TBO Tek Limited (TBOTEK) Q2 2027 Earnings Call Transcript

Good evening, everyone. This is Ashmi Shah from AdFactors Investor Relations. On behalf of TBO Tech Limited, I would like to welcome you all to the earnings conference call for Q2 and H1FI27. Today on the call, we have with us from the management, Mr. Ankush Najawan, Co-Founder and Joint Managing Director, Mr. Gaurav Bhatnagar, Co-Founder and Joint Managing Director, Mr. Vikas Jain, Chief Financial Officer, Mr. Akshat Verma, Whole Time Director and Chief Technology Officer, Mr. Pramendra Tomar, General Counsel, Mr. Shresth Mahajan, Associate Director, Investor Relations. We will begin today's call with opening remarks from the management, following which we will open the floor for Q&A. Before we begin, I would like to remind everyone that certain statements made during this call may be forward-looking in nature. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. TB or tech undertakes no obligation to publicly update these or revise any forward-looking statements based on subsequent events or developments. With that, I would now like to hand over the call to Mr. Gaurav Bhatnagar for his opening remarks. Thank you and over to you, sir.

Thank you, Ashwee. Good evening, everyone, and thank you for joining our Q2 earnings call. We are very happy to report that in spite of a very difficult geopolitical climate, we've been able to deliver strong double-digit growth in the core organic business as well. We've shared the numbers, but I do want to highlight that the 16% growth in GTV. Led to a 27% growth in adjusted EBITDA. So we are continuing to demonstrate operating leverage for the second consecutive quarter. These numbers could be a lot stronger. And I just want to highlight a few things to demonstrate that once things start to get better, where we can eventually expect the business to be. Middle East, which has been the most impacted market because of the ongoing conflict, also delivered a 10% growth on constant currency basis. With currency, you're seeing a 20% growth, but even on constant currency, Middle East delivered a 10% growth, which is quite remarkable given the circumstances that we are operating in. The market is obviously well below its baseline from a year ago. So our belief is that in a market like Middle East, we continue to gain gaining share. Markets like Europe and APAC have delivered north of 30% growth, Europe on a fairly large base. As you know, it has been becoming a largest source market now, which again is usually generally a consequence of the investment we have done in market development starting early 2025, which is also visible in the number of active agents continuing to grow at a solid So, while the quarter has been tough, And our belief in the organic business remains because of the fact that the underlying metrics, which is number of active agents, bookings per active agent, and growth in our ancillary businesses all continue to point to strong revival and strong, even faster growth once the geopolitical climate improves. The other bit that I want to highlight a little bit on is classifications. We have completed one year of that transaction now. And we have started to get a fairly good grip of that business. One of the key actions we have taken in the last six months is expanded our sales team. We have hired about 20 new people in sales since we acquired the business. About half of them are in the company less than six months. In fact, probably a quarter of them are less than three months, about half of them are less than six months in the company. So there is going to be some lag between when this investment starts to deliver results. But we have a clear idea on how we want to develop this business. The investment thesis remains strong on Classic. The opportunity with Classic is our entry into the luxury into the segment, which is where we want to operate in the post-AI era. Classic is also giving us opportunities to develop a news corridor, which is the US to Europe corridor. Our belief is that if the conflict remains, you know, if the conflict prolongs, then probably that is one corridor which will have relatively less headwinds because of what's happening elsewhere in the world. The final bit is we are continuing to focus on operational efficiencies. So while we wait for markets to revive and there's a little bit of pause on new market development at this point in time, we are continuing to invest in building or using AI and technology to automate processes, to build tools for our sales team to become more effective and tools for our operations team to automate a fair bit of work that they do. This is one of the reasons why you will see that our constant currency SG&A growth has been high single digits and significantly outpacing our top line growth. I'll take a pause here and we'll open for questions.

Thank you, sir. We will now begin the Q&A session. Participants are requested to raise their virtual hands to ask questions. We request you to introduce yourself and the firm you represent before you go ahead. We'll just wait for a moment till everyone assembles in the question queue. We'll take the first question from Mr. Karan Uppal. Karan, please unmute yourself and go ahead with your question.

Yeah, can you hear me?

Yes, we can.

Hi, Gaurav. Hi, team. Thanks for the opportunity and a fairly good set of numbers. So, first question is on the demand environment. So, Gaurav, you touched upon it, but I just want to understand that, you know, given the elevated pairs in international flights as well as uncertain geopolitical and macro environment, any pullback you are seeing in the demand, given that you cater to, let's say, the premium and the luxury end of the market. But I just wanted to understand from you how is the overall demand.

No, there is definitely pressure on demand. And this has actually elevated in October because October has been a very, very volatile month globally, as you're aware. The crisis in Saudi with the attacks happening on Saudi airports meant that both Saudi inbound and Saudi outbound has been very, very badly hit. Prior bookings have also gotten cancelled. On top of it, the spread of rioting across major European cities has also been a major headwind, especially cities like Paris, cities like Madrid, Barcelona, Italy. These are very, very large leisure destinations. So we are seeing increased cancellations as well as some reduction in demand over there. So yes, I think there is stress. What we are, you know, kind of aiming for is that at least in spite of these headwinds, right, we maintain some positive growth on the overall business, irrespective of these headwinds by one, focusing on gaining market share, because we've invested in market development, and that allows us to get more penetration with travel agents. And secondly, by like you said, focused on transactions. So even if demand by numbers is reducing, demand by dollar revenue is still a little bit more stable and also focusing on high value transactions.

Right, right, right. But given these headwinds, how do you think H2 will shape out to you? I mean, will H2 be lower than H1, or maybe same as H1? Any sense there?

