Yatra Online, Inc.
Q4 2018 Earnings Call Transcript

Published: 12 Jun 2018

[Operator:]

Good day, everyone and welcome to the Yatra's Fourth Quarter and Full-Year 2018 Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Manish Hemrajani. Please go ahead.

[Manish Hemrajani:]

Thank you, Ann. Good afternoon, everyone. Welcome to Yatra's fiscal fourth quarter and full-year 2018 financial results for the period ended March 31, 2018. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder Dhruv Shringi; and our CFO, Alok Vaish. The following discussion, including responses to your questions reflects management views as of today, June 11, 2018. We do not undertake any obligation to update or revise the information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements. Additional information concerning these statements is contained in the Risk Factors section of the company's annual report on Form 20-F filed with the SEC on June 30, 2017. Copies of this and other filings are available from the SEC and on the Investor Relations section of our Web site. With that, let me turn the call over to Dhruv.

[Dhruv Shringi:]

Thank you, Manish, and good evening to all of you. Our first full-year as a public company has been a landmark year for Yatra. The acquisition of ATB earlier in the fiscal year has consolidated our position as the leader in the large and growing business travel market in India and the brand refresh campaigns that we have undertaken during the past year have enabled us to drive significant organic growth on the consumer segment as well. The combination of these factors has helped us deliver annual revenue less service cost growth of 41.3%, coming in ahead of the top end of our guidance range of 35% to 40%. During the past quarter as well, we continued to deliver strong growth with air ticketing transactions up 38% and standalone hotel room nights booked up 54%, both well ahead of market growth rates. We believe that our unique approach of combining business travel and consumer travel in an emerging economy like India positions us well to capitalize on the rapidly expanding travel industry. The macro factors in India continued to be favorable. Domestic air traffic was up 24% year-over-year in the March quarter. We expect to see sustained growth ahead over the mid to near-term as we see an expansion happening in the number of airports by the government of India and meaningful expansion in the fleet sizes by domestic carriers. The travel industry in India is witnessing a period of sustained growth and we’re excited to be a leader in the sector. Now on to some additional data points that reflects the strength of our business during the quarter. Our growth this quarter as you'll see further down has been fairly broad-based with all our offerings experiencing strong consumer adoption. Revenue from our air ticketing business grew 35.7% in the fourth quarter, largely driven by gross bookings growth of 34.6% and the positive impact of consolidation of ATB. Our air business outpaced overall market growth of 22% as we continued to take market share in both domestic and international air travel. Further to what I touched upon earlier on the aviation sector in India, we continue to see faster growth in Tier 2 and Tier 3 markets as the UDAAN scheme Launched by the Government which subsidizes air travel from Tier 2 and Tier 3 markets continues to bear fruit. Our hotel and packages business growth rate further accelerated this quarter with revenue less service cost growth of 62.7% year-over-year, aided by gross booking growth of 42.4% and expansion in take rates to 13.3% in the March 2018 quarter versus 12.5% last quarter and 11.6% last year. We're starting to see some early signs of acceleration in market share gains on the hotel and packages front given our recent brand positioning, our largest hotel inventory and our cross-selling initiatives. We continue to be the leading platform for domestic hotels and homestay options as we added over 9,000 properties on our platform in the quarter, taking our inventory to a market-leading 92,000 properties. We remain focused on building out hotel inventory and expanding supply over competition. The brand campaigns that we've undertaken over the course of this fiscal year as well continue to deliver strong growth for us. Our direct and organic traffic was up 74% versus the same quarter last year. We believe at this point of time the brand investments we've made over the past year have allowed us to significantly [technical difficulty] and we would not need to maintain similar levels of investments beyond the first half of calendar year 2018 as we focus more on better converting the higher traffic levels that we are at now. Our repeat customer base continues to expand. We recently launched a program aimed towards the high-frequency customers as well. This program in a relatively short span of time has garnered almost 50,000 members. Our transactions from repeat customers also continue to witness a healthy growth and now stands at 82% versus 75% in the year-ago period. This goes to show the strength of the brand and also the quality of service that we continue to provide to our customers. Switching gears now to our corporate travel business. On the corporate travel side, we believe we’re firmly entrenched as the largest corporate travel provider in India in terms of gross bookings. The corporate travel opportunity in India in our mind is the more exciting and larger opportunity in travel in front of us, and is projected to grow at over 12% per annum through 2020 making India the fastest-growing corporate travel market in the world according to KPMG research. On the corporate travel front, we are excited about our recent exclusive partnership with Chrome River Technologies, who are a leading provider of expense management services in the U.S. Yatra will resell Chrome River expense as part of an integrated travel booking and expense management solution with Yatra self book platform to corporate customers. Chrome River expense will empower Yatra's corporate customers to better enforce expense policies, provide an optimal traveler experience, and reduce wasteful expense. We believe this increases our value proposition to corporate customers and makes our corporate travel solution even more compelling. Our online sales booking platform adoption continues to grow strongly as well, with about 46% of Yatra's organic corporate business transactions now being done on the sales book platform. We continue to successfully migrate customers from not just being business travelers on our platform, but also becoming personal travelers on the Yatra platform. This number has grown over 3x versus the same quarter last year. In an emerging market with limited disposable income, business traveler is generally the first form of travel undertaken by consumers. As such, by being the leaders in business travel, we believe that we’re positioned to capture some of the most attractive consumers in India as they make their first online travel purchase. On our ATB business, we expect further growth and improved operating leverage once the ATB business is fully integrated. We believe there is an opportunity to cross-sell Yatra's hotel inventory to the now combined 700 plus strong corporate customer base. And in order to facilitate this hotel cross-sell, we recently introduced Yatra Smart. This is a curating lodging service for corporate customers. Here, we are offering a standardized pricing to customers, which is backed by a service quality assurance along with the hotel. We're currently live with 3,500 such properties under the Smart initiative and we plan to expand that to 6,000 properties across 300 cities over the medium-term. Mobile traffic continues to garner the largest share of our overall traffic with 81% of our traffic during the quarter coming from mobile devices. We expect to see this trend accelerate further in the coming quarter as the cost of mobile data in India continues to drop sharply thereby significantly expanding the market. I'm pleased to announce that our organic mobile app downloads have now crossed the 14 million mark as we added over 1.4 million new installs in the quarter. Additionally, I would also like to point out that our apps have the highest approval ratings on the Play Store. We continue to focus more on the quality of our downloads versus quantity as is evident by the gross bookings per download which continues to lead our peers by a wide margin. On the product development front, we continue to lead the innovation in the Indian travel market. We recently introduced YUVA, which is a voice and text enabled AI solution supporting various Indian accents. The YUVA app enables intuitive customer interaction in a relatively humanlike way, answering questions related to flight bookings and providing expertise in real-time. We think that on the back of our high brand recall and deep distribution network across India and now our leadership position in corporate travel, we are well positioned to strongly capitalize on this next wave of growth. I'm now going to hand it over to Alok to walk you through the details of the financial performance. Alok?

