Yatra Online, Inc.
Q2 2022 Earnings Call Transcript

Published: 21 Dec 2021

[Operator:]

Good day and welcome to the Yatra second quarter 2022 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Manish Hemrajani. Please go ahead.

[Manish Hemrajani:]

Thank you Cecilia. Good morning everyone. Welcome to Yatra's fiscal second quarter 2022 financial results for the period ended September 30, 2021. I am pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi. The following discussion, including responses to your questions, reflects management's views as of today, December 21, 2021. We do not undertake any obligation to update or revise the information. Before we begin our formal remarks, allow me to remind you that certain statements made during the discussion 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, including factors that maybe beyond the company's control. These include expectations and assumptions related to the impact of the COVID-19 pandemic. For a description of these risks, please refer to our filings with the SEC and our press release this morning. Copies of this and other filings are available from the SEC and on the IR section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

[Dhruv Shringi:]

Thank you Manish. Good morning everyone and thank you for joining us. I hope that you and your families continue to stay safe as we navigate our way through the pandemic and its new variants. As we had shared with you in November, we are working with bankers and lawyers in India to explore our options for an India IPO. I will get into more detail later. But following this course of action, I believe, will greatly enhance Yatra's strategic flexibility and act as a catalyst to improve shareholder value. Now on to our results. We are pleased to announce strong September quarter results with adjusted revenue of INR788.7 million. This represents an increase of 61% Q-on-Q and 109% year-over-year. This growth was faster than the Indian travel industry as a whole, as we began recovering from the Delta-driven lockdowns in the summer months. Case counts, as you would recall, during that period were hovering around the 400,000 mark and currently they hover around the 7,000 mark. In fact, yesterday it was less than 6,000. India's mass vaccination program has truly been remarkably and as of last week over 820 million people or about 60% of the population had received at least one dose of the vaccine and about 530 million people or 40% of people are now fully vaccinated and have received both doses. Air passengers booked was up 93% year-over-year in the September quarter and up 116% sequentially. This outpaced the industry sequential growth of 74%. More notably, our hotel room nights were up more than 6X year-over-year and up 313% sequentially. We continue to see low levels of competitive intensity on the hotel front during the quarter and our brand continues to resonate positively with Indian travelers. Adjusted EBITDA was INR23.3 million. This is despite the significant investment we are making in the nascent but rapidly growing logistics and freights business. To give you a sense of how much we would have improved the profitability in Yatra had it not been for these investments in the freight business, adjusted EBITDA would have been almost INR30.5 million better or INR53.8 million for the quarter. And this is despite us being in the midst of a pandemic. As of September 30, 2021, the balance of cash and cash equivalents and term deposits on our balance sheet was about INR1.855 billion. On a U.S. dollar basis, this translates into adjusted revenue for the quarter of about $10.6 million and adjusted EBITDA of $314,000 or about $725,000, if you exclude the investment in the freight business. We ended the quarter with a solid balance sheet, with a cash balance of approximately $25 million. The strength that we saw in the September quarter carried forward into October and November. In November, industry passenger numbers grew 19% from October and were up 69% year-over-year. These are the highest level since the bleak 2020 and have recovered to about 82% of pre-pandemic levels. That said, recovery in international travel has slowed down in the month of December due to the spread of the Omicron variant. However bookings for domestic travel have again picked up in the last few days after dropping almost 20% from November levels in the first two weeks of December. Domestic travel in India is witnessing a strong resurgence as people realign their plans and shift focus towards domestic travel, given the restrictions placed on the international travel. We believe this bodes well for Yatra, given our industry-leading content of domestic hotels and strong brand recall amongst the Indian middle class. Recovery in international travel, however, will be a function of the spread of the Omicron variant. And based on past trends following the outbreak of the Delta variant, we expect the recovery in international travel towards the end of the first quarter or early part of second quarter of calendar year 2022. Our pipeline of prospective new customers continues to grow as inbound interest has grown meaningfully post-pandemic. On the corporate side of things, gross bookings for corporate grew 61% in November as compared to September 2021. Corporate revenue in November was approximately 50% of pre-COVID levels. Despite corporate travel being relatively dormant for the past year, we continue to see inbound interest and signed new customers onto our corporate platform increasing our market share. We believe online penetration in the corporate travel market in India is approximately 10% to 13% only. A large part of the market, approximately 60% is still served by smaller offline players. Given the highly fragmented nature of the market, we believe we will continue to take market share going forward and that our corporate business should accelerate growth to levels higher than where we were pre-pandemic, as we see an accelerated shift towards online bookings, especially as contracts come up for renewal at the end of their life and rebilling. The strength of recovery in business travel that we saw in the months of October and November gives us reason to believe that corporate travel in India will also recover strongly as economic growth continues to happen in the country. There might be a