Earnings Call Transcript - MMYT Q2 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 '24 second quarter earnings webinar. Today's event will be hosted by the company's leadership team, comprising 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 the 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 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 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 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 second quarter call of fiscal 2024. We are pleased to report another quarter of strong operating performance, where we maintained strong momentum, both in terms of top line and bottom line growth year-on-year. Gross bookings for the quarter reached $1.8 billion, growing at 23.8% year-on-year in constant currency terms, while our adjusted operating profit, or adjusted EBIT, grew by 87% year-on-year to $28.2 million as compared to $15.5 million in the same quarter last year. We delivered this performance despite a short-term supply contraction, challenged during the quarter and the temporary hit on demand due to unprecedented monsoon rains in some parts of the country. As for the macro outlook, India is expected to be one of the fastest-growing large economies in the future, leading to a gradual increase in GDP per capita and a larger allocation towards discretionary spending, of which travel and experiences will garner a major share. According to the latest report by McKinsey, India is poised to witness one of the most rapid increases in travel expenditures among the world's top 10 countries from a travel spending figure of $150 billion in 2019. Travel expenditures are anticipated to reach $410 billion, making India the fourth largest global spender on travel by 2030. On the other hand, according to WTTC, the travel and tourism sector contributed 7.6% to the global GDP in 2022. While in India, it accounted for 4.5% of the GDP, reflecting huge headroom for growth. The contribution of the travel and tourism industry to India's economy is growing steadily, generating substantial revenue and employment opportunities across various sectors, including hospitality, transportation, and local businesses. We expect travel and tourism in India to grow faster than the overall GDP during the next decade, which should act as a tailwind for the overall industry. A large part of this growth will be led by the aviation and accommodation sector. This is corroborated by the fact that all major airlines have placed a record number of orders for new planes, and all major hotel chains have announced the addition of new properties, which will help in supply expansion for many years to come. Homestay supply is also growing in the country with people investing in secondary homes to be used as homestays in key leisure destinations. According to the Government of India forecast, the current 145 million air passengers in India are projected to rise to 425 million by 2025, driving growth for the overall travel and tourism sector. While the air industry is facing short-term headwinds on supply due to engine repair issues, supply addition projections look good, indicating that the supply situation will improve in the coming quarters. We continue to stay excited about future opportunities and aim to further consolidate our position as a leading travel services company in the country on the back of our innovative travel solutions, brand strength, and ability to deliver superior value to our customers and our partners. We've been working towards building a platform for the future. During the quarter, we introduced a fresh version of our homepage to bring out our new design language and iconography to make the discovery and buying experience more intuitive and delightful. I'm also delighted to share that MakeMyTrip is now GDPR compliant, thus making it accessible from regions where GDPR is applicable. This will help us cater to some of the inbound demand, especially from the Indian diaspora. As for business segments now, starting with the air business, while domestic air ticketing had recovered a few quarters back and continues to grow well, this quarter, our international air ticketing business surpassed the pre-pandemic levels for the first time, which is encouraging. All short-haul destinations have either grown beyond or recovered to pre-pandemic levels now, and travel to long-haul destinations is also recovering rapidly now. We continue to innovate and add new features to our products to deliver better value to our customers. During the quarter, we went live with our hold booking initiative, wherein on selected international flights, customers can hold their seats until the end of the day, giving them time to decide without worrying about prices and availability. We also launched a quick checkout flow on our existing QuickBook feature, enabling customers to see the payment options on the review page itself to make the booking faster for our frequent flyer customers. We also revamped Goibibo's flight search results page, baggage, and cancellation rules on the itinerary page to aid faster information, assimilation, and flight selection, helping us improve conversion. Our accommodation business, which includes hotels, homestays, and packages, witnessed strong year-on-year growth on the back of increased supply, improved discovery and deeper penetration beyond metros and Tier 1 and Tier 2 towns. We continue to expand our supply deeper into the country. We now have