Earnings Call Transcript - YTRA Q1 2025

Operator, Operator

Good morning, everyone. Welcome to Yatra's first quarter of 2025 Earnings Conference Call. My name is Kiki, and I will be your conference operator today. I will now hand you over to your host, Manish Hemrajani, Vice President of Corporate Development and Investor Relations. Manish, please proceed.

Manish Hemrajani, VP of Corporate Development and IR

Thank you and good morning, everyone. Welcome to our fiscal first quarter 2025 financial results for the period ended June 30, 2024. I'm pleased to be joined on the call today by Yatra’s CEO and Co-Founder, Dhruv Shringi, and CFO, Rohan Mittal. The following discussion, including responses to your questions, reflects management views as of today, August 13, 2024. We don't take any obligation to update or revise the information. Before we begin our formal remarks, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially. For a description of these risks, please refer to our filings with the SEC and our press release filed yesterday evening on the IR section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

Dhruv Shringi, CEO

Thank you, Manish, and good morning everyone, and thank you for joining us for our first quarter 2025 earnings call. For the quarter ended June 30, 2024, we reported total revenue of INR1,051 million, which is approximately $12.6 million. This represents a decline of 5% year-over-year. Adjusted Air Ticketing margins were impacted by a 21% decrease on account of lower volumes. The decline was primarily driven by reduced volumes in the B2C segment as we optimize discounts and intensify price competition in the market. Despite challenges in the B2C segment during the June quarter, the corporate travel segment showed robust growth across all key metrics. The company successfully secured 34-year corporate customer accounts representing an annual billing potential of INR2,028 million or approximately $24.3 million, with average billing potential of 77% sequentially. As the leader in corporate travel in India, our customer acquisition rates remain strong, consistently outperforming industry benchmarks. We also continue to actively evaluate strategic opportunities to further bolster our corporate travel segment. In addition, we made substantial progress in our meeting Incentives conferences and exhibitions segment, which is the MICE business, this quarter. A newly onboarded team has started ramping up operations and while MICE contributions are modest for the June quarter, early signs for the current quarter are very encouraging, with significant business already secured in the September quarter. In addition, we have also scaled up teams to focus on the mid-market corporate segment and new products including Visa services and car rental services for corporate travelers. Adjusted EBITDA came in at INR65.6 million, approximately $800,000, a decrease from INR115.4 million in the same period last year, partly reflecting the impact of lower volumes, and partly due to the added expense of onboarding teams for new initiatives mentioned earlier. The cost of incremental hires is close to INR40 million in the quarter. Excluding investment in new initiatives during the quarter, our EBITDA would have been INR105.6 million, which is broadly similar to last year. Let me emphasize the critical importance of accelerating our investment at this time in the corporate space. Over the past few months and particularly in the last quarter, the country’s largest airline has begun offering deeply discounted fares exclusively on its website and mobile app. In light of the recent consolidation within India’s domestic aviation sector and the current aircraft supply constraints, this trend is significantly increasing customer acquisition costs in the B2C market. As a result, it is imperative that we rapidly expand our corporate business, and we are actively exploring both organic and inorganic opportunities to achieve this. The MICE industry presents a compelling growth opportunity with a substantive margin profile, making it a strategic addition to our corporate portfolio alongside our visa facilitation and car rental services. Additionally, we have initiated a cost optimization program, which includes streamlining over 100 positions within the company. We anticipate realizing the benefit of these cost savings starting in September after accounting for any notice period obligations. We continue to make progress towards simplifying our corporate structure as well, with the board-appointed restructuring committee actively engaging with all relevant stakeholders. The committee is diligently working on developing a comprehensive proposal to streamline our operations and enhance shareholder value. For the quarter ended June 30, 2024, we reported total revenue of INR1,051 million, which is $12.6 million, as I mentioned, down 5% year-over-year, and adjusted revenue of INR1,422 million, which is approximately $17.1 million, which is down 14% year-over-year, mainly on account of the factors that I mentioned above. While it is our strategy to position ourselves as the corporate provider of choice, we recognize our ideal customer mix must be strategically balanced, and we are determined to win back and regain some of our B2C market share by implementing certain strategies in the coming quarter. These strategies, we feel, will be more technology-enabled and innovation-enabled ones and will not have a