slight lag however in terms of recovery of corporate travel compared to consumer travel, but we believe that our technology-enabled corporate travel solution will continue to thrive in the post-COVID world as companies adapt to a more hybrid approach to working which will be difficult for them to do without the use of technology. And this is something that we have continued to witness on the ground in terms of the new conversations that we have with prospective customer. Globally, as well, we are seeing the success of tech-enabled corporate travel platforms like TripActions. And we don't think India would be any different. We have multiple levers of growing our corporate travel business and we believe that the digital platform approach that we have adopted is the right one. Our early success in the trade business also lends more support to the validity of this approach. Let me now give you an update on the freight initiatives. As we look towards digitizing the logistics space, our corporate travel relationships with both airlines and enterprise executive management together with our technology capabilities has given us a significant head start. Despite the pandemic, we have rapidly scaled up this business over the past few months and we believe this business longer term has the potential to be even larger than our corporate travel business. We expect 2022 to be a year of rapid expansion for this business and believe that we should be able to achieve revenues one between $4 million to $5 million from this business in 2022. The freight industry, as you would recall, is multiple times the size of the travel industry and exhibits similar attributes to what the business travel industry did about a decade ago. The industry is highly fragmented and has very low levels of technology adoption. We are fortunate to be able to leverage the expertise we have acquired in building our corporate travel platform over the past several years in building our freight platform. Additionally, we are also looking to leverage our existing vendor and corporate relationships on both the supply side and demand side for our freight business. We remain confident in our platform's capabilities to serve any scale and type of customers. Our corporate customer base is a great asset for us and is a platform that we continue to leverage to cross-sell services. We are optimistic about Yatra's continued growth and recovery based on the trends that we witnessed in October and November and believe that our well-recognized brand and healthy balance sheet puts us in a strong position to capitalize as the recovery continues to gain momentum. As I have been telling our shareholders, Yatra will exit the pandemic a more financially stable and profitable company than it was pre-pandemic. And as a result, we will be in a much better position to capitalize shareholder value. We are not out of the woods yet. I am guardedly optimistic that despite the Omicron variant, the worst of the lockdowns are now behind us and that we saw the trough in travel in June 2021. The levels of vaccination now in India has lowered case counts to a level low enough to encourage a strong recovery in domestic travel. When we come out of the pandemic, on the back of the secular growth in Indian travel, the mid-teens signing growth we have seen during the pandemic in new corporate customers and in the growth of our hotel network, our digital platform business that is completely additive and has the potential to grow to the size of our pre-pandemic corporate travel business in the coming years, we believe we should be on a significantly better revenue trajectory. We believe the opportunity ahead for Yatra is nascent. We believe Indian Internet travel has hit an inflection point as we recover past-COVID. We believe corporate travel, where we are the other leaders, will also recover quickly. In addition, the efforts that we made during the pandemic to improve operational efficiency will lead to significantly higher levels of profitability and cash flow. I want to thank our shareholders who have stood by Yatra through these trying times. I am hopeful and honestly believe it's only a matter of time before your patience and understanding are rewarded. Before I open the call for questions, I would like to make a few additional comments. You may have seen our recent press release on the potential listing in India of Yatra's India subsidiary. As we continue to execute our strategy, our Board and management team regularly consider opportunities to enhance value for Yatra's shareholder. As part of these ongoing efforts, we are working towards an additional listing in India to support our ongoing strategy, accelerate our growth efforts and strengthen our operating. We believe potential benefits of this listing which would support Yatra's ongoing strategy and value creation opportunities include access to an additional pool of capital, including retail and institutional investors in India who are already familiar with Yatra's business and brand, but who are currently restricted from participating in the U.S. capital markets. It will unlock, we believe, additional value for U.S. shareholders, provide a liquid stock that can be used for local M&A in India, add further capital to strengthen the balance sheet and provide additional sell-side research coverage. The company has engaged leading financial advisers in connection with its evaluation. There is however no assurance that Yatra will proceed with the listing or that the exchanges would approve a listing application by Yatra. But having said that, we are optimistic about the future and we believe there is a tremendous amount of growth potential for this business and the strength that we have seen in the recovery of travel in the month of October and November give us that confidence, give us that belief that travel will come back strongly. We will obviously go through these cycles where new variants we are likely to emerge and could impact business in the short term, but we have seen the strength of the Indian market and we believe that the domestic Indian travel market is quite resilient and will continue to grow strongly despite all these hiccups that happened for shorter periods of time. Having said that, I would now like to hand it over to Manish so that we can take any questions that you might have.