over 77,000 properties listed on our platform, covering 2,075 cities across India, further strengthening our supply moat. Along with the supply, we continue to expand our distribution channels as part of our strategy to drive online penetration further. We went live with our hotel product on the IRCTC website during the quarter, and the initial response is encouraging. Through IRCTC and our myBiz platform, we are now getting new users from smaller cities for leisure and business travel. International room nights growth picked up strongly this quarter as well, while the domestic accommodation business continued to perform well. With the introduction of new direct flights, we witnessed travel pick up in new destinations like Tashkent, Almaty, and Baku, while other key destinations in the Middle East and Southeast Asia continue to be popular among Indians. Learning from valuable stay-related feedback and inputs from our customers, we have enhanced our quality checks to highlight alerts for our customers about properties consistently defaulting on service levels. On the other hand, we work closely with the partner and push them to improve the stay experience. We have observed that most of our partners take the feedback seriously and take corrective actions. Our homestays business continues to grow with increasing coverage of destinations. During the quarter, we expanded our supply across the country, including World Cup venues. We added about 8,000 properties to our homestay inventory, out of which about 1,500 properties were added specifically in World Cup venues. The contribution of homestays to the overall bookings is steadily increasing, and we believe that this category will drive future growth. Our holiday packages business continues to scale on the back of our expanded offerings. During the quarter, we launched holiday packages with homestays as an accommodation option, the first in the industry. We have now started to offer charter train packages, catering to religious tourism demand. Our footprint in the holiday packages business has expanded to 555 domestic cities versus a peak of 405 cities in the past. On the international package side, we sold holiday packages to 66 countries during Q2, the best number achieved so far. Our bus ticketing business sustained the growth momentum in Q2 despite a seasonally weak quarter as more corporates, especially in the IT sector, are mandating work from the office. The traditionally large bus markets in South India are witnessing good recovery. This increase in demand, along with improvements in bus operator finances, is resulting in the addition of new buses, which bodes well for our business. In Q2, the inventory of UPSRTC was integrated into the platform. This makes redBus the first private ticketing platform ahead of the festival to host UPSRTC's inventory. This will help improve the new customer acquisition rate in North India. We are making good progress on our journey with generative AI-powered features on our platform. Our user review section now has summary results leveraging generative AI and harnessing our extensive repository of user-generated content. The summary results enable customers to swiftly identify suitable properties and provide instant insights into each property's offerings. This feature has further improved the user experience in the property selection process. Similarly, in our bus business, we've deployed a voice-based bot for solving customer queries before bus departure. The ground transport business is a parallel growth opportunity for us and is a potential growth opportunity for us. We already have a leading position in the bus market. In addition, we've been making organic investments in expanding our user base via rail bookings. We started our cab business with airport transfers and are gradually scaling intercity travel use case by cabs. Currently, intercity cabs are a highly unorganized and fragmented market, and with road infrastructure improving in the country, it presents a good future growth opportunity. So we have decided to strengthen this line of our business further with an inorganic investment in a well-known intercity cab company called Savaari. Mohit will share full details in his section. For all our product offerings, our direct B2C platform continues to be the leader in India in terms of active users, number of transactions, and reach, while our new channels are also gaining traction. MyPartner, which is our B2B2C platform for small travel agents, now has over 40,000 travel agents and is expanding every quarter with a very healthy repeat transaction rate. Our corporate travel business for both our platforms, myBiz and Quest2Travel, is gradually becoming meaningful. Our active customer count on myBiz is now over 55,000, and for Q2T, the active customer count has reached 297, with strong additions every quarter. Both our corporate platforms are focused on building a holistic tech solution, whereby companies can seamlessly set policies, report without manual hassle, and sync with their ERP and HRMS systems, allowing the employees to handle their bookings for themselves without diluting the experience. MyBiz has been recognized by industry forums as well and recently ranked at the top in travel and expense management for APAC, marking G2's Fall Report 2023. This is the third consecutive category recognition for myBiz. With this, let me now hand over the call to Mohit for the financial highlights of the quarter.

