customer acquisition cost, as some costs may yield results in a shorter time frame, while others may take longer and have a lag effect. It's better to consider these expenses as a blended figure. This is why we discuss marketing and sales promotion expenses together, as it provides a clearer picture of customer retention costs. Examining them in isolation may not be the best approach, but you should anticipate a slightly higher percentage of brand marketing expenses in the seasonal quarters.

Vijit Jain, Analyst

Got it. Thanks, Mohit. And my second question was just on the fixed cost base; where are we in terms of run rate?

Mohit Kabra, Group Chief Financial Officer

Yes. So, if you look at it in terms of the run rate, pre-COVID used to be almost like about $15 million to $16 million. We are still just shared below $15 million in the reported quarter, that's what I was calling out that despite almost three rounds of inflationary pressures going through, we are slightly below that run rate, so reasonably good on that.

Vipul Garg, Vice President of Investor Relations

Thanks, Vijit. The next question is from the line of Aditya Chandrasekar of UBS. Aditya, you may please ask your question. Unmute by yourself and ask your question now.

Aditya Chandrasekar, Analyst

Thank you, Vipul. I have a question regarding the air sector. This quarter has shown seasonal strength, and the passenger data from DGCA indicates impressive record highs. I would like to know if there was potential for even better growth in air bookings. Excluding international trends, we noted a 4% quarter-over-quarter growth in air gross bookings. Given the high volumes, could that number have been higher? I don't believe we've lost any market share, but I'm curious if the growth could have been better in Q3, considering both the volumes and the seasonal strength. How should we approach this moving forward?

Mohit Kabra, Group Chief Financial Officer

Sure, Aditya. Like I had called out, if you really look at it, in terms of recovery during the reported quarter, domestic air rate recovery, the industry recovery was more about 95%, whereas our recovery was close to about 100%. So, from that way, if you look at it, possibly our kind of market share gains continue to help us. We are kind of growing ahead of the market. Could the overall industry growth have been higher? Yes. I mean, clearly, the potential is there for the overall domestic industry numbers to kind of keep increasing. But there are quite a few challenges in terms of the prevailing kind of inflationary pressures, etc., and the overall capacity and some of the challenges being faced by the airlines also on the maintenance and spare availability, as a result of which, some of the kind of planes are also kind of right now grounded. So, as all of this capacity comes back, hopefully in the coming quarters, we should see the industry expanding faster as well.

Rajesh Magow, Co-Founder and Group CEO

Sorry, Aditya. I was just going to add one more point. The important point is, given what we all get excited about at times, including us, is the peak numbers for certain days. But I think the important point is just to look at the full quarter numbers, even from overall the domestic market traffic. You will realize that was sort of up and down and overall, as Mohit pointed out, the traffic recovery was for the market; it was about 95%. If I can give you an additional data point on flight departures, and given the fact, we literally monitor every flight very closely, the comparison with what it used to be pre-pandemic was actually around 92%. The reason for that was the load factors have been high. The airlines have been very careful in deploying more traffic because they've all been, and rightly so, coming out of the tough period of pandemic focused on higher load factors and more yield per passenger, thereby reducing losses for them. As we get into the steady state market and all the financial health of the airlines starts to improve, we are getting some news from Air India that they might turn profitable, etc. Some of these things that happen, it'll further stabilize. We'll get more capacity for sure, and then because of that, the demand and the growth will also come back.

Aditya Chandrasekar, Analyst

And just a very quick question on the marketing side again. So, next quarter, it came at 5.2%, even though we did TV campaigns, etc. after a while. I know you have mentioned multiple times that it probably stays in that 5% to 6% range. Do you think there's also a potential for it to come down also from these levels? Because going forward, if we kind of don't do some of these TV or ad campaigns, which we probably won't do quarterly, right? And we are seeing efficiencies in the other side of the other marketing costs. So do you think it could head to that 5% or be 4.8%, 4.9%, or do you think largely 5% to 6% is where we should aim for?

Rajesh Magow, Co-Founder and Group CEO

Like I was calling out, Aditya, we should be kind of currently estimated to remain in the 5% to 6% range. I think it's good that at least in the peak seasonality in the reported quarter, we were able to keep it more closer to the lower end of the range while reviving the brand campaign. So, let's see, as we kind of keep making progress, we'll keep sharing color, but the current estimate remains 5% to 6%.

Vipul Garg, Vice President of Investor Relations

Thanks, Aditya. The next question is from the line of Tarbir Shahpuri of Nidara Capital. Tarbir, you may please unmute yourself and ask the question now.

Tarbir Shahpuri, Analyst

Thanks, Vipul. Actually, my question is for you. Vipul, when are you going to organize an investor day for us?

Vipul Garg, Vice President of Investor Relations

We're working on it. Give us some time. We are getting the structure ready. So hopefully soon we'll come back with the details.

Tarbir Shahpuri, Analyst

Congratulations, everyone. Good luck with the next question.

Vipul Garg, Vice President of Investor Relations

Thank you, Tarbir. The next question is from the line and will be the last question as we are out of time. It is from Lester Poon in Hong Kong. Lester, please unmute yourself and ask your question now.

Unidentified Analyst, Analyst

In the past, the management gave guidance that the adjusted operating margins will not be lower than 1% of their gross booking revenue. For Q3, I did a quick calculation; it's about 1.2%. Q3 already is a peak season. So does it mean that the other non-peak seasons, the percentage may fall below 1%, or you are confident that you can maintain the 1% in the future?

Mohit Kabra, Group Chief Financial Officer

Lester, let me take that. We're guided for this full fiscal year, and we would kind of look at close to about 1%. If you look at it on a YTD basis, we are kind of slightly better than the 1% that we are guided for. Therefore, we do believe that for the full year also as a whole, we should be able to kind of maintain that 1% run rate or be slightly above that. We should know in about a quarter's time. We will share more color about the subsequent years as we kind of get into the new fiscal year.

Unidentified Analyst, Analyst

Okay, thank you very much. So, see you soon in person in our conference.

Mohit Kabra, Group Chief Financial Officer

Surely, look forward.

Vipul Garg, Vice President of Investor Relations

Thank you, Lester. That was our last question. I'll just now hand over to Rajesh for his closing comments.

Rajesh Magow, Co-Founder and Group CEO

Yes, thank you, Vipul. And thank you, everyone, for your patience, your time, and all the interesting questions. Look forward to coming back to you next quarter. Thanks a lot.

Mohit Kabra, Group Chief Financial Officer

I would just add that you know, in case we have not been able to take questions from any of your participants due to the paucity of time, please feel free to write to Vipul, and we will try and get back to you as soon as we can.

Vipul Garg, Vice President of Investor Relations

Thank you, Rajesh. Thank you, Mohit. This brings us to the end of the call. You may please disconnect. Thank you.

Mohit Kabra, Group Chief Financial Officer

Thank you.

Rajesh Magow, Co-Founder and Group CEO

Thank you. Bye.