[Manish Hemrajani:]

Cecilia, can you please open the call for Q&A.

[Operator:]

. We will now take our first question from Scott Buck from H.C. Wainwright. Please go ahead.

[Scott Buck:]

Hi. Good morning guys. Thank you for the time. I was curious, can you remind us what international travel was as a percentage of revenue pre-pandemic?

[Dhruv Shringi:]

Sure. So international travel was approximately 30% to 35% of pre-COVID revenue.

[Scott Buck:]

Okay. That's helpful. And then I guess, the slow recovery in international, is that because of certain restrictions that are in place? Or is that just driven by consumer demand at the moment?

[Dhruv Shringi:]

No. It's driven largely by the restrictions. So in the period where the restrictions have eased, like we saw in the month of October and November, international demand picked up quite strongly. But it's only in the month of December where, again, this news of Omicron came out and countries started placing additional restrictions on international travel, that international demand has slowed down a bit. The domestic market, however, continues to be very resilient and we are seeing strong growth happening on the domestic side. So we feel, while there might be some drop, which will happen in international, I feel confident that in a relatively short period of time, the domestic demand should be able to offset the drop in international at least for the time being till the markets fully open up internationally.

[Scott Buck:]

All right. That's very helpful. And then turning to freight, I am curious what additional investments do you guys need to make at this point to really position that business to scale? Or have you kind of completed that process at this time?

[Dhruv Shringi:]

So the investment which has been made is largely in terms of resources, which is ranging from technology to sales and marketing and operational resources. We have ramped up the team quite significantly. Now onwards, you will start seeing incremental investment happening at a more gradual level. So the initial ramp-up that needed to happen has happened and the cost for that has come in. And from here, you will see a more gradual increase in cost as opposed to a sharp increase that we have seen in the last quarter.

[Scott Buck:]

Great. That's very helpful, Dhruv. And then last one for me. You guys have been pretty disciplined around marketing spend. I am curious when we may see some real investment there kind of back to pre-pandemic levels?

[Dhruv Shringi:]

I think today, we are seeing the strength of the brand truly come to the forefront and we are seeing a high degree of traffic coming in without needing to invest incrementally. We have also come up with some very creative ways of working with micro influencers on platforms like Instagram and that's working out really well for us. So I think we are still maybe another couple of quarters away from doing large-scale investment in consumer marketing. My sense is that we would first want to tap out the kind of growth that we can see organically, which is what we are benefiting from right now.

[Scott Buck:]

That's very helpful. I appreciate the time, guys. And congrats on all the progress.

[Dhruv Shringi:]

Not at all. Thank you.

[Operator:]

We will now take our next question from Anja Soderstrom from Sidoti. Please go ahead.

[Anja Soderstrom:]

Great. Thank you for taking my question. And congratulations. It seems like things are trending in the right direction for you in India. I just got a question about the corporate travel. How many new customers did you sign? And can you talk to sort of the size of them and have you seen any churn in the corporate travel?