Mohit Kabra, Group Chief Financial Officer

Thanks, Rajesh. We have delivered robust operating performance this quarter, with a strong year-on-year growth in gross bookings, revenue, and adjusted operating profit in line with our stated strategy of profitable growth. Demand for travel remained robust on the back of positive consumer sentiment, helping us deliver gross bookings to the tune of $1.8 billion during the second quarter of fiscal year '23, '24, witnessing a year-on-year growth of 23.8% in constant currency norms. Aided by strong operating leverage, the adjusted operating profit grew by over 87% year-on-year from $15.1 million in the same quarter last year to about $28.2 million in this quarter, translating to an increase of about $13.1 million in absolute terms. The adjusted operating profit stood at about 1.5% of gross bookings during the quarter, which is in line with the previously reported quarter of the current fiscal year and almost a 50% improvement from the 1% levels reported in the same quarter last year. Our air ticketing gross bookings for the quarter came in at about $1.2 billion, witnessing a year-on-year growth of 20.8% in constant currency terms. The adjusted margin stood at about $80.2 million, registering a year-on-year growth of 10.7% in constant currency. The take rate for margins for the air ticketing business were in line at about 6.8%. As mentioned by Rajesh, while the long-term outlook for growth in the domestic civil aviation market is very strong with large aircraft orders being placed by the leading carriers, there are short-term capacity headwinds in view of issues around supply and servicing of aircraft engines as well as the suspension of operations by Go First Airlines. Based on the NCLT order in May '23 for the appointment of a resolution professional to operate Go First on a going concern basis, we had been optimistic about the restoration of its operations. However, considering that now over 5.5 months have elapsed and there are ongoing legal challenges to the resumption, we have made a one-time provision for all recoverable amounts towards deposits for ticket issuances, accrued incentives, taxes deducted or collected at source, and recoverable from Go First during this quarter. As a result of this exceptional provision to the tune of about $10 million, the year-on-year increase in the operating profit as per GAAP is about $2.8 million compared to about $13 million increase in adjusted operating profit, which is not impacted by this exceptional provision. We expect small capacity increases in the second half of the year, followed by normalized growth in the domestic civil aviation industry from the beginning of the next fiscal year. Gross bookings for the quarter for the hotels and packages segment stood at about $432 million, witnessing a strong growth of 34.5% on a year-on-year basis in constant currency terms. The adjusted margin for our hotels and packages business stood at about $75.7 million during the quarter, witnessing a year-on-year growth of about 36% in constant currency terms. Margins for this segment also came in line at about 17.5%. In our bus ticketing business, gross bookings for the quarter came in at $219.7 million, growing at a year-on-year basis of 21.2% in constant currency terms. Adjusted margin stood at $21.8 million, registering a strong year-on-year growth of about 34% in constant currency terms. Margins for the bus business also came in at line at about 9.9% for the quarter. We continue to drive efficiency in our expenses, particularly so in our customer acquisition costs. Excellent top of mind recall of our brands has been driving a high mix of organic traffic for us. Almost 70% of the orders are coming from our existing customers, helping us drive further cost efficiencies. Overall, marketing and sales promotion costs for the quarter came in at about 4.6% of gross bookings, as compared to about 5.4% in the same quarter last year. With the COVID-19 pandemic behind us and almost every line of business having recovered to pre-pandemic levels or above, our focus is now on continuing to drive profitable growth. Our strong balance sheet with over $0.5 billion in cash and cash equivalents gives us the flexibility to pursue both organic and inorganic opportunities to drive supply or distribution side expansion. Across our portfolio of brands, we have built significant businesses in travel services, such as air ticketing, hotels and packages, and bus ticketing. We have organically scaled up a variety of other travel service offerings such as airport transfers and rail ticketing for our customers. As part of our inorganic innovation, we had invested in BookMyForex, which is a well-known ForEx service provider in India. This investment has helped us strengthen our ForEx offerings for our customers, who book overseas travel services with us and opened up another growth opportunity for us. Along these lines, we are pleased to announce the signing of a majority investment in Savaari Car Rentals Private Limited, which is a well-run intercity cab services company. We believe that while intracity cabs and local city buses fall under the day-to-day commute services, intercity cab services are akin to intercity bus services and, therefore, are a segment of opportunity for travel service providers like us. This segment has low online penetration, fragmented supply, and lack of standardization in experience. We believe that there is an opportunity to transform this space with technology and offer a better value proposition, both for our suppliers and our customers in the years to come. The significant focus of the government of India in terms of improving the quality of highways, apart from adding to the highway infrastructure across the length and breadth of the country, can add further impetus to this segment. This investment, which is likely to be closed in the next two months, is intended to accelerate our plans of building a meaningful presence in the intercity cabs market in India. During the quarter, we also acquired the last tranche of equity from the founders of Quest2Travel, a company engaged in providing corporate travel services to large-sized corporates. We acquired an initial majority stake in 2019 and have been increasing our holding over the years. This final tranche marks the completion of the process with the acquisition of 100% ownership in Quest2Travel. We will continue to look for such inorganic investments to support our future growth initiatives as well. With that, I'd like to turn the call back to Vipul for Q&A.