See, Karan, given where things are, I think H2 is just like Q4 is just too far away right now, given the US elections are tomorrow, and then who knows what happens in the next 10 days. What, you know, we know that historically Q3 is also the weakest quarter in travel. So that's just, you know, how seasonality works. So we do expect a tough Q3 because of the fact that several, you know, several headwinds in the industry right now. Internally, what we are aiming for is that just still manage to deliver year-on-year growth, both on top line and bottom line. That's kind of like the framework we are working with right now. With the view that if things magically become much better, which could also happen, things get worse before they get better, but it's like the US elections feel like an inflection point one way or the other. So either it could go really bad or it could get much better. If it gets much better, we would expect to see real quick spring back in the business. But if things go for worse, then the best we are hoping for is to deliver, continue to deliver some top line and bottom line growth.

Got it. Another question I had on EBITDA to GP. So, operating leverage is quite visible and playing out since last two quarters. So, congratulations on that. But how should we think about it, you know, from go-forward perspective? Will this number continue to improve? Yeah. Your thoughts there?

See, Karan, you know, one thing to be mindful is that operating leverage goes both ways, right? So… And Q2 is our best quarter of the year. It could have been much better if the situation was not what it is, but Q2 is traditionally the high summer season for most of the northern hemisphere. So, from Q1 to Q2, you will see that increasing GP is flowing through nicely to bottom line. But the reverse also happens. So, for example, if Q3, which historically is always lower than Q2, then you will see the reverse also happen. In the long run, conceptually, I feel we have gotten to a point where we know. That the investment in SG&A should largely, you know, be lesser than the growth in GP that we are anticipating, right? So that's kind of like the broad framework, if I has to look, say, three, you know, next, say, two, four, six, eight quarters. The seasonality will always come into play. So one useful way to look at it is trailing 12 months to really get a sense of where our, you know, average EBITDA margins are trending to. But we have confidence that we have, you know, we at this point in time. If we are able to demonstrate operating leverage in a very tough situation, we don't need any incremental investment, just the improvement in climate and any upside in GP that will happen will directly fall to the bottom line. So that's some level of confidence now we have on our operating leverage play.

Got it. Thanks, and I'll fall back in. Thank you so much. Thank you, Karan.

The next question is from the line of Mr. Manish Adukya. So, please unmute yourself and go ahead with your question.

Hi, good evening. Thank you for taking my questions. This is Manisha Dukia from Goldman Sachs Great Quarter again. A few questions. Starting with growth, you've had consistent broad-based growth across some of your regions like Europe, APAC, even North America on an organic basis. And like you mentioned, the overall growth has been tracked down by Middle East. I'm just trying to understand, I mean, just tying up with your earlier comments that the investments you've made last year is helping you grow in some of these regions. As let's say Middle East recovers sometime next year, let's assume, what is your outlook on organic growth in some of these regions like APAC, Europe, and North America, except classic vacation? I'm just trying to think, like, if Middle East recovers, does that mean mathematically overall growth should improve or given just the high base from some of these regions which are growing well today, they will drag down overall growth. So just trying to understand the interplay between these various regions, if you can maybe help us understand or throw some light on that.

See, Manish, the economics of the business, as we have discussed in the past, really comes down to how productive is our sales team on the ground. And at this point in time, we do believe that their productivity has not maximized for two reasons. One, a lot of sales team is still new. So less than a year in the business or maybe on an average 15 months into the business. So it takes three, four years for them to truly max out their own ability to kind of, you know, maximize their order book. Second is that the markets are depressed right now. There is significant headwind, whether it is Europe, whether it is APAC, airfares are very high. There is, you know, stress in the Middle East market as well. In the carriers like Etihad, Emirates, Qatar, you know, because people are, you know, these are major transit carriers. And if people are not using these carriers, then East to West and West to East is also impacted. Now, in that situation, if we have delivered high double-digit growth in these markets, I have a strong conviction that when things normalize, we should see a second uptick happen even on these bases. And we had started to see hints of it in Jan-Feb of 2026, right before the board started. If you see our organic numbers for those two months, which we had shared when we did the quarterly results, they were high, you know, they were north of 50% in certain markets. Now, I'm not committing that that is again where we will get to, but we have not maximized the potential of the investments we have already made just because of the timing of the war. So we do believe that that should start to come back if Middle East is delivering 10% growth in a quarter like the previous quarter. They will definitely expect it to deliver more growth next year when peace returns. So there is strong conviction, Manish, that if organic is delivering 15-20% GTV growth. 28% in the international market. 28% actually, yes. So in the international market, even in this quarter, the organic growth is 28%. You would expect to do something reasonably more than that once recovery happens.

Very clear. And maybe a related and a follow-on question, because starting December quarter, you will consolidate Classic, or Classic will also be in your base. And at least from whatever data we had in the past, Classic as a portfolio wasn't growing in a material way. So let's assume that from next quarter, including Classic vacation, when we look at the numbers, would Classic be a drag to the overall growth of the business, at least for the foreseeable future? And I know you talked about you making investments in sales in Classic, which probably will give you the goodness over the next few quarters. But at least until then, is it safe to assume that Classic should be a drag on overall business growth?

See, just mathematically, yes, because, you know, I don't think I can claim that Classic can overnight start to grow, say, 30%, which is where overall organic business is growing in the international market. So yes, from that perspective, absolutely, you know, it pulls the average down a little bit. Now, two, three things that we have to be mindful on in Classic is that because the booking windows are very long. Uh, the revenue we book in any quarter is really an outcome, especially on the groups business, the outcome of, you know, the booking window on groups is almost 365 days or something like that. So it is really an outcome of what got booked almost a year ago. Similarly on hotels, uh, the outcome of what we book several months ago or two or three quarters ago is what shows up in the, in the books, uh, for, for, for a given quarter. Uh, but having said that the upside with classic is that the GP is, uh, significantly more, right? It's almost Double the GPO of the organic business, which means that if any $1 we add in Classic is equal, $1 of GTP we add in Classic is equivalent to $2 of GTP that we add to our organic business. So I think that does play out a little bit. The other bit, Manish, I think Classic helps is the whole billboard effect of being a major player in the North America market, which will help us grow our organic TPO business also in that market. So look, Net-Net, Manish, our long-term hypothesis remains where it is on the enterprise growth thesis that we've been talking about. This one or two quarters, of course, because of more than the classic, the macro headwinds are there, which you really can't control.

