Earnings Call Transcript - YTRA Q2 2024

Operator, Operator

Hello everyone and welcome to today’s call for Yatra's Fiscal Second Quarter 2024 Earnings. My name is Allen and I will be your call operator. All participants will be muted during the presentation, but there will be a chance to ask questions at the end. I will now hand the call over to Manish Hemrajani, Vice President of Corporate Development and Investor Relations, to start. Please proceed when you are ready.

Manish Hemrajani, Vice President of Corporate Development and IR

Thank you, Allen. Good morning, everyone. Welcome to Yatra's fiscal second quarter 2024 financial results for the year ended September 30, 2023. I’m pleased to be joined on the call today by Yatra CEO and Co-Founder, Dhruv Shringi, and Group CFO Rohan Mittal. The following discussion, including responses to your questions, reflects management views as of today, November 17, 2023. We don't undertake 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 earlier this morning. These filings are available from the SEC and also on the Investor Relations section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

Dhruv Shringi, CEO and Co-Founder

Thank you, Manish, and good morning, everyone. Thank you for joining us for our second quarter earnings call. I'm pleased to announce that for the third consecutive quarter, we have increased our market share in the air travel sector. In the second quarter of 2024, our air passenger bookings rose by 31.2% year-over-year, significantly exceeding the industry's growth rate of 22.7%. This not only highlights the resilience of the Yatra brand but also demonstrates our competitive advantage in gaining market share. International travel has also shown steady improvement during the quarter ending September 30, 2023, reaching about 90% of pre-COVID levels. Looking ahead, we are optimistic and committed to leveraging these positive trends for further growth and success. In the corporate travel sector, we strengthened our position by securing 13 new corporate accounts in the quarter, which represent a potential annual billing of about INR813 million, or roughly $10 million, showcasing our platform's capability and leadership. Beyond this quarter, we have continued to gain momentum by closing deals with significant clients, including a major multinational corporation, for managing their travel needs in various regions of Africa and Asia, further expanding our influence and operational reach. Additionally, as shared in our press release this morning, I am pleased to announce that the board has approved a share repurchase of up to $5 billion for our NASDAQ listed YTRA shares, reflecting our confidence in Yatra's future and commitment to delivering shareholder value. This authorization represents about 5% of Yatra Online Inc's market capitalization at the current share price. Now, let me provide some insights on the macroeconomic landscape. The International Monetary Fund forecasts that global inflation will gradually decline from 8.7% in 2022 to 6.9% in 2023 and further to 5.8% in 2024, driven by tighter monetary policy and stabilization of international commodity prices. Against this backdrop, India's economic landscape remains strong, supported by significant public capital expenditure and robust domestic economic activity. The Indian economy is projected to grow consistently, with estimates predicting a 6.3% increase over 2023 and 2024. This positive trend reflects the resilience and dynamic nature of our economy. The travel sector is closely tied to GDP growth, and over the past decade, we've witnessed travel growth rates ranging from 1.5 to 2 times GDP growth. India's per capita GDP has also experienced remarkable growth. Achieving a five-fold increase in GDP per capita took 40 years from 1960 to 2000, whereas the same increase has occurred in just the last two decades, with a compounded annual growth rate of 25%. This surge in per capita income drives increased discretionary spending, with travel and dining emerging as primary beneficiaries. With the rise in discretionary income, we are confident in our ability to outpace market growth rates. Our strategy to capture a larger share of the corporate travel market, along with the sustained strength of our consumer brand, positions us well for continued expansion and success. Now, let me share more details about our second quarter performance. For the quarter ended September 30, 2023, we reported revenue of INR947.6 million, approximately $11.4 million, reflecting a 14% year-over-year increase. Adjusted margins from air ticketing were $12.3 million, down 4.8% year-over-year, primarily due to a nearly 15% decline in air ticket prices. Adjusted EBITDA for the quarter reached INR35 million, about $400,000, lower compared to INR77.7 million or approximately $900,000 from the same quarter last year. We incurred IPO-related listing fees of INR68.2 million or $0.8 million during the quarter, which are one-time expenses. Moving on, the corporate segment faced some challenges in the September quarter with a decline in travel from the IT and ITEA sectors. However, we are confident that the recovery from our largest contributing sector will occur soon. We anticipate that the new business won will offset the decrease resulting from the challenges in the IT and ITEA segments by the first quarter of calendar year 2024. In our hotel and packages business, revenue was INR366 million, or approximately $4.4 million for the three months ending September 30, 2023, compared to INR267 million or $3.2 million in the same period last year, marking a 37% year-over-year increase, attributed to recovery in domestic travel, new distribution partners, and a focus on higher quality hotels for business travelers. Competitive intensity has remained stable and manageable. With a favorable microeconomic backdrop, the ongoing recovery in corporate and leisure travel, and rising discretionary spending, we are optimistic about a strong fiscal year 2024 and 2025. Besides seasonality, we expect our results to benefit from accelerating growth in both our corporate and consumer businesses as we leverage our strong blue-chip customer base and brand strength. To reiterate, Yatra India currently serves one in every four of the top 100 listed companies in India, as well as three of the big four accounting firms and three of the top five technology companies in India. As part of our IPO, we have also allocated INR1.5 billion, approximately $19 million for M&A opportunities to expand our product platform for business travel customers. Given our stronger balance sheet post-IPO, we are beginning to see early signs of improving supplier margins this quarter, which we expect to gain momentum in the upcoming quarters and positively impact our operating performance. We've also observed positive effects from the IPO on our balance sheet in discussions with one of our large corporate customer contracts, which has resulted in favorable outcomes for Yatra, and we anticipate more such developments in the coming quarters. With these favorable trends, we expect our operating performance to improve quarter-over-quarter in the near term.