Vipul Garg, Vice President, Investor Relations

Thanks, Mohit. The first question is from Sachin Salgaonkar from Bank of America.

Sachin Salgaonkar, Analyst

I have three questions. First, Mohit, again, I just wanted to clarify regarding this entire one-off. So basically, all the negatives which could be factored in are factored in, right? Ideally, we should not see any incremental one-offs coming from Go First in the coming quarters.

Mohit Kabra, Group Chief Financial Officer

Yes, Sachin, that's right.

Sachin Salgaonkar, Analyst

Got it. Second question, just on the entire capacity issues at airlines, again, one is a near-term perspective, which you guys said. But there is also a risk about the Pratt & Whitney Indigo engines continue to create a bit of an issue going into next year. So just wanted to understand where you guys see this resolving and what kind of impact that could have, let's say, from a next 12 to 18-month perspective?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes, I can address that. It's a relevant question, and I was trying to emphasize it in my remarks as well. The recent winter schedule filing offers some encouraging signs as there is a net increase in supply, approximately 7 to 8%. This is notable considering that both Go First has been out of service for a while and SpiceJet hasn’t been operating at full capacity. However, airlines like Indigo, Air India, Air Express, and Vistara have been adding more aircraft. There have been orders placed in recent quarters, and supply is expected to incrementally increase each month. This alignment among airlines indicates an improvement in the upcoming quarters. From a long-term perspective, I don’t foresee significant issues, as these challenges will eventually be resolved. Whether it’s through gradual engine replacements or other alternatives, demand remains strong based on multiple forecasts. Operationally, everyone is actively seeking solutions to any potential obstacles, but we will need to monitor the situation closely. The projections for the next six months suggest an overall improvement in the circumstances.

Sachin Salgaonkar, Analyst

Rajesh, in your opening remarks, you also commented about a bit of an issue on demand, especially given the harsh monsoon. I wanted to just understand how has it been progressing in the last few months given the fact there is a World Cup and we are heading into the Diwali season. Any general comments on early December bookings? Are we still seeing issues associated with demand or that started to reverse?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

So Sachin, July, August, September, that specific monsoon-related issue was temporary and confined to certain cities of the country, not necessarily across. The demand overall sentiment remained positive. In fact, it was at its peak around August, September. In September, it was like an all-time high. For the current quarter, as we know from the historical trends, October, November, December, again, is a high season quarter. But it's early days right now because it's just the end of October. Because of the World Cup, wherever India was featuring as part of the games in specific cities, we've seen bookings and actual transactions growing for both hotels and flights. However, on an overall basis, the season will play out more in November. Historically, it tends to start in the third week of October, extending into the middle of December, which is yet to come. Therefore, overall, it’s early days for the quarter, but I don't see any reason why it should be any different.

Sachin Salgaonkar, Analyst

Got it. And last question is on your margins. Great job, guys, in terms of holding up these margins well despite the negative operational leverage in the seasonally slower quarter. The question is whether you see this selling and marketing below 5% of gross bookings as something sustainable going ahead? And hence, there could be a bit of upside to your medium-term margins?

Mohit Kabra, Group Chief Financial Officer

As far as the medium-term margins or the margins for this year are concerned, Sachin, like we called out during the last call, we would like to consolidate around the 1.5% of gross bookings level or at about mid-teens from an adjusted margin point of view. This is where we would like to consolidate for the year. On an annual basis, we'll continue to look at a small expansion in the coming years as well.