significant negative impact on our operating performance. Meanwhile, we continue to expand our corporate customer base demonstrated by the strong addition of new corporate customers during the first quarter. We believe that our momentum in garnering reputable corporate clients serves as a testament to our excellent service and attractive platform offerings. Travel volumes in the IT sector, which is one of India's main business travel segments, was subdued in the first quarter of FY '25. However, we are pleased to report that our performance in this segment outpaced industry trends. While travel spend on the Yatra platform by IT services customers was approximately 30% below pre-COVID levels, industry reports indicate a nearly 50% decline in overall IT services spends compared to pre-COVID. This demonstrates Yatra's ability to capture and increase share of wallet within its existing customer base. I would like to also take the time to highlight some of our more recent strategic initiatives to expand our market and growth potential. As mentioned last quarter, we've expanded our software service to better meet the needs of our clients to the launch of our expense management solution. We are calling this solution RECAP, which stands for Receipt Capture and Processing. RECAP leverages cutting-edge technologies including GenAI large language models for receipt analysis to enable more accurate and comprehensive expense tracking, significantly reducing errors and saving time for our customers. We are currently working with a handful of customers on the expense front as part of our pilot program as we look to cross-sell this product further into our current installed base. Expense management is a large and highly profitable segment and our product capabilities make it suitable not just for the Indian market, but for international markets as well. Our initial response from customers has been very encouraging and this solution allows us to further deepen our relationship with our customers. With our focus on the corporate segment and our commitment to expanding our presence and offerings, as mentioned earlier, we've added a team for the MICE segment and the early indications are highly encouraging. To provide you some context on the MICE market, the MICE market is valued at approximately $3.3 billion in 2023 and is expected to grow to $10.5 billion by 2030, reflecting a CAGR of 18% from 2023 to 2030. Now turning to the broader economic landscape, business travel in India is on an upswing. Currently, India ranks as the ninth largest market globally in terms of business travel spend. The market is expected to reach $38 billion this year and is projected to grow by 18% next year, surpassing pre-pandemic levels. This growth is underpinned by a strong economic outlook for the country with the Reserve Bank of India projecting real GDP growth of 7.2% in FY '25. The Reserve Bank of India has also highlighted the positive impact of healthy balance sheets amongst banks and corporates, along with the government's ongoing focus on capital expenditure, and we believe this translates into greater demand in the corporate travel segment in the coming years. While domestic travel remains stable with expected growth in the hinterlands of the region, outbound travel is forecasted to grow significantly. The report suggests that India's outbound departures will nearly triple to $50 million by 2030, fueled by improving connectivity, more direct and affordable flights, and a growing desire for international travel. When the June quarter posed challenges for our B2C segment, we are encouraged by the strong momentum we are witnessing in our corporate travel business. The growth in new corporate accounts and the existing development in our MICE business underscores our commitment to driving long-term value for our stakeholders. We continue to fine-tune our strategic initiatives to maintain our position in the corporate sector while working to improve market share and regain share in the direct-to-consumer sector. With that, let me hand the call over to Rohan to walk you through the details of the financial performance. Rohan?

Rohan Mittal, CFO

Thank you, Dhruv. I will now review our numbers for the quarter ended June 30, 2024. We saw a 17% year-over-year decline in our gross bookings. This was mostly due to the 20% decline in our air gross bookings, as explained earlier. Our hotel and packages gross bookings remained flattish. Our overall adjusted margin for the quarter decreased by 15% year-over-year. Our adjusted margins for the air ticketing business were at 6.8%, and 11.6% for hotels and packages. Moving on to expenses, as a percentage of total gross booking value, our marketing and sales promotion expenses reduced sharply by 35% on a year-over-year basis. Our personnel expenses increased by 23% year-over-year as we continued to invest in talent to build out our mid-market, MICE, Visa, and Expense Management solutions. Other costs remained largely range-bound. On an overall basis, adjusted EBITDA was INR65.6 million, compared to INR115 million in the quarter ended June 24. Lastly, as of June 30, we were carrying cash, cash equivalents, and term deposits of INR4.5 billion, which is approximately $54 million on our books, and our gross debt is at an all-time low level of INR210 million, which is roughly $2.5 million. With this, we conclude our prepared remarks, and I'd like to hand it over to the moderator for Q&A. Thank you.