Rohan Mittal, Group CFO

Thank you, Dhruv. I will now review our second-quarter numbers for the period that ended on September 30, 2023. Our gross bookings for the second quarter were INR 17.5 billion, which is approximately $211 million. This represents a 10% increase year-over-year. Our two primary segments, air and hotels & packages, both experienced a 12% year-over-year growth during this period. For this quarter, our revenue grew by 14% to INR 948 million, about $11.4 million, driven by sustained high travel demand. Our adjusted margin from the air ticket business decreased by 5% year-over-year to INR 1 billion, primarily due to limited access to airline deals in the second quarter. Meanwhile, the adjusted margin from the hotel and package business increased by 16% year-over-year to INR 278 million, around $3.3 million, thanks to recovery in domestic travel and adding new distribution partners. The adjusted margin from other services rose by 21% year-over-year to INR 50 million due to increased revenue from our other B2C services. The total adjusted margin across all three segments remained unchanged. Our other revenue saw a 43% year-over-year increase to INR 144 million, mainly due to a rise in advertisement revenue. Regarding expenses, our marketing and sales promotion costs for the second quarter, including the loyalty program costs, went up by 4% year-over-year to INR 832 million, about $10 million. This increase in marketing expenditures lagged behind the overall gross booking growth of 10%, which is a positive indicator. Personnel expenses, excluding share-based payment expenses, increased by 11% year-over-year to INR 279 million, roughly $3.4 million, primarily due to the annual appraisal cycle. Payment gateway costs as a percentage of total gross bookings remained unchanged. Other expenses, excluding payment gateway costs, decreased by 16% year-over-year. In the second quarter, we completed the cost accounting of IPO expenses and incurred a one-time charge of INR 68 million, slightly below a million dollars. Adjusted EBITDA profit is at INR 35 million, compared to INR 78 million in the second quarter of 2022. Lastly, as of September 30, our balance of cash, cash equivalents, and term deposits on the balance sheet was INR 7.1 billion, approximately $86.4 million. This reflects the proceeds from our recently concluded IPO, while our gross debt was INR 1.74 billion. With this, we conclude our prepared remarks and I will hand it back to the moderator for the question and answer session. Thank you.