[Dhruv Shringi:]

Sure. So in terms of new customers, we signed approximately 20-odd new customers. And these new customers that we have signed, these are largely people who are coming in for corporate travel and a few which are also cross-selling for freight. In terms of churn, I think our churn rate is less than 2% at this point in time per annum.

[Anja Soderstrom:]

Okay. And do you typically sign a length of contract or it's a very sticky business, right? So once they sign, they stick with you?

[Dhruv Shringi:]

Yes. So on the corporate travel side, where we implement the technology platform, it does tend to be a very sticky business. And hence, the 98%-plus kind of retention rates that we see because we are also making the upfront investment along with the customer to deeply integrate into the customers, their ERP systems, the HRIS systems and put their workflows on our platform. So it becomes a tightly coupled solution, which makes it more stickier from a customer's perspective and from ours.

[Anja Soderstrom:]

Okay. And do you see mostly the new corporate customers coming onboard for the travel business? Or does the freight business drive any new customers?

[Dhruv Shringi:]

So the freight is also driving new customers. But today, it would be like almost a 75-25 kind of split with 75% coming in on account of travel and 25% coming in on account of freight.

[Anja Soderstrom:]

Okay. Thank you. And you already touched on the marketing spend and the need. You don't really see a need to ramp that up right now because we see the organic growth coming back strongly. But what do you see in terms of competition?

[Dhruv Shringi:]

In terms of the competitive landscape also, we think the competitive landscape is a lot more benign than what it's been historically. It seems like a rational market at this point in time to that extent. And hence we don't really see the need for any large-scale marketing investment. For us, what's also there is because we have historically spent a fair bit on maintaining the brand, the brand recall today is high. And as travel is circulating into Tier 2, Tier 3 markets where our brand recall has been high, we are getting the organic benefit of that. But overall, from a competitive landscape perspective, I think till now, at least, we have seen the markets remain fairly sensible from a competitive landscape point of view.

[Anja Soderstrom:]

Okay. Thank you. And then in terms of the freight business, I think you said you were planning on building that to a 200-people team. How is that going? And - are there any challenges in hiring? Or are things easing up because the vaccination rate is increasing? How is that trending?

[Dhruv Shringi:]

Sure. So the hiring process has definitely picked up. And we are pretty much, as I mentioned, we have done bulk of the heavy lifting that we needed to do from a hiring point of view. We have got the teams to the size and scale that we need them. And from here, it's going to be a more gradual ramp-up. So the big effort that needed to be done has been done in the last four-odd months now. In terms of the hiring process, as you rightly pointed out, given that more and more people are now vaccinated, if the market has opened up and it has eased out our ability to hire people, we are able to physically interview them as well. So all of those things are making it easier to ramp-up faster.

[Anja Soderstrom:]

Okay. Thank you. And also, you gave an overview of the India listing. But is there any sort of time frame on that or a time line for any news that we should be looking out for?

[Dhruv Shringi:]

So we are looking at filing at least in the near term over the coming few weeks is what we expect to file. And then it has to go through a regulatory process like it does in the U.S., where the SEC reviews it. And typically in India, SEBI, which is the regulator, takes between 10 to 12 weeks to review and clear documents. So that's the kind of time line that we are broadly looking at. So subject to all regulatory clearances, we are looking at maybe towards the end of the first quarter or early part of the second quarter.

[Anja Soderstrom:]

Okay. Well, that was all for me. Thank you so much for your time.

[Dhruv Shringi:]

Thank you.

[Operator:]

. We will now take our next question from Tim Moore from Zacks.

[Tim Moore:]

Yes. Thanks. A few of my questions have already been addressed. It was a nice topline growth and nice to see the vaccinations keep rising. I am just wondering, you were nice enough to kind of put in the press release and mention the 20% booking drops in domestic travel the first week of December, but then you start seeing maybe an uptick the past week. Is that uptick because it faced a year ago kind of easy two-year comparable? Or do you think that's kind of most recovery-driven in the past week for the bookings?