Operator, Operator

Thank you. The first question we received is from Scott Beck from HC Wainwright. Scott, your line is open. Please go ahead.

Scott Beck, Analyst

Hello, everyone. Thank you for taking my questions. Dhruv, you touched on it in the prepared remarks, but could you give us a little more detail on what options are on the table in regards to the independent committee? And maybe what a reasonable timeline is to expect some decisions to be made?

Dhruv Shringi, CEO

Sure. So, with regards to the independent committee, the committee is currently working with advisors on evaluating multiple options in front of us for simplifying our corporate structure. There are a couple of preferred groups that we've narrowed this down to, and now the committee, along with the advisors, is working with the regulators to understand the process and the feasibility of the different structures that are there in front of the company. In terms of timeline, I think the structures which are there have a six to 12-month time frame in terms of achieving full simplification of the process. This is, you know, in certain scenarios dependent on regulators and different jurisdictions. This is only a broad guideline that I can share, not an exact number, as I said, because there are multiple regulators involved in the process.

Scott Beck, Analyst

Sure, I can understand that. And is the goal here to create some sort of fungibility between the shares?

Dhruv Shringi, CEO

That is the end objective, to try and create a way through which the shareholders in the U.S. will get access to their stock.

Scott Beck, Analyst

Okay, perfect. I appreciate that color. Next, I want to ask about the B2C weakness. I'm curious, what of that you saw in the quarters is being driven by just temporary softness in travel demand versus what may be a more permanent headwind in direct sales of tickets from India's largest carrier?

Dhruv Shringi, CEO

So there are two factors playing in right now. One is the supply side constraint. So as I had mentioned in our last earnings call, 75 aircraft were taken out by Indigo because of the issue that they were facing with the Pratt & Whitney engines. This is a well-publicized litigation and issue occurring between Indigo and Pratt & Whitney. So that's one factor which is there on account of which supply is limited in the country. The other challenge which is there, which has been accentuated, is the view that Indigo has started taking over the course of the last six months, and more so in the last quarter, of offering fares directly on its site which are meaningfully cheaper than what is available through third-party distribution channels. I think this is the bigger, more concerning trend that we are addressing at this point.

Scott Beck, Analyst

Okay, that makes sense. And then lastly…

Dhruv Shringi, CEO

The supply issue will obviously get resolved, right? It's just a matter of timing, but supply will get addressed. So those engines will get repaired, and those aircraft will come back, right? Whether it happens with a delay of a quarter or two, that's between Indigo and Pratt & Whitney, but the supply will come back. Whereas this could potentially turn into a more secular trend when there are discussions happening between the airlines and the intermediaries in the country, who need to come to an equilibrium.

Scott Beck, Analyst

Okay, that's helpful. And then last one for me on the MICE business. It's great to see you guys are starting to see some favorable momentum there. What is the typical contract structure? Are your customers under annual or multi-year contracts? I'm just trying to understand from a visibility standpoint?

Dhruv Shringi, CEO

So there are some customers at this point in time, given that it's still relatively early days, there are annual contracts which exist, and there will also be some which are more event-based and large event cycle-based contracts. We are not yet at a stage like our business travel where we have multi-year contracts. Here we are not yet at that stage where we are signing straight up multi-year contracts. Here, these are mostly short to mid-term kind of contracts which are there as opposed to multi-year contracts. But as the business progresses and stabilizes, this should translate into multi-year contracts.

Scott Beck, Analyst

Okay, perfect. Well, I appreciate the color, guys. Thank you very much.

Dhruv Shringi, CEO

Not at all. Thank you, Scott.

Operator, Operator

The next question is from an unidentified analyst from Private Industry. The line is now open. Please go ahead.