Very clear. My next question was on AI. And I know in the past, you've articulated your thoughts on how that could impact. But I just want to maybe check from the last time we spoke, let's say three months ago, and given some of the recent evolution around personal AI assistance, let's say a MetaMuse, for example, which may be impact from the consumer side tech applications more, but anything incrementally from your side that you want to call out as to how these could potentially impact. If you have any refreshed thoughts on that, that'd be helpful.

Manish, I think one thing that is becoming increasingly clear is that travel will be a significant use case for these AI agents because probably it feels like consumer monetization is easiest. On travel use cases, Mark Zuckerberg talked about, you know, in his call as well that, you know, they are looking at travel as a core use case. Instinct, the other AI bot they've talked about that almost half of the billion dollars of transaction they have done is related to travel. So yes, it does feel like that consumer behavior will, you know, some of it will divert attention towards using these bots to research and book travel. Our conviction remains the same, Manish, that ultimately, at least for the foreseeable future, It is going to be a point-to-point transaction because you will ask a bot. It's much easier and much more predictable to say that I want to book a specific flight or a specific hotel, find me something and put my credit card and book it over there. That isn't what a travel agent really solves for. A travel agent or a travel advisor is solving for a long, complex itineraries with multiple touch points, multiple modes of transport, multiple destinations in cities, which is where, right? So that's where we continue to focus, Manish, building out our multi-trip, you know, multi-destination trip tools, potentially looking at, you know, opening them as headless services as well so that others or other bots can also consume them. We had launched our MCPs on Cloud and ChatGPT in a very experimental manner a few weeks ago. So we continue to explore the space. We don't see an imminent threat on our business right now. But we also acknowledge that travel is going to get impacted, and it may create some opportunities and maybe some threats as well.

Thank you. Very helpful. Just last question from me on those couple of exceptional items and an item that you called out. One is the eight crore odd of, you know, irregularities that you called out. One, maybe is this something that you've seen in the past as well? And what are you doing that something like that does not occur again? And second, also on that FEMA, which you, again, I don't think you've provisioned for that, maybe you can remind us as to what are the implications of that and beyond the penalty that's been called out, is there any like worse case scenario in which, you know, the outcome can be worse, like just trying to maybe understand the percentage of that. Thank you. Sure.

So, let me come in, Manish. So, relating to the exceptional cost of 8.1 CR, so just to give a background that after the quarter end, we had identified certain irregularities involving suspected collusion among some employees, which led to some unauthorized bookings made in some dormant travel agency account, and obviously the payment for the same was not received by us. The company's monitoring and review mechanism, which included the periodic review of the outstanding balances with travel agencies, helped in facilitating in identifying these irregularities. However, as we speak, we have appointed an external consultant to conduct a detailed investigation and assessment. But based on the preliminary assessment, we have estimated the net financial loss of around 8 crore in the subsidiary. We have filed police complaint both in India and UAE regarding the incident. The relevant authorities are taking, carrying out their investigation into the matter, and obviously we will keep everyone updated on any material development. As a group, we have also taken insurance for such matter and incident, and we have also initiated the process for the insurance claim in respect of the above matter. Regarding the past incidents related like similar to this, we have not had some similar kind of instances in the recent past. I would say at least last five to seven years, I don't recall any of such instance of collusion of employees. Actions being undertaken, so as an immediate action to mitigate the risk of reoccurrence in the near future, we have implemented certain additional oversight measures involving relevant senior team members. From a long-term perspective, we are undertaking initiatives to automate some of the activities to minimize the human interventions, basically, So that the risk of collusion is mitigated. So this is regarding the incident. Basically, coming back on your question relating to the FEMA. So yes, this matter was already under adjudication. Subsequent to again, the quarter end, we have received the adjudication order. And based on the advice from our legal consultants, we would be going ahead and filing an appeal against the same. And again, based on that legal advice, we believe that the chances of our winning of our appeal is high, and the penalty amount may not be sustained. And that's the reason as of now, we have not provided for any provision in the books regarding the same. Thank you for all the color. Very helpful. All the best. Thank you.

Thank you. The next question we'll take from Mr. Nitin Padmanabhan. Sir, please unmute yourself and go ahead with your question.

Yeah. Hi. Good evening. Thanks for the opportunity. Two questions here, actually. The first one is you did mention that obviously as Middle East has sort of picked up. And obviously, there's uncertainty in the region. And obviously, Europe also looks like with these rioting and all of those, that has some impact. Do you think that sort of creates a risk of Q3 being relatively weaker than normal? So that's the first question. And the second is... With respect to Classic, from an integration perspective, what milestones have we sort of crossed? And when do you believe, you know, it becomes plausible to really expect some kind of an acceleration? You did mention you hired 20 people and all of those, and that will take a little bit of time. But broadly, in terms of tech integration and broader stuff will be great if you have some details around that.