Operator, Operator

Thank you. Our first question today comes from Scott Buck from H.C. Wainwright. Scott, your line is open. Please go ahead.

Scott Buck, Analyst

Hi, good morning everyone. Thank you for taking my questions. Dhruv, can you give us a little bit more color on what's driving the softening in air ticket prices? And you know, it sounds like that's kind of dragged a little bit here through the fiscal third quarter as well, correct?

Dhruv Shringi, CEO and Co-Founder

Hi, Scott, good morning. Yes, you're right that, you know, air ticket prices have softened significantly, especially on the international travel front. Here we've seen a lot more deployment of capacity. So last year as we were coming out of COVID, capacity was really limited in terms of airlines deploying aircraft on the India route. We've seen a significant expansion of that playing out during the last 12 months. And that incremental supply is what's resulting in prices rationalizing and coming closer and closer towards where they were in the pre-COVID environment. On the domestic front as well, we've seen supply expansion play out. In fact, even going forward, it's expected that over the next six months, Air India will add more than an aircraft a week. So we will continue to see more capacity expansion happening. The good thing about that is that while on the one hand, it does depress air ticket prices, it does stimulate demand. So if you look at from an overall perspective, the industry grew almost 23% year-over-year. We grew 31%, so from a volume growth perspective, this is actually a great sign that prices are rationalizing. Going forward, we expect prices to remain range-bound because the vast majority of the incremental capacity that had to be deployed on the international routes is already in place, and from here on, it's going to be a more gradual expansion of capacity as opposed to the large-scale expansion in supply that we saw over the last 12 months.

Scott Buck, Analyst

Great that's really helpful color. And then I want to dig in a little bit on the M&A strategy. Are you looking to do one large deal, multiple small deals? Could you give us just a little bit more color on that? And what does the timing look like there?

Dhruv Shringi, CEO and Co-Founder

Sure, so as we've called it out in our own IPO prospectus as well in India, our endeavor would be to look at opportunities which allow us to expand the products and services that we can cross-sell into our corporate customer base. These could be anything ranging from multiple other products and services related to travel or other ancillary travel and technology-related offerings that organizations use. So from that perspective, it could be either. So it could be one which has a meaningful size and scale, or it could be technologies and products that could dovetail into our offering. The latter would be the more likely route that we will adopt, right? But I can't rule out the former either. The strategy would be to look at things which can fit into our platform and then help scale up the revenue from those incremental services within our existing corporate customer base.

Scott Buck, Analyst

Great, I appreciate that. And then last one for me, just on OpEx, I'm curious given the growth projections over the next 12 months or so, how do you feel, or are you comfortable with the current cost basis, or do you have to do a fair amount of hiring or additional investment in OpEx to support that growth?

Dhruv Shringi, CEO and Co-Founder

See, on the OpEx side, we've pretty much got all the main ingredients in place. There might be a little bit of incremental investment that comes in on the technology side, but it's going to be fairly marginal in the overall scheme of things. So we don't expect our cost structure to change significantly, especially if you were to look at this as a percentage of total transaction value; we don't see that changing much.

Scott Buck, Analyst

Great appreciate the time guys thank you again.

Dhruv Shringi, CEO and Co-Founder

Sure, thank you. Thanks, Scott.

Operator, Operator

Thank you. Currently, there are no further questions on the line, so I would like to give the floor back to the management team for any closing remarks.

Manish Hemrajani, Vice President of Corporate Development and IR

Thank you, Allen. Thank you, everyone, for joining the call today. As always we’re available for follow-ups. Please feel free to reach out to us and wish you all a happy Thanksgiving.

Operator, Operator

That concludes today's conference call, everybody. Thanks very much for joining. You may now disconnect your lines. Have a great rest of your day.