Unidentified Analyst, Analyst

Hello, morning. Thanks for taking my question. I have a couple of questions. One is what percentage of your airline business is B2C? I thought it was a very small portion. So for this to have a 20% impact on your revenue seems a bit much? The second is, let's say the largest carrier's decision to go direct to customers. Does it not also affect your corporate business? And maybe a third relevant question is, how is it that companies like MakeMyTrip don't seem to have been impacted by the same issues that you're pointing out? Sorry for the last questions, but I can repeat that as needed.

Dhruv Shringi, CEO

No, thank you for the question. Let me clarify the first point in terms of the share, and you would have heard this on multiple calls from us. The B2C business still last year was accounting for almost 50%, between 55% to 60% of our gross bookings. So it's not an insignificant part of our business; it's a fairly material part of our business. And that's the reason why the overall impact on the gross bookings is due to what's happening. Secondly, in terms of the impact on MakeMyTrip, the impact on MakeMyTrip is exactly the same as the impact that we are experiencing. The only difference is that MakeMyTrip has taken the view of discounting on Air India and this other airline in the country quite meaningfully to offset some of the volume that they're losing on Indigo. You could do a quick search on any of the comparison platforms like Skyscanner or Google Flights and validate that. In terms of overall numbers, obviously, MakeMyTrip has a scale advantage on hotels and bus from where they are generating incremental profits, which are helping them subsidize some of this gross investment on the air side. But the challenge that we are facing is something that everyone in the country is facing, not just us. To your third point on the corporate side, the reason this does not flow into the corporate segment is that in corporate travel, it's managed travel services where corporate employees have to go through our platform to book their business travel needs. Typically, these kinds of fares, offered on the airline's site directly, are the most restrictive fares with the least value adds attached to them. Corporate travelers, 95% of the corporate bookings happen on special corporate trades, which come bundled with other flexibility, like cancellation protection, complimentary sweets, bundled meals, etc. This is not something that Indigo discounts directly. The other thing is that on the corporate travel side, this envisages a scenario where a company with 50,000 people has to then manage their employees booking Indigo flights or some part of their Indigo bookings directly while the rest of their travel is managed through the Yatra application and the Yatra portal for their business travel needs, including the approval and expense management processes. This is not an easy scenario for an airline to replicate. Even globally, if you look at examples like Southwest, Ryanair, EasyJet, their focus is on leisure travel segments concerning these kinds of promotional fares that they offer on their own websites; this does not target business travelers. These fares typically are available for advance bookings; that's why the bulk of leisure travel happens, while business travel usually occurs within a three-day booking window. In that window, these planes are typically not available. I hope that clarifies your questions.

Unidentified Analyst, Analyst

Yes, you did. Thanks a lot. I really appreciate the details behind it. Just an additional question, if I may. The meeting management solution or expense management tool that you launched, do you already have some traction with the mid-market segment that you're targeting? That's the question.

Dhruv Shringi, CEO

Yes, we are currently running a pilot of that with a few of our customers, with a handful of our customers. That's the first phase, which is there. We are also in discussions with some of our larger customers to see if this can replace more extensive global solutions that are currently being used by the larger customers. But the initial subset that we are targeting is more on the mid-tier segment.

Operator, Operator

The next question is from Cobb Sadler from Catamount. The line is now open. Please go ahead.

Cobb Sadler, Analyst

Hey guys, I have a question on the potential acquisitions that you may do. I think it was given two, is it one or more than two? And then also, what is the revenue size of these deals as it relates to the corporate business? I mean, is it going to double the corporate business? 20%, 30% and then have some follow-ups.

Dhruv Shringi, CEO

Sure, Cobb. These are the deals which are currently, it's hard for me to comment on an exact timing for ongoing discussions or dialogues that may or may not be happening. We said that we are evaluating multiple options. It's hard to give an exact timing to the closure of any of the acquisitions. I don’t want to set any expectations in terms of timing from a closure point of view. These discussions are ongoing, and there are multiple such discussions. Our endeavor through the evaluations, if I look at, you know, I can guide you to what we've said from an India IPO sample, three EMRs approximately $20 million for an acquisition or for multiple acquisitions. Whether this translates into one or multiple acquisitions, only once it's crystallized would we be able to share more details on that. At this time, there is no commitment in terms of that there is an acquisition that is actively going to happen.