Vipul Garg, Vice President, Investor Relations

Next question in the line of Vijit Jain of Citi.

Vijit Jain, Analyst

Congratulations, guys, on the great set of numbers. My question is just staying on the last point you made, Mohit, where are we in terms of budget hotel recovery in this quarter? I recall last quarter, you mentioned 80%, 85% recovery. Where has that moved since? That's question number one. And I would like to understand if the reason why you believe these marketing costs can stay at these lower levels is because you can see the budget hotel segment completely recovering, and this is a new normal there as well.

Mohit Kabra, Group Chief Financial Officer

On the recovery side, we continue to operate at around 85% to 90% levels in the budget segment. This segment has experienced a notable pricing reset, which has resulted in a slightly lower recovery compared to other price points. This situation is acceptable from an overall mix perspective, and we believe it’s only a matter of time before this segment returns to pre-pandemic levels and even exceeds them. There will be an extended period for this recovery to unfold, given the price sensitivity typical of this segment. Regarding margin expansion, we have optimized our overall operating costs, including customer acquisition costs, this year and have seen a good improvement compared to last year. We aim to maintain these levels. If customer acquisition costs do rise, it will align with any changes in the mix. For example, pre-COVID, the hotels and packages segment accounted for about 50% of the mix, while currently, it represents around 40%. If the mix trends back toward hotels and packages over time, which seems likely, we could see enhancements in blended take rates and a slight increase in overall customer acquisition costs. Aside from that, we anticipate stable margins and customer acquisition costs in the short to medium term.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Sorry, Mohit, if I may just add one more important point, Vijit, a few tips on the budget segment very quickly. To put things in perspective, I think it's important. The budget segment is gradually recovering because of the price point changes and the market is taking a little bit more time to adjust to that. However, within that, the recovery for any price point above INR 1,000 per room night is already at pre-pandemic levels. Year-on-year growth numbers are also robust at about 115%. The only segment that may be lagging a bit is below INR 1,000, which is effectively $14 a room night, due to historical reasons. This has nothing to do with demand not returning but is solely based on the exceptionally lower price historically in pre-pandemic times because of aggressive pushes to promote that segment. From our perspective, all other segments have recovered very well now.

Vijit Jain, Analyst

Correct. The next question is regarding air ticketing. There seems to be some inconsistency in the timing of when we recognize these volumes compared to the DGCA data. The quarter-over-quarter DGCA data indicates a decline of 2% to 3%, while your figures show an increase. Is this indicative of an international recovery, or is it the aforementioned discrepancy? Additionally, could you provide details about your market share in domestic air aviation for this quarter?

Mohit Kabra, Group Chief Financial Officer

Generally, I mean, it can be a bit of both. In fact, you typically do see bookings holding strong, ahead of getting into the peak seasonality quarter because people tend to look for good pricing available on advanced booking windows. Therefore, you could see a little bit of seasonality tweak happening on the book versus flown reporting. Second, our international segment has been improving. In fact, the mix of international has been improving quarter-by-quarter. We are now pretty much back to pre-COVID levels from the international side, and the recovery on international has been slow but is now restored. The domestic versus international mix has been pretty much back to normal.

Vijit Jain, Analyst

Got it. And Mohit, just your market share in the domestic side?

Mohit Kabra, Group Chief Financial Officer

Continues to be above 30%.

Vijit Jain, Analyst

Got it. My last question, if you can just tell me what the total investments in Quest2Travel and Savaari were in Q2 and in Q3? And just on thoughts on the convertible buyback.

Mohit Kabra, Group Chief Financial Officer

Yes. See, Q2T, we've already reported the numbers. As far as Savaari is concerned, this again is likely to be a small ticket investment, more in the less than $10 million range. Regarding the use of proceeds from a repurchase perspective, we haven't pursued buying back the convertible bonds. They are trading at a significant premium over the quarter, hovering around a double-digit premium. Therefore, we haven't pursued any repurchases and do not expect any redemptions to occur due to the bonds trading at a premium with the put option being in February, which is about 4 months away.