[Alok Vaish:]

Thank you, Dhruv. Good evening, everyone. As Dhruv mentioned in his opening remarks, we are obviously very pleased with the performance in our first full-year as a public company. On the key financial highlights for the year, on an overall basis our revenue less service cost grew by 41.3% year-over-year to INR 7.3 billion ahead of our guidance range of 35% to 40%.Growth in air passengers booked were INR 8.9 million, representing year-over-year growth of 29.2% with a favorable mix towards international travel. Standalone hotel room nights booked were 2.1 million representing an increase of 51.7% year-over-year. Coming to our quarter results for the period ending March 31, 2018. On an overall basis, revenue less service cost grew by 40% year-over-year to INR 2.03 billion. Gross air passengers booked were 2.5 million, representing year-over-year growth of 38.2%. Standalone hotel room nights booked were 682,000, representing an increase of 54.5% year-over-year. Revenue from our air ticketing business increased by 35.7% to INR 1.38 billion in the current quarter. This growth was driven by an increase in gross bookings of 34.6% to INR 22.2 billion in the current quarter. Our net revenue margins remained flat year-over-year at 6.2%. On hotels and packages, our revenue less service cost for this segment was up 62.7% year-over-year to INR 502 million in the current quarter. This growth was due to an increase in hotels and packages gross bookings of 42.4% and continued growth in standalone hotels on the back of largest online hotel inventory in the country. We also benefited from an improvement in our hotels and packages net revenue margins of 13.3% during the current quarter versus 11.6% in the year-ago quarter as our mix of standalone hotels improved. The increase in net revenue margin is due to change in business mix in favor of standalone hotels, which have higher margins as well as higher margins as negotiated from the suppliers primarily from our standalone hotels business. Other revenue grew by 20.1% to INR 157.3 million. Moving onto expenses. Our marketing and sales promotion expenses increased by 18.9% to INR 1.1 billion in the current quarter, primarily on account of increases due to brand marketing campaigns. Consumer promotions and loyalty incentive programs as well as the impact of consolidation of ATB. Marketing and sales promotion expenses as a percentage of revenue less service cost was lower at 56.2% in the current quarter versus 66.1% during the year-ago corresponding quarter as we continue to experience good leverage on the brand spend we done in the previous quarters. Our personnel expenses decreased by 20.8% to INR 743 million in the current quarter from INR 938 million in the three months ended March 31, 2017. This decrease was primarily on account of decrease in employee share based payment expense of -- to INR 142 million in the three months ended March 31, 2018 from INR 551 million in the previous year's quarter, which was partially offset by increase on account of consolidation of ATB. Other operating expenses increased by 83% to INR 1.25 billion in the current quarter from INR 683 million in the prior year quarter. This was primarily due to a non-cash charge on account of re-measurement of ATB purchase price, contingent consideration of INR 294 million, increase in payment Gateway expense and commission due to increase in business volume and impact of consolidation of ATB. We also had a nonrecurring expenses of around INR 90 million primarily consisting of accounting for GST charges, increases in gratuity costs in account of a change in government policy as well as the shelf filing related legal and professional fees. As a result of the foregoing factors, our result from operating activities was a loss of INR 1.18 billion in the three months ended March 31, 2018. Adjusted EBITDA loss for this quarter was INR 559 million as compared to adjusted EBITDA loss of INR 623 million in the year-ago quarter. Taking into account the nonrecurring expenses discussed earlier and the projected reduction of brand marketing spend for the second half of calendar year 2018 and beyond, we should see reduction in our adjusted EBITDA losses going forward. As of March 31, 2018, the balance of cash and cash equivalents and term deposits on our balance sheet was INR 3.48 billion or approximately $53.4 million as compared to INR 4.56 billion as of March 31, 2017. This concludes the prepared remarks. We can now open it up for Q&A. Ann?