Cobb Sadler, Analyst

Okay, so but all right, well, but you have aspirations to close a deal, I would assume, and so in the number, was that $20 million what you would pay or the revenue that you'd like to add?

Dhruv Shringi, CEO

$20 million is what we have set aside as IPO proceeds for an acquisition.

Cobb Sadler, Analyst

Okay, so you would use cash…

Dhruv Shringi, CEO

It depends on the regulatory standpoint. When you do an IPO, you have to call out what are the end uses of the IPO proceeds, and in the end use in the Indian IPO, with EMR, pay approximately $20 million for IPO for acquisitions.

Cobb Sadler, Analyst

Okay, and you would use cash solely, or could you use stock also and buy more revenue?

Dhruv Shringi, CEO

Yes, we could use stock as well. There's nothing that holds us back from doing our stock drop or cash deal.

Cobb Sadler, Analyst

Okay, got it. All right. And the timing, I mean, how long have you been at this? I guess, why don't you have an idea on timing?

Dhruv Shringi, CEO

Cobb, your question implies that there is an active acquisition that is ongoing. I'm qualifying that I can neither confirm nor deny any such thing, that there is an active acquisition conversation.

Cobb Sadler, Analyst

Okay, that's fair. Regarding the fungibility of shares, did I understand correctly that you mentioned a timeframe of six to 12 months? Are you expecting to have an answer on this issue during that period? My question specifically is how long it will take for you to determine whether the shares will be fungible. Additionally, do you think the Indian investor base is contemplating this? I suspect they are somewhat confused about the structure, given that you're the first company to dual list in India. Would it be beneficial for them if you were able to simplify this structure? Lastly, do you believe that if fungibility could happen, it would occur within the six to 12 month timeframe?

Rohan Mittal, CFO

Yes. So in terms of the second part, based on the discussions that we've had with various advisers across multiple jurisdictions, six to 12 months could potentially be the timeline for a fungibility event. As I said, given that there are multiple regulators involved, it could be a lengthier process. But our best estimate at this point, based on the advice we have from the counsel that we have in different jurisdictions, is that it is an event that could take up to 12 months.

Cobb Sadler, Analyst

Okay. So regarding the multiple entities involved, do we need approval from any other regulatory agencies or bodies besides the SEC and SEBI?

Dhruv Shringi, CEO

These are the two main bodies: the SEC and SEBI. There will also be tax clearances, etc., which will be needed in India, depending on the structure that we've got or it could also require Indian port approvals if it's a merger structure that we adopt. So there are a couple of options that we are working closely with. Each involves different sets of regulators that are part of the process. As you rightly pointed out, this is a fairly unique scenario. There aren't enough residences of a scenario like this that one can look at and use as a basis for establishing a more definitive timeline.

Cobb Sadler, Analyst

Okay. And I guess by doing this, you will eliminate some overhead costs, filing costs, legal costs, and management costs. Would you collapse the Board? Maybe you have some board costs that are limited. Do you roughly have an estimate of how much cost would be eliminated associated with collapsing the listings if that works to occur?

Dhruv Shringi, CEO

Sure. Today, there is approximately $2 million to $2.5 million of costs associated with being the U.S. listed entity; that cost would go away on collapsing of this structure. A large part of that cost will go away on collapsing of the structure.

Cobb Sadler, Analyst

Okay. Could you briefly discuss the expense management product? I wanted to clarify if you mentioned that there might be some revenue from newly added corporate customers or expense management. When do you expect the revenue from expense management to become significant? I also have a follow-up on this topic.

Dhruv Shringi, CEO

For the revenue to be material on the expense management front, I think we are looking at more at next fiscal year for the revenue to be material. At this point of time, we are going through a process where we are inducing trial with our customers. We are offering it to some of our customers as an initial bundled proposition for a period of time, whether it's easy to use, or there is a premium kind of service. Certain features are available for free and beyond that, they must consider the pricing model. So in this year, I feel it is still going to be relatively immaterial from an earnings point of view. But next fiscal year, it will become more relevant. At present, the focus is on getting a larger installed base in the expense side as opposed to looking at monetizing that on day zero.