Vipul Garg, Vice President, Investor Relations

The next question is from the line of Gaurav Rateria of Morgan Stanley.

Gaurav Rateria, Analyst

So the first question is just trying to understand typically, in the September quarter, what are the likely advanced bookings that you see for the December quarter? And is this year something different because of the event of Cricket World Cup? Has the advanced booking been stronger than the usual September quarter that you see for the December quarter?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Maybe I can take that, Gaurav. I wouldn't say we have seen anything dramatically unusual. Only for certain pockets on certain dates in certain cities, thanks to the World Cup, there is concern around fares going up, which has caused different consumer behavior towards advanced purchases. However, on an overall basis, nothing unusual has come through. The only other interesting thing we've noticed over the last couple of quarters is thanks to our Book at 0 product on the hotel side that some more awareness is being created in consumers' minds to plan their travel a bit more in advance and also book their travel more in advance. This option also allows customers flexibility in canceling without financial repercussions if they are uncertain about their plans. Whether this behavior will yield a permanent shift in consumer buying patterns is yet to be seen, but in the reported quarter, we didn't see anything unusual.

Gaurav Rateria, Analyst

Got it. Very clear. Second question is around your investment thesis in intercity cabs. If you could highlight some bits of the addressable market share, what's the current online penetration, and how you're thinking about this segment?

Mohit Kabra, Group Chief Financial Officer

Maybe I can share some color, and Rajesh can add. We've been identifying ground transport overall as an area of focus for the company. We have a leader in the bus ticketing space in terms of redBus, which has significant online leadership in that sector. Over the last couple of quarters, we've also been dialing up our rail ticket offering, as that’s another great source of customer acquisition. When it comes to non-flight transport, customers easily choose between bus tickets or intercity cab travel. Intercity cab overall, from a market sizing perspective, while there is no ready report, our estimate is it is close to about a $3 billion market with very low online penetration, likely in the high single digits. So it's a good opportunity to get into and meaningful in nature, especially with the government focused on improving highway infrastructure, which has benefited the civil aviation market as well. Therefore, we believe it represents a significant growth opportunity for our travel service offerings.

Gaurav Rateria, Analyst

Mohit, last question regarding the comments made on generative AI. How should we think about the eventual outcome of early investment on three factors: competition or competitive moat, addressable market, and the efficiency that can help to lower your cost structure?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

It's a great question, Gaurav. All three are separate variables to assess the impact of this new technology. This will be a long journey. We've started looking at these three aspects. The first two will reflect online penetration increases due to the improved overall experience. This technology will help enhance customer experience on our platform, making it far more intuitive, improving discovery, and identifying use cases we are already working on. For example, intelligent bots will offer an interface that expands our reach beyond the top 20 to 25 cities in the country and address vernacular language issues, which is a significant hurdle for online commerce. The above efforts are ongoing, and we are already receiving good feedback from customers regarding improvements to experience. On the efficiency side, we have identified use cases for internal processes, such as post-sales experience and streamlining contact center servicing through self-service tools that could lead to increased productivity for agents. Our ongoing focus is on leveraging technology collaboratively to ensure continued customer satisfaction and productivity gains.

Gaurav Rateria, Analyst

Rajesh, just a clarification regarding our dependence on paid traffic. Do you think that dependence will also decrease with the use of this technology?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

That's an interesting point, Gaurav. Our traffic is mostly direct, and our dependence on paid traffic is relatively low. Our brand establishment has contributed to this slip in dependence. All our brands, including MakeMyTrip, redBus, and Goibibo, have managed to establish strong recall compared to the rest of the market. While some traffic is driven by paid campaigns, we are also working on optimizing traffic through SEO efforts. The dependence is already low, but there is still an underpenetrated market overall, which necessitates the mixing of new users. Therefore, I would not anticipate immediate dramatic changes in that dependence, as it may balance out with our ongoing investment to acquire new users.

Vipul Garg, Vice President, Investor Relations

The next question is from the line of Ashwin Mehta of AMBIT Capital.

Ashwin Mehta, Analyst

Yes, Vipul, can you hear me?

Vipul Garg, Vice President, Investor Relations

Yes, we can.