[Operator:]

Thank you. [Operator Instructions] We will take our first question from Jed Kelly with Oppenheimer.

[Jed Kelly:]

Great. Thanks for taking my question. Just touching back and I’m sorry if I missed this and some of the opening remarks. Can you discuss how we should be thinking about fiscal year 2019 in terms of revenue growth? And then, how we should be modeling the sales and marketing and the leverage you expect there and some of the ATB synergies?

[Dhruv Shringi:]

Jed at this point, we're not giving out direct guidance for the current fiscal year. We will do that by the end of the Q1 when we announce our Q1 results. The reason being we're still in the early days of integrating the ATB business. As you would recall the earn out for the current management ended only on 31 March. So over the course of the last couple of months we've been having interactions with the customer at ATB, trying to figure out the rollout plan for our platform into their customer base. So that’s part of the reason why we’re still in that assessment phase, its relatively early days. And secondly on the consumer direct business as well, while we’ve seen early indications of there being some rationality in the market, we wanted to see this play out for a slightly longer period of time before we give out more concrete guidance. Our business continues to grow healthily, they’re delivering strong growth. So we believe all the macros combined with our own execution should enable us to deliver healthy growth with improving operating performance in the current fiscal year as well.

[Jed Kelly:]

Okay. And then, can you talk about some of the steps Yatra and maybe the airlines in India are doing to sort of combat some of the rising fuel costs we’re seeing?

[Dhruv Shringi:]

Sure. So on the fuel prices we have seen some increase in fuel prices come through. At this point in time, the airlines have been fairly circumspect in terms of passing that cost on to the consumer. They have continued to absorb a meaningful part of it. There is active dialogue which is also happening between the airlines and the government to reduce the amount of taxes which are levied on aviation fuel. Aviation fuel in India is one of the most highly taxed across the globe and the airlines at least seem to be indicating that they might see some benefit coming through from the government. And if that tax benefit does come through, it will enable the airlines to operate without needing to pass on the cost to consumers.

[Jed Kelly:]

And then, I think Booking.com just recently said India is their fastest-growing market and there has been some articles about some increasing supplier direct initiatives from some of the budget airlines. And then OYO Group joining MakeMyTrip. Can you just talk about the -- can you just give us an update on the competitive dynamics that you’re seeing right now in the market?