Cobb Sadler, Analyst

Okay. Regarding the product, I believe you mentioned you will target both segments, but initially, as is common in software, the focus will be on small and medium-sized businesses. Is it fully featured? I wonder if your competitor is a company like Zaggle. Are your features and functionality comparable to more comprehensive suites, or is it more of a basic product for SMBs that prefer not to invest in something like Zaggle or another competitor?

Dhruv Shringi, CEO

Today, the product is in a situation where in shape or can definitely compete with the likes of Zaggle in terms of the expense side. What we are looking at is a solution that uses many of the new GenAI large language models for receipt analysis, which is much more advanced than older models or tools that use OCR-based recognition. OCR-based recognition has a limited amount of accuracy, whereas the LLM models, due to their self-learning aspects, tend to be much better in terms of analyzing expenses and capturing data. We feel the solution is fairly comparable with other mid-market proposition products available today. The advantage is that it comes as a tightly mixed solution between travel and expense or can be sold singularly as an expense solution as well. That is the advantage we offer to customers, especially those who are our existing customers, so we provide a more seamless experience between travel and expenses for their employees.

Cobb Sadler, Analyst

Okay. All right. Regarding fungibility, some U.S. investors have FPI licenses, which allow them to hold Indian shares and buy or sell as they wish. However, there are smaller U.S. investors without FPI licenses. How does this work for them? Would Indian investors buy U.S. shares from them if they wanted to sell, or would there be some offering involved? Perhaps a private equity firm might step in? I'm thinking that Indian investors are more likely to acquire shares, and some may want to buy shares for the first time or expand their holdings. Overall, this should be a positive development. However, concerning the FPI situation, how would you manage it? If they hold FPI licenses, there’s no issue, but what about those who don’t?

Dhruv Shringi, CEO

If that does turn out to be a success, we will also explore what assistance we can provide through local bankers to make sure that shareholders are able to get access to the shares. So that's something that we will try to do from our side, but it's something that will come up much closer to once the option is finalized, and we will factor this into our decision-making process, as well as how easy or difficult it would be for shareholders to get access to the Indian shares.

Cobb Sadler, Analyst

Okay. All right. That sounds good. I mean, that's a major net positive, in my opinion, because the U.S. shares are trading at a huge discount. So good luck in collapsing that. Thanks.

Dhruv Shringi, CEO

Sure, thank you. The only word of caution that I will put out is that from a timing point of view, it is a slightly lengthy process. So I want to just get that out there so that from an expectation-setting point of view, we don't set the wrong expectation for shareholders.

Cobb Sadler, Analyst

I understand that, but you did say six to 12 months?

Dhruv Shringi, CEO

That's right. That is the current timeline that we are working towards based on advice from advisers.

Operator, Operator

Thank you. The next question is from Amish Mahal. Your line is now open. Please go ahead.

Unidentified Analyst, Analyst

Thanks for taking the additional question. Just a question actually on the buyback of the U.S. shares. You had completed a buyback of $5 million. Is there any reason why the number should not be higher considering the steep discount and the best use of corporate funds? I realized it's a board decision, but I wanted to know whether there's a rationale for capping that $5 million.

Dhruv Shringi, CEO

There is no capping on that. It's just that as we go through this process, we are evaluating multiple options, and we might also need to convert some cash for doing the larger restructuring that we spoke about. So once we have greater clarity on the route we're going down, at that point, we can evaluate if the buyback needs to be expanded or if we do this in one go as part of the restructuring.

Operator, Operator

Thank you. As we currently have no further questions, I will now hand back to the management team for closing remarks.

Manish Hemrajani, VP of Corporate Development and IR

Thank you, everyone, for joining the call today. As always, we are available for follow-ups. Please feel free to reach out for the same. Kiki, you can now close the call. Thank you.

Dhruv Shringi, CEO

Thank you.

Operator, Operator

Thank you. This concludes today's conference call. You may now disconnect your lines.