[Dhruv Shringi:]

Yes. It's a comparative that I was drawing. The comparative that I was doing was in fact versus the November numbers, so not over year-over-year. Because year-over-year comps become hard in this environment to compare. So compared to November itself, while there was a drop of 20%, in the last few days, we have seen recovery happening on the domestic travel front. We are still not back fully to the November levels, but we are getting pretty close to that now.

[Tim Moore:]

It's good to hear. And just it was nice to hear corporate bookings, the wins and that's still at only half the pre-COVID level and you are not by yourself on that. I mean all the OTAs are in the kind of same camp. How much of a lag do you think that might be compared to like domestic leisure travel for kind of corporate recovery? Is it really folks have to stop working from home and get back to the office and you might be looking at kind of another year to get back to maybe 80% of kind of pre-COVID level for corporate bookings.

[Dhruv Shringi:]

What we saw in October and November of this year was very encouraging. The kind of quick ramps that happened in corporate travel was a pleasant surprise. And as I mentioned, we were back to almost 50% of pre-COVID numbers in November. And had Omicron not happened, at least the indication we had from some of our largest customers was that in Q1, they would have been somewhere between 75% to 90% of the pre-COVID levels. So we were seeing and we were expecting a fairly quick ramp happening on the corporate travel side as well. My sense is the lag between consumer and corporate should not be more than a quarter or two at the max. The only difference which is there, I think corporate travel, on a per customer spend basis, might recover only to between, let's say, 85% to 90% of pre-COVID level, if I look at it from a weighted average point of view, right. But we will have new customer wins that we have been seeing. And those, as they come in, should help us offset the drop in per customer spend.

[Tim Moore:]

And for maybe that 85% level estimate, does that include freight cross-selling? Or is that separate?

[Dhruv Shringi:]

No. Freight is completely incremental to this. This is just on a like-for-like basis, comparing travel to pre-COVID travel, yes.

[Tim Moore:]

Good. That's wonderful to hear. And it was nice to kind of hear the revenue, possible guidance for freight, I think I heard maybe $4 million to $5 million for next year. Do you think this year is already trending at least $2 million and you think you can double it each year going forward, beyond next year, maybe it's $10 million the following year?

[Dhruv Shringi:]

So I think we are trending at those kinds of numbers. We are comfortable with this projection that we are sharing, right, the guidance that we are sharing. And yes, in terms of seeing a doubling year-over-year from there on as well, I think that's something that we are definitely aiming towards.

[Tim Moore:]

So I just have one more question on service costs. It's been quite low. And we know it's tied to packages and hotel packages and travel packages. When do you think that will start coming back? And it probably shouldn't go back to the same level it was pre COVID, right, because you probably negotiated things and put some things in place that could keep that down.

[Dhruv Shringi:]

Yes. So over there, there's also a change in consumer behavior that we are seeing right now. People are traveling in closed family groups. You don't see large groups of people who don't know each other traveling together in package groups. So that part of the business is actually getting unbundled. And it's baking into smaller groups where people are then booking flights and hotels with us rather than taking a large package along with others who are traveling with them. And this is maybe to do more with the pandemic where people don't want to travel with people that they don't know.

[Tim Moore:]

Okay. Good. No, that's really helpful. And so if that behavior continues for the next year, maybe longer, the net service cost percentage of revenues, that should stay pretty low and help with operating leverage, right?

[Dhruv Shringi:]

That's right. And also packages is one part of the business which is still not fully online and needs more manual intervention. So the actual unbundling of that where customers are booking the flight and hotel online itself is providing even greater operating leverage.

[Tim Moore:]

That's very helpful. And thanks for the color on that. That's it for my questions.

[Dhruv Shringi:]

Thank you.

[Operator:]

As there are no further questions in the queue at this time, I would like to turn the call back to your speakers for any additional or closing remarks.

[Manish Hemrajani:]

Well, thank you Cecilia. Thanks everyone for joining the call today. We look forward to speaking to you in the near term.

[Dhruv Shringi:]

Thank you. Stay safe everyone. Thank you.

[Operator:]

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.