Ashwin Mehta, Analyst

Congrats on a good set of numbers. I had a question on the take rate. So we've seen bump-ups in terms of take rates in both air as well as hotels. In bus ticketing, we've seen stability on take rates at elevated levels versus historical. What are the drivers for these take rate improvements? And how sustainable do you see these take rates in the near term?

Mohit Kabra, Group Chief Financial Officer

Ashwin, actually, the take rates across segments have been reasonably stable for us, with slight variations typically linked to seasonality. Slightly lower seasonality quarters like Q2 and Q4 might see take rates being slightly better compared to peak quarters of Q1 and Q3. This is attributed to suppliers trying to promote and build load factors. Additionally, ASPs tend to be lower during peak quarters, optically reflecting better margins during weaker quarters. We're generally witnessing stable take rates across segments.

Ashwin Mehta, Analyst

So Mohit, in terms of the stability you observe, do you think take rates for budget hotels can go up from here? Budget hotels typically have higher take rates?

Mohit Kabra, Group Chief Financial Officer

Pretty marginally, if at all, Ashwin. And they are likely to remain stable around this range, fluctuating by 0.5 percentage points, but no significant changes are expected on the overall take rates.

Ashwin Mehta, Analyst

The second question relates to fees. We saw a sequential reduction in hotel and bus ticketing transactions. Part of it is due to seasonality, but were there impacts from floods, which were more pronounced in hotels or bus ticketing compared to air? Or would you characterize it mostly in line with expectations in terms of seasonality?

Mohit Kabra, Group Chief Financial Officer

Largely seasonality.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

No, it is seasonality only, Ashwin. If you go back in history, you will see similar trends between air and hotels; the air has more use cases. The seasonality is reflected more on the hotel business than the air business.

Vipul Garg, Vice President, Investor Relations

We'll take the last question now from the line of Aditya Chandrasekar of UBS.

Aditya Chandrasekar, Analyst

A couple of questions from my side. Firstly, I just wanted to understand your kind of risk assessment of SpiceJet. What are you seeing on the ground? If it’s possible, could you quantify your overall exposure to SpiceJet similar to the $10 million provision you made for GoAir?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I can start by saying that as far as SpiceJet is concerned, all available information is in the public domain and we are monitoring it closely. From an operational perspective, we have observed only a slight pressure on cash flow due to payments that were mandated by court orders. Recently, a few of those payments have been made, which is encouraging. Additionally, SpiceJet is planning to add at least six more planes this seasonal quarter. We need to observe how they manage their operations moving forward. They appear to be handling the situation reasonably well, although they are not operating at full capacity. We are closely monitoring their daily operations and schedules, maintaining a business-as-usual approach.

Aditya Chandrasekar, Analyst

My second question is on the bus side. On a year-on-year basis, we are seeing growth kind of stabilize at around 17% in the last couple of quarters. Is this segment stabilizing at these levels, or do you think penetration is saturated? How should we interpret this going forward?

Rajesh Magow, Co-Founder and Group Chief Executive Officer

I don't think it has reached saturation levels. In fact, we've discussed in past quarterly commentary that the next wave of growth in the bus segment could arise from two areas. First, there are still underpenetrated regions where the private bus market is not well established online, and we aim to grow our inventory and create awareness in these territories. The South and West have penetrated well and continue to grow, but there's potential growth in the North. Second, we expect growth from non-private sector supply, which remains underpenetrated. We've begun digitizing RTC's supply on our platform. Consequently, we need enough awareness to enable consumers to make online purchases for RTC bus services. I wouldn't conclude that mid-17% levels will become the steady state; I see potential for growth into mid-20s over time.

Vipul Garg, Vice President, Investor Relations

Thank you, Aditya. This was the last question. I now request Rajesh for his closing remarks.

Rajesh Magow, Co-Founder and Group Chief Executive Officer

Yes. Thanks, Vipul, and thank you, everyone. Thanks for your patience, and I wish you all the best. See you next quarter.

Vipul Garg, Vice President, Investor Relations

Thank you, Rajesh. You may now please disconnect the call. Thank you.

Mohit Kabra, Group Chief Financial Officer

Thank you.