Sure, Nitin. Nitin, I think Q3 has risks, no doubt about it. And like I articulated, you know, in previous answers, we are aiming, our internal aim right now is that irrespective of the turmoil, let's aim and deliver some top line and bottom line growth, which is a, is honestly at this point, it feels like a stretch target given where the situation is. But what we have seen in the past is that Travel rebounds extremely quickly. And these days, it rebounds within hours and days of when good news comes in. So we have to wait for that. I think, unfortunately, what has happened in the last few weeks is both the Saudi issue actually started and constantly escalated instead of de-escalating. And the same thing happened with the rioting in Europe. It started in one city. And suddenly, every major city in Europe is having these riots. And then we have obviously the, you know, the outcome of the Israeli election hasn't been clear and the US midterms are happening today. So between all of that, it's very hard to predict, you know, how Q3 goes. Internally, we are just focusing on making sure that, you know, wherever there are pockets of growth, we doubled on on that and deliver it, keep a check on cost and make sure that, you know, we are able to own both on top line, bottom line, bottom line, give some growth. On Classic, there are two, three, you know, internal milestones that we're focusing on. So one is, and which is largely completed now, is was the ramping of the sales team because, see, Classic works with almost 10,000 travel advisors across North America. And US is a very, very large, as you know, it's a very large country. They were running on a very short-staffed sales org of 10, 12 people to service 10,000 bookers. And I think we were losing opportunity over there. So account management boards could be better. So that process has started. It's almost complete, I would say. The other thing is largely complete is that on a lot of back office processes in Classic, we wanted to implement a CRM. So they did not have an in-house CRM, which was tracking the quality of service, stats, SLAs, all the, you know, all the stuff which is important to provide consistent service. For most of these processes, the CRM implementation has also happened. The tech platform integration for TBO supply into Classic is completed. The tech integration for the TBO platform being available to Classic is in the works. A beta launch is expected to happen later this month in the latter half of November. And then we will do a gradual rollout of it across the next several months. Keeping in mind that November is Thanksgiving, December is Christmas, And then Jan, Feb, March is peak booking season. So we'll do a gradual rollout over there. And then beyond that, on an organizational front, we were only going to integrate the supply org, which has already happened. So the North America, the Americas supply org, both for TBO and Classic is now rolled into Joel, who, who came from Classic, and now she is in charge for both TBO and Classic supply for all of Americas. Similarly, Bonty, who again comes from Classic, is now in charge of all of Europe's supply for both TBO and Classic. So that bit is also open and that is the only org integration we were looking at. Other than that, the orgs remain fairly independent. So that's the broad layout. This will start to deliver. Demonstrable results somewhere in the next couple of quarters, right? It's very hard to predict right now because multiple things are playing out, right? So we also have all these headwinds that are playing out. At the same time, we are driving some investment into sales, but driving some cost efficiencies as well. So multiple things are playing out. We don't have a, you know, I don't want to commit to a specific number on this in a specific timeline. But directionally, we are very confident we're moving in the right direction.

Perfect. Very helpful. So broadly, what you're saying is all the bottlenecks are addressed and it's just about execution. And obviously, it takes time for people to really ramp up. So that's the only thing that's missing. Yes.

Yes.

Perfect. Very helpful. Thank you so much and all the best.

Thank you. Thank you, sir. We'll take the next question from Mr. Samarth Patel. So please unmute yourself and go ahead with your question. Mr. Samar?

Yeah. Am I audible?

Yes. Yes. Yeah. Hi, this is Samar Patel from Aquarius Securities. I had a couple of questions. First one was on Europe. So if I look at this quarter, Europe grew around 36% and now it's roughly 36% of total GTV for us. So how much of this growth is coming from new source market, let's say Germany and Portugal that we entered recently against the deeper penetration in the existing markets like UK, France, Spain, etc. If you can give any flavor around that, that would be helpful.

Okay. I think the newer markets are growing very fast. I think almost typically a growth in certain those markets, but on a small base. UK Ireland is also growing significantly, but on a significantly higher way. So UK and I'll say is more of a depth that we are building. Some new markets, some of the Eastern European markets or markets like Germany is really where we started to invest last year and now they are starting to show results. So I don't have an exact number on where this is, but it is genuinely both building depth in our existing markets and penetrating into new markets with early opportunities and which is why we remain confident to what Manish was asking earlier. That as things progress, even on this base, we should have a long runway for growth because these markets are like triple digit growth on small base. So they have a long runway before they start to saturate.

Understood. That is really helpful. Now, my second question was on India. If I look at the GTV growth for us this quarter, it was around 14%, but monthly transacting buyers fell around 2%. So is it like a consolidation toward larger agency in the market or attrition among smaller ones? If you can just give any flavor around this particular aspect?

So, Samanth, in the quarter, our monthly transactions in India have actually grown by 1%. Keeping in mind, the base is very large because almost 24,000 operate with us on a quarterly basis. And on the H1, it was up by 4%. So both of things are working somewhat. The important ones, the meaningful partners and agents are extremely important. And yes, we're trying to win more non-air business there, which is obviously higher on profitability. And obviously, it makes more sense for us to make sure that we keep continue to cross sell on the large distribution what we have here. And hopefully, we'll play out and continue to grow. Also on the air business, as we have done the last quarter, and obviously see a good growth on the hotel business as well.

Understood. My next question is on classic vacation. And I mean, we touched upon that in the previous participants' question as well. So TBO sells into classic, I mean, grows sharply to around 8% of the classic GTV, which was, if I'm not wrong, was about 5% last quarter. Now, I'm not looking for, let's say, in next two to three quarters. But in the steady state, once the entire synergy plays out, what could be the steady state number here? And follow up to that is like, what does TBO earn on this particular bookings? Is it a normal margin or some sort of a transfer pricing that we do?

So, on the margin, basically, yes, we keep whatever is required as per the arm's length basis transfer pricing margin between the two entities and it can vary from entity to entity and market to market. So, but we are compliant with the transfer pricing norms.

Samath, on the other question, because now we have unified our contracting supply orgs. So, this number would grow or shrink depending on where we put the contracts, right? So, as the team contracts more hotels, we may have an opportunity to get a separate contract for Classic as well, you know, which we already have for TVU because, again, it is more efficient. It's more cost efficient. There's no transfer pricing involved. The technology hop doesn't happen and all of that. So that is a number which demonstrates some level of early synergies, but in the long run, because now the supply hogs are same, I would expect this number to not be the number that demonstrates synergies because of the fact that the same team will bring both contracts, Both for classic as well as for TVO.

Understood. That is really helpful. And if I may squeeze one more here. So last quarter, I think our GTV split between the smaller regions and the API was roughly half and half. So currently, which part of the business is growing faster for us and any differential and take rate, any flavor around that would be helpful.