[Dhruv Shringi:]

Sure. So on the competitive landscape, I will address the supply direct question first. So I think in India one of the key things to take into account is that India is largely moving towards being a mobile Internet market. And on the mobile environment, especially on the app side the environment inherently favors an intermediary. As a customer, you will download maybe a couple of apps of intermediaries and use those to book and transact as opposed to downloading six or seven different apps of airlines or in the case of hotels downloading the apps of thousands of hotels. India on the hotel front is extremely fragmented, and on that side we don't really see any risk of supply direct. On the air side as well while there might be some supply direct on the domestic front, on the international air front there is tremendous amount of choice which a customer has. So I mean take a basic example of a customer traveling from India to London or you can go via Middle East, you can go via Continental Europe, you can go direct, so you’ve got at least 350 odd options. In those scenarios, customers continue to prefer using the OTA platforms and on mobile devices its extremely hard and cumbersome for a customer to open multiple different apps and multiple different browsers to go and start comparing that intensively. So we feel given the mobile nature of the Indian market, it will continue to favor the intermediary environment. With regards to the other two questions on the hotel part, which is Bookings.com, Bookings.com while we do see Bookings.com being more active on the four and five star category. We don't really see them that actively on our core area of the budget hotels. Yatra has the largest inventory of budget hotels in India and that's the segment where we continue to see tremendous amount of growth. With regards to OYO, OYO was on the Yatra platform. They came on the Yatra platform a few months ago. So I think that’s the recent initiative that they've taken now to partner with MakeMyTrip as well.

[Jed Kelly:]

Okay. Helpful. And then one more for me. Can you give us any update on the Norwest distribution? Any color you could provide there?

[Dhruv Shringi:]

See with regards to the Norwest distribution, I mean, whatever information we have is also limited to whatever is publicly available. We've seen over the course of the last now I think maybe about 30 to 45 days the stock continuing to trade at healthy levels. And we've seen that rebound quite strongly from the lows of the mid 5s where it was. That to an extent gives us an indication that some of the selling pressure seems to have eased off. But this is again based on whatever we're seeing play out in the market domain only. There is no other color that we have beyond what's available in the public market.

[Jed Kelly:]

All right. Thank you.

[Dhruv Shringi:]

Sure, Jed. Thanks.

[Operator:]

[Operator Instructions] We will go next to Jon Hickman with Ladenburg.

[Jon Hickman:]

Hi. Thanks for taking my question. I was wondering if you could elaborate a little bit on this initiative by the government to open these other airports kind of where are we in that process? What are the airlines doing about that and the pricing is it what you expected it to be?

[Dhruv Shringi:]

Sure. On the macro front, Jon, there are couple of things which are playing out and two large initiatives which are there, one of improving the existing infrastructure on some of the Tier 2 airports. So the government continues to operationalize about 75 to 80 airports in the past 12 months. Their focus has been on trying to not just make them available, but make these airports available for longer duration. Some of these airports have mixed usage, which is that they are used for civilian purposes as well as for military purposes. So for that reason they’ve expanded the time horizon during which they can be used for civilian purposes, thereby allowing more flights to operate in and out of these airports. The other initiative which is there, which is called the UDAAN scheme, which is spelled UDAAN. As part of that initiative, the government is promoting travel and aviation into some -- these are Tier 3 airports actually, where they’re subsidizing the price of an air ticket. So a certain part of the supply from these markets is capped at approximately $35 or INR 2500. We are seeing strong traction happening and what we’ve also witnessed is that Indigo which is the largest airline in India now putting in place an order for ATR aircrafts, which will operate into these markets. So there's incremental supply as well which is being put on the back of this into improving the connectivity, into these Tier 3 towns. And given that surface transport and rail travel in India continued to be challenging. From a consumer's choice point of view, this is becoming an obvious choice for the customer and that's what's driving the kind of healthy growth rate that you see of 24% in the first three months of this calendar year.

[Jon Hickman:]

Okay. So can you give us any further maybe color on, I know you said you’re going to -- your bottom line is going to improve towards the back half of the year. Can you comment on your cash balances and how you feel about if you have the capital you need to get to positive operations?

[Dhruv Shringi:]

Yes, so at this point in time, if you look at our cash balance, we had approximately INR 53 million of cash on the balance sheet as on March 31. Our cash consumption is ranging between $5 million to $7 million a quarter. So we feel at the moment we've got adequate capital, but as is public information, we file the Shelf as well. So at the right moment we would look at expanding and improving on our balance sheet.

[Jon Hickman:]

Okay. Thank you. I appreciate it.

[Dhruv Shringi:]

Yes. Thank you, Jon.

[Operator:]

[Operator Instructions] With no further questions in the queue, this does conclude today's conference. We thank you for your participation. You may now disconnect.

[Dhruv Shringi:]

Thank you.

[Alok Vaish:]

Thanks.