So in the current quarter as well, the mix is 50-50 only. So both, I would say, businesses are growing per se compared to the last year. In terms of the margins per se, basically, the revenue take rate would be lower in an API business because the revenue kind of flows through to the GP because we don't have any kind of servicing cost, etc. between the revenue and GP. But at the GP level, there would be some difference, but B2A business would obviously be marginally higher than the API business in terms of the GP level.

Understood. That is it from my side. Thanks for providing me the opportunity. And best of luck for the next one. Thank you.

Thank you. We'll take the next question from Mr. Swapnil. So please unmute yourself and go ahead with your question.

Hi, everyone. Thanks for the opportunity. My first question is more of a clarification. You mentioned that 3K will face some headwinds and you're expecting some growth. Now, by some growth, do you mean CC growth or are you alluding to the overall GTV growth? Because there is some currency benefit also available to us this quarter, 6 to 7% if I'm not wrong. So just trying to understand, like, what do you mean by some growth CC? Is it CC?

I'm keeping fingers crossed for constant currency growth, right? The currency uplift is on top of it, because that is, you know, we don't contribute to it. So I'm keeping fingers crossed on constant currency growth.

Got it, Gaurav. And the other question is, like, recently, one of your largest B2C players in India talked about having roughly around 26,000 transacting partners in the agency side, agency business side. And they also talked about having some support mechanism to support these partners. So the question here is, like, as B2C companies see the threat, growing threat from AI. Is there a possibility that these companies will divert some of their resources towards B2B2C kind of businesses as well?

I think something in the business, if I'm not wrong, what I'm understanding is, is the corporate business which the OTA or the company you're talking about is working in, that 26,000 is actually those corporate, not travel agencies. I think that's a clarification. I think what you're trying to say is different.

No, my actual question is that is there a possibility that the OTS will eventually, if their core business gets impacted, they will try to focus a lot more on the, you know, the agency side of the business by putting in the feet on street and just like you guys have operated.

Nobody can stop them entering the space. Why only one? Anybody can. But, you know, it's a completely different business. Some have tried in the past and failed. One, because there's a lot of knowledge which you need when it comes to the credit lines, etc. with the travel agents. Second, I think the channel conflict comes in very significantly here because a lot of airline and hotel supply is very cognizant of not extending this, you know, if you're playing a B and a C both. So there are challenges to enter the market. It's not as easy as it sounds, but yes, they can absolutely enter, and absolutely there's something which is a threat if it is, and obviously we will acknowledge it and compete as much as we can.

Got it. And staying on with you, Ankush, so in the air business, especially the core air business, which is excluding the M&A, the take rates have substantially come down to around 2%. If I remember correctly, our take rates used to be around 2.5%. So there's a significant decline in those take rates. Any particular reason, sir, you can call out and how do we see this technique going forward as well?

Because I think if you take it. G.P. in this quarter versus a 1.1, 1.12 last year.

Is there any possibility of a reversal?

What we have been telling as well is should range between 1% to 1.2%. So we may see some quarters, it's lower and sometimes it may get recovered in the next quarters as well, depending upon sometimes the airlines launch some ad hoc incentives, etc. But yeah, GP generally should remain between the range of 1 to 1.2%. Thank you.

No, I was just adding to that only because you answered. Thank you.

And because on one of the line items, which is there, affects loss. So in the past, we have discussed and said that there would be some hedging mechanisms that you would put to avoid this kind of losses coming through. And despite that, we have seen two consecutive quarters. I mean, in the previous quarter, also, we had some five and a half crores, and this quarter, we have around nine crores of loss there. Any particular reason you want to call out?

Just to highlight and reiterate again, that this line item contains basically some line items related to the cost element, which would remain per se. So basically, the effects conversion related cost or the hedging premium related cost because when we do hedging, obviously, the premium cost, etc, gets accounted for and that sits in this line. So, so this obviously, because we are obviously now doing hedging the The cost line item would remain. However, as we have mentioned earlier as well, we do not hedge the entire exposure. We generally hedge between 75% of our open exposures. So on the unhatched exposures, in the last year, same quarter, we had a favorable impact, which actually was higher than the cost that we incurred. And that's the reason you saw a gain in the last quarter, same year. But in the current quarter, basically, on that unhatched exposure, we had a certain losses. So overall, that has a kind of double ME. Otherwise, the cost line items, If I see between the two quarters, they were kind of grown only with the growth of the business only. But because of this, the unheged exposure gain or loss that is impacting quarter-long quarter numbers.

Okay. And just the last one on the working capital side. So this time around, there was a meaningful release of working capital. Any particular reason to call out? Because we didn't have much GTV coming from the US business this time, where the booking windows are longer. So why such a big release? And how do we see this by the end of this year?

So, Swatnil, as we had discussed during the March end as well, that in the March end, there was some investment which had gone into the workflow capital, and we had highlighted at the time as well that these are more the timing differences, and that should get released in the current year. And so that's what has played out. For example, there was certain overdue, specifically in the Middle East, due to the war situation and the ETH at the March end, those receivables had got released. We have certain receivables because of the anticipation related thing that we had not done in Brazil in the last year. Those receivables have got increased. So these are more timing differences which are getting released. Yes, overall as well, there are certain benefits that we are getting from the working capital per se in the business. Like earlier, we used to have credit card, virtual credit cards, basically where we were used to make advance payment to the banks or to the service providers. Now, we have got some credit lines, so that has also been releasing some cash back into the system.

And we should see a positive, I mean, positive impact by the end of this year also. Yes, yes. Yeah. Got it. Thanks a lot, guys, and all the best.

Thank you.

Thank you. We'll take the next question from Mr. Vibor Singal. So please unmute yourself and go ahead with your question.

Yeah, hi. Thanks for picking my question. This is Vibhoria from Nevada. Congrats on a very solid performance in very volatile macro environment. A couple of questions from my side. Sorry, I'm just trying to understand the seasonality a bit here. If I look at our organic business, generally our Q3 business, Q3 is typically soft because of the seasonality factor. But in classic vacations, it appears that Q2 is a soft recorder. Is that the right interpretation?

Yes, it is a right interpretation, but we also need to take into account that an organic business, basically, we account for basis the bookings made per se, but because of the different nature of business in classic, in classic, we book basis the check-ins in the quarter.

Got it. Got it. Got it. So Q3 should not be as, should not see, I mean, uh, uh, uh, citrus purpose. Q3 should not see a Q on Q decline in the GTV. It should generally be a good trend going upwards, uh, depending on the, of course, the macro and all seasonality should not be impacting the GTV of classic Q3. That is what I just wanted to check.

So, yes. So it should be better than the Q2. Got it. Q2 is the weakest for classic.

Got it. Perfect. That's really helpful. Secondly, basically, if I can just check on the margins part. So there's been softness in take rates at a console level that, of course, is probably kind of a different mix as well. But I think gross profit margins are holding up quite well. So does that relate to some discounts that we are giving to our basically clients? Or do you think there is, I mean, some color that you can probably show on that part and something on the churn rate of the agents as well?

So on the margins, Vibor, so if you see in the organic business, while there is a decline in the take rate, but on the gross profit level, we have kept around same lines, 5.6 to 5.5. So as I explained earlier, so at times in the take rate, what happens basically, some suppliers work on a commissioning model, some suppliers work on a net model. So if the supplier is working on the commissioning model, we will get the commission record as revenue. And when we pass on some commission to the travel agent, it gets recorded as the cost. But at the GP level, if you see the same trend is maintained. And so this is primarily coming because of the mix of the supply.

Got it. I think that's really helpful. I think I should have probably understood that. Just one last question on the AI part. I understand our business is fairly AI resilient because I think of the kind of business that we follow a B2B. I think that's kind of, I would say, not completely, but yeah, largely AI proof. What is your opinion about, let's say, apps like news and all disrupting our client's business, the travel agent's business? I know you mentioned that single point itineraries, those are kind of more disrupted rather than complicated ones. But given the kind of evolution, do you feel that at some point of time, the travel agent, it's just your view that I'm seeking for, that travel industry agents, the travel agents, especially the offline travel agents, their business can get started, impacted because of AI, which might or might not impact our business. That's a second derivative. But do you see a risk to their business because of applications and evolution of these things?

I think this is a great question. And we've been thinking very deeply about it. So there are two, three things at play because of AI. And if you step back, I think, and like peek into the future, say, you know, five or seven years down the line, there is a strong general sentiment that People will be working lesser. And especially in developed economies, there is going to be some kind of a universal basic income or some way to support, you know, the fact that there'll be lesser work to do. That combined with the fact that the demography of the of the developed world is significantly older, and they have significantly more time to travel, there is a general sentiment that travel will become one of those AI proof experiences, right? So a lot of stuff that you do will probably get replaced with AI, but travel will remain one of those rare things which actually remain AI proof in terms of just experiencing something more human. So now that is one sentiment that is likely to happen. Now, within that, there is a clear, you know, there is a clear direction towards what kind of experiences and what kind of travel is taking shape in terms of consumer preferences. And a lot of it is towards what we what we like to call connected and complex travel, right? So it is not just I book a flight in a hotel, and that's it. I am booking experiences, I am booking multiple things, I'm booking multiple destinations, the average length of trip is increasing, the number of people who are aspiring to experience luxury when they travel is also increasing. So there is this one broad macroeconomic view that travel will continue to gain in terms of just one sector where consumer spending will increase. Now overlap that with the fact that the entry level of travel, which is transactional point to point budget, it first went from a Travel agent to the OTS. It is entirely possible that this will move from the OTAs to these bots like Mewos or Instinct or the OTAs will reside within these bots and some combination or direct supply versus these bots or the OTAs playing within these new bot ecosystem. I think that is likely going to happen. And that probably doesn't really impact a travel agent's income anyway. What can happen and which is where I think the shift has to happen is that even slightly more complex stuff, right? If you say that, okay, point to point bookings earlier used to go to OTAs and anything, a flight plus a hotel, probably I went to a travel agent. I think that complexity will also simplify and could potentially go inside a bot. So if I was to tell Muse or whatever instinct that book a flight and a hotel, likely it can succeed in that. So that probably is where the shift of business can happen from a travel agent to a bot. Now, our reaction to it and our steer to the travel agency is that what we need to make sure is that we are moving up the value chain, right? So we have a far more ability to service a truly complex transaction, right? So not just the $2,000 booking, but the $10,000 or $15,000 or $20,000 booking, because that will require personal human experience, the fact that the travel advisor has visited that destination. And that is also where friction that happens post booking is more meaningful, right? Even a flight in a hotel, there is less friction possible. But if you booked, you know, several flights and train tickets and several destinations that you're going to and multiple experiences, friction and post booking experience also matters a lot. So that's the broad view. We do believe that there's some amount of redistribution of channels is going to happen because of AI. The first point of impact might be on the point to point transaction that used to go through a through a web or a mobile channel. goes through a bot channel, whether directly to the to the supplier or to an OTA. Some bit of complexity, which is a flight plus a hotel or a flight plus an airport transfer could also transfer to a bot. Our belief remains that that is really the reason that we're building this conviction for several years now that we need to start steering our business towards true complexity and true luxury.

Yeah, I think possibly the kind of segments that we're operating in should still remain for a longer period of time. Point taken, point taken. Great. Thank you so much for taking my questions.

We can have a separate conversation on this, right? I think it's a longish one, so we can have a separate chat as well.

Yeah, absolutely. I would really appreciate that. Thanks a lot.

Thank you. We will take the next question from Mr. Pratik Kumar. So please unmute yourself and go ahead with your question.

Hi, Chirak Kachadi at this side from Motila Loswal. Congratulations on good operating leverage in this quarter and also posting a double digit CC growth in VTV and all. So just one question on classic integration part. In one of your remarks, you mentioned that some of the headcount, you now provided a more larger portfolio like managing entire GEO, which the staff person has come from. So, at operational level, apart from top heads, what internal, you know, headcount, addition or reduction took place in the entity post are supposed to be acquired the business so far in past three quarters from operating margin expansion point of view in the classic business. And that's what I want to understand.

You know, on the whole, we have added into the supply team. We have driven some operational efficiencies in terms of, you know, some of the finance process may be happening in India, or the supply has been integrated. So some of the supply is actually now sitting in, and some of the technology work is now integrated into the broader DBO tech team. But the core view on Classic remains that it is, you know, our conviction is that this is not a... A cost efficiency play, because we are looking at it as a long term play, right? Given the previous question and the fact that, you know, truly entrenching yourselves in luxury is very important. So it will remain an investment play and a top line growth play, which should lead to, you know, better bottom line. That's the way we are thinking of it, right? So yes, there are some low hanging fruits on cost efficiency, but that is not the play with classic. The investment thesis is that what we learn with On acquiring luxury supply, on selling to luxury travel advisors, engaging with luxury consortia like Vachoso and travel leaders, etc. That will allow us to one, build the right tools and right playbooks for growing the organic classic business in North America, and then see that can those learnings be taken to other parts of the world to really entrench Halsar as a luxury seller. So the short term, even short, medium, long term play really is on learning the business better, investing into it and then leading to a top line growth, which will drive bottom line. Not just for Classic, but TBO and the rest of the world.

Okay.

And from sales and the top line growth synergy point of view, let's say situation normalized two or three quarters down the line. Are we, you know, planning to take advantage, let's say a pitch is ready, but we are just waiting for a situation to normalize and, you know, have a magic moment like a cross selling synergy visible once the situation is normalized. Any thought on that?

See, Chirag, I think what we can, this I will just speak from an enterprise perspective where your description is perfectly right, right? The pitch is ready, you know, we have every right, like all the guns are loaded right now. It's a matter of. You know, things returning to normal for a lot of things to start firing in the right direction and early, you know, early signs are all there in terms of new agent addition, in terms of agent engagement, in terms of markets delivering, you know, good double digit growth, small markets delivering triple digit growth in spite of all the headwinds, right? So everything is loaded up. And hopefully at an enterprise level, all of that will start to play out. Like we mentioned earlier as well, you know, demonstrating synergies with evidence in a public forum is often very complicated because synergies happen because of the fact that, you know, your relationships that you acquired from Classic start playing out in TBO as well. The supply that was not available to TBO earlier now becomes available because of Classic, but the contract is in Classic. The ability to attract talent comes in from a different perspective. Some of the luxury supply that all the platinum signups that will happen because a classic will actually show up in TV. So it's going to be hard to say that. You know, what is that synergy number, especially with, with a business like classic, but I will, you know, I will concur with you that two or three quarters down the line, hopefully, when things return back to normal, maybe by next summer season, right, which is Q2 of next year, we should be really delivering good numbers as long as the macroeconomic climate clears out.

That's answer that. Yeah. Thanks. Thank you.

We will take the next question from Mr. Gaurav Malhotra. Please unmute yourself and go ahead with your question.

Yeah, hi. Am I audible? Yes. Yeah. Hi. I just wanted one small clarification. Since you mentioned that you would hope for at least some CC growth in GTV for the third quarter. So essentially, we are basically on a reported, we are looking at like a mid to high teens kind of a growth. Is that a fair sort of way to think about it?

It depends on the currency appreciation, we can't forecast that out.

I think that question has so many variables that it's impossible to get it right. So I don't even want to comment on it.

I think this question has been asked, but just from your own perspective, how are you thinking of the second half, assuming that things don't materially change from here, right? I think that can be one base case of thinking about it. How are you thinking how this business will look like both here as well as hotel space?

So, Gaurav, I think we will have to, you know, and maybe the situation will become somewhat clearer over the next few weeks. And we will have to take a bet one way or the other to say that, yes, either we believe that situation is normalizing, or we believe that we need to find growth elsewhere. Now, the good thing is that we have, you know, So to say, our, you know, all our fingers in different pies, if we're starting with North America, all the way till say Australia and APAC, right, so we have the ability to Rappidly invest and drive new growth in pockets where we may have not invested before. If the situation remains status quo, and let's say in the worst case scenario, we feel that this is something which will continue with several more quarters. We do believe that the North America to Europe corridor is something that we can legitimately double down on. So, of course, we're still investing in it, but that can really, we can divert energies In terms of, you know, better sales presence or better, you know, contracting for those destinations or opening new destinations which are relevant for US as a source market. So that is definitely something that we will be looking at. Far East is a market that we've in the past not really invested too much on beyond Australia, and that could be another pocket. So our view remains that Right now, it is a bit of a wait and watch because we don't know, you know, which way things will turn. So as we come into the next year and we start budgeting, which will start in a few weeks, we have to take a call to say that, okay, what is our best case conviction? Is it that we really need to refocus energies on building out new markets, which we have the ability to because we have people on the ground, we have entities, we have significant scale in North America as well as Europe, or we do believe that business as usual can come return back, which means that we can expect significant growth coming out of the Middle East or from APAC or from India. As well. So in a nutshell, we do believe that irrespective. But in most scenarios, unless some extreme scenarios played out, in most scenarios, even in most pessimistic scenarios, we will, by the next summer, we would have found either existing pockets of growth refiring or new pockets of growth emerging.

Got it. Good. Thank you so much. Thank you.

Thank you. We'll take the next question from Mr. Prateek Kumar. Pratik, please go ahead with your question.

Yeah. Hi. Good evening. Sorry, I'm traveling, so there might be some background noise. My first question is on your CAMs. So you've said the existing CAMs can, CAM investment can support further agent addition. Is there a way to, I mean, you talked about you could be exploring new regions, new investments. So how much headroom would you see in onboarding and activating more agents for existing network and how long this can drive growth before new cycle of investment can begin for the company?

So Pradeek, I think I will, you know, keep the two, both the questions separate and they're not correlated. We do believe that there is significant runway for growth. With the existing CAMP, which is what is happening right now, you can see that our SG&S spends are only marginally up. So, on the whole, whatever investment we've been doing in the last several quarters is what is firing right now. Given the situation, as things normalize, we should see new growth come out of it. Now, the new cycle of investment is a separate discussion and I don't want to correlate it with this existing discussion because new investment cycle may begin with different source markets depending on how the geopolitics is playing out. There is a certain Growth target that we work with, which we want to achieve irrespective of market situation beyond the point, right? You can't, you know, if a war continues for a whole year, you can't say that we'll still continue to wait for the war to end and we have to figure out where else can we find growth. So if that is what the circumstance happens to be, then there are new pockets where we will be able to Invest and find new, fresh new growth, which is somewhat more immune to, you know, the geopolitics that is playing out elsewhere. So the answer on when is I don't have it as yet because we haven't started budget planning for next year. But for the rest of this year, we're not expecting to see any significant changes in our investment into market development.

Okay, other question. I'm not sure if it is discussed already. On hotel GP margin, there is some sequential improvement despite competition remaining high in Middle East. So how should we look at these margins for hotels?

So if the situation particularly remains the same, we hope to continue with the similar kind of margins that we have achieved in Q2. Yes, obviously, if the supply is high and demand is low and we get into a more competitive scenario, we may have to change our stance. But as of now, we are hopeful to remain in the similar kind of market percentages.

Thirdly, has there been any discussion around, I mean, you mentioned about this earlier regarding change in methodology about TBO versus classic on bookings versus check-ins accounting?

So, I mean, so for the classes, I'm going to ask you this. So for the classic vacations, Pratik, as we have explained earlier, because there is the booking window to check-in window is high and there are changes happening per se. So from the accounting standard perspective, we record it on the check-in basis only. And that's what we started with the practice when we started consolidating the classic number in last year, Q3. And that's the same practice we would have to follow for the classic vacations. It will not be possible to change that practice and have a similar practice, but TBO is following for the classic vacation because of the different nature of business that they are doing.

Okay, 4T, on your 8 crore impact, this led to which geography for the company?

So it is pertaining to the UAE subsidiary.

Okay, there's some agent or like particularly based out of Dubai would have colluded for such that we don't know that we don't know for sure

regarding agency involvement. That's what is getting investigated as we speak.

Lastly, you said you're looking at some growth. I know multiple questions have come on this topic, but this some growth is like Q on Q some growth you're seeing, right? Or continuation of current growth trend into like Q2

to Q3, you know, Q2 is our strongest quarter because of seasonality. We're talking year on year.

Okay, so you will be able to release the stock for the classic locations. Okay, so you generally, like, very cautious while, like, discussing Outlook, probably, because as it stands, you're generally accelerating into 2Q from 1Q and... But things have changed in maybe different parts of the world.

No, no, Pratik. 2Q is better than 1Q always. And 3Q is the weakest quarter always because of the fact that, you know, some holidays are over and we swing back, you know, after the September, October, October, November are usually, you know, weakest months for travel.

Right, right. No, I was asking year-on-year trend only because Jan-Fit was looking at

50-60% and then kind of moderated

in Q1 and March and then Q2 improved. So, yeah, that's where I was coming from.

I think the challenge is, you know, every time a disruption like what happened in Saudi happened or what happened in Europe happens, previously booked revenue also reverses, right? That's the challenge. So the moment something will happen in Paris, massive cancellations will happen. So now the book revenue that you're already booking will have to be reversed. And hence, it's a very unpredictable quarter.

Okay. Yeah, we understand. These are my questions. Thank you. Thank you.

Thank you. We'll take one more question from Mr. Ritvik Agarwal. Please unmute yourself and go ahead with your question.

Hi, thank you for the opportunity. I just had one question. Thinking from a business point of view, is there a possibility that geopolitical uncertainties create better opportunities for us? As in, when people see travel disruptions to occur or to potentially happen, will they shift more towards agents? And eventually, when all these things settle down, is there a possibility that they might shift to booking by themselves?

I think this is something that we observed after COVID as well. In several markets, there was a strong perception that they were working directly with suppliers or with OTAs means that it's a bit impersonal you to get on. You know, talk to call centers, or they just stick to policy without giving triangle waivers. So yes, that does play out with Rithvik. Hopefully that plays out this time as well. But historically, yes, we have seen that post a crisis, often people will go back to travel agencies because they just find more comfort over there.

I'm sorry, my question was more from this particular period point of view. I mean, given we are already in a crisis for the last past six months or seven months or maybe 11 months, I was trying to understand maybe is that causing a clearer shift towards more agent booking? And once things, you know, settle down, will they go back to maybe booking by themselves on OTAs?

No, I think, see, at this point, it's not that the channel shift has happened towards travel agents. And which is why we believe that we would have grown faster, if this whole crisis was not happening, right? So otherwise, you know, this because if you look at JANTHEP numbers, and now, you know, growth has tapered down because of the fact that just the markets are very depressed right now. So these phenomena usually play out post a crisis in the middle of crisis right now, there's genuinely, you know, just travel is depressed.

Got it. Got it. Thanks. Thanks for the answer.

Thank you. Thank you.

Thank you, everyone. That was the last question for today. I would like to now hand it over to Mr. Ankush Najawan for his closing remarks.

Thank you, everyone, for joining the call today. And, you know, if anybody has a follow-up, please happy to, you know, take any calls. You can reach to any one of us and look forward to you in January. Thank you.

Thank you, everyone. That concludes the conference. You may not disconnect your lines.