Yatra Online, Inc.
Q1 2019 Earnings Call Transcript

Published: 18 Aug 2018

[Operator:]

Good day and welcome to the Yatra First Quarter 2019 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Manish Hemrajani. Please go ahead, sir.

[Manish Hemrajani:]

Thank you, Annie. Good morning everyone. Welcome to Yatra’s first quarter 2019 earnings conference call for the period ended June 30, 2018. I am 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’s views as of today, August 17, 2018. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today’s call are forward-looking specifically 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 recently on July 31, 2018. 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?

[Dhruv Shringi:]

Thanks, Manish and good morning everyone. I am pleased to report that we have started fiscal 2019 on a strong note. We are seeing the power of our multi-channel approach and the efficiencies we can gain as our brand recognition grows. We believe that our unique strategy of segmenting consumers between business and leisure travel is a powerful one. It enabled us to better judge the higher spend and loyalty of business travelers, while separately serving the more cost conscious and opportunistic leisure travelers. We believe we are very well positioned to capitalize on India’s rapidly expanding travel industry. The multi-channel approach that we have adopted drove our top line up with adjusted revenues up 24.8%, operating efficiencies driving cost savings, enabling us to reduce our adjusted EBITDA loss by a third. Most importantly, we can dial by consumer promotions and other brand building spends on the back of our high brand recall. Marketing expense was around 50% of adjusted revenue this quarter, which is a meaningful reduction from last year. Furthermore, the integration of ATB is on track and we are beginning to realize the initial cost synergies. The full impact of which will be reflected in the subsequent quarters. I also want to highlight that we have made a reporting change this quarter as it relates to IFRS 15. We have replaced our revenue less service cost line item with adjusted revenue. Adjusted revenue is broadly similar to the earlier revenue less service cost on net revenue number and represents revenue and other income after deducting service costs and adding back expenses related to consumer promotion and loyalty program costs that have been reduced from revenue due to the adoption of the new accounting standard, IFRS 15, effective April 1, 2018. This presentation allows us to continue reporting on a like-for-like basis. On a pro forma basis when accounting for IFRS 15, I am delighted to share that our adjusted revenue growth is 53.6% year-over-year. This clearly shows the improvement and efficiency of our consumer promotions and our marketing expense. Let me now review key operating highlights of the quarter. I will touch on the general macro environment then review air, hotel, corporate travel and some of our other initiatives and marketing and technology. We believe the aviation macro trends will remain favorable over the long-term due to lower aircraft penetration and government impetus. Growth in air travel should be sustainable due to an expanding number of airports and meaningful growth in fleet sizes by domestic carriers. The immediate aviation environment was strong too with domestic air traffic up 20% year-over-year in the June quarter. Our own air ticketing transactions were up 26.3%. There are however a few recent macro trends like rising oil prices and the depreciation of the Indian rupee versus the dollar, which are pressurizing airline profitability. This could result in airlines raising airfares, which may negatively impact the more price sensitive leisure travel. However, as we have stated in the past, we do believe that the business travel demand in India is less price sensitive and we do expect the business travel industry to continue to witness healthy demand on the back of a strong overall macro environment in India. As a leading player in the business travel segment, we believe that we are strongly positioned to capitalize on this trend. These near-term headwinds do not in anyway reduce our confidence in the long-term outlook of the Indian aviation industry. Drilling down, gross bookings from our air ticketing business grew a solid 40.2% in the first quarter. Adjusted revenue posted growth of 18%, largely on account of lower air take rate of 5.2% as a result of our higher corporate business mix and higher airfares. This lower take rates however does not have any negative impact on our operating profitability given the lower cost structure on the corporate travel side. This change in mix and our continued optimization of consumer promotions also result in a pro forma IFRS 15 adjusted year-over-year revenue growth of 38.4%. Let’s turn to hotels now. We continue to be the leading platform for domestic hotels and homestay options as we added over 3,000 properties on our platform in the quarter taking our inventory to a market leading 95,000 properties. Our hotel and packages business grew at 20.5% on an adjusted revenue basis with gross bookings growing 21.2%. Standalone hotel room nights booked were up 23.5%. We are now just starting to see the cross-sell benefits in our corporate business and we expect to see further progress along that front as we continue to migrate legacy ATB corporate customers on the Yatra platform, the first set of which will go live towards the end of fiscal Q2. Our SMART hotel program also continues to gain traction with over [Technical Difficulty]

[Operator:]

Ladies and gentlemen, please standby as we reconnect our speaker. And Mr. Shringi, you are live.

[Dhruv Shringi:]

Thank you. Sorry, I think our call got dropped. I will just pickup the thread again on our SMART hotel program. So, just to do a quick recap on that, our SMART hotel program continues to gain strong traction and we now have 6,000 hotels live as part of this program, under which we are ensuring a certain degree of product and service standardization for our customers backed by Yatra’s service guarantee. The increase in our hotel footprint and our focus on the SMART hotels allowed us to rationalize our consumer promotions on hotels and packages as well. As a result of this, our pro forma IFRS 15 adjusted revenue for hotels and packages grew 46.9% year-over-year. Let me now talk about our corporate travel business. In an emerging market with limited disposable income, business travel is generally the first form of travel undertaken by consumers. As such, by being the leader in business travel, we believe that we are positioned to capture some of the most attractive target group of consumers in India as they make their first online travel purchase. Corporate travel demand also tends to be less price sensitive when it comes to fare hikes, an important characteristic when considering those near-term headwinds I mentioned earlier. We believe we are firmly entrenched as the largest corporate travel provider in India in terms of gross bookings. Corporate travel opportunity in India in our mind is the more exciting and larger opportunity in travel in front of us. It is projected to grow at over 12% per annum through 2020. This makes India the fastest growing corporate travel market in the world according to KPMG Research. Let me cover some other recent accomplishments in the corporate travel segment. We continue to strengthen our presence in the corporate travel segment and some of our key recent customer wins include the Essel Group, Tata Consulting Engineers, United Phosphorus, Airtel and Bridgestone. These organizations cumulatively employ over 45,000 people. We now have well over 700 corporate customers using Yatra for their corporate travel needs. Our partnership with Chrome River Technologies, a leading provider of expense management services in the U.S. is still in its early days, but we are starting to see traction in customers opting for a bundled product with Chrome River EXPENSE as part of an integrated travel booking and expense management solution with Yatra’s Self Book platform. Speaking of the Self Book platform, our online self book platform adoption continues to grow strongly. About 50% of Yatra’s organic corporate business transactions are now being done on the Self Book platform and this is up from 46% in the sequentially previous quarter. Also, we continue to successfully migrate customers from being business travelers to personal travelers. This number grew over 100% versus the same quarter last year. Let’s now turn to some other highlights of our business. The brand campaigns that we have undertaken over the course of the last 15 months continue to deliver well for us with direct and organic traffic up 41% versus the same quarter last year. At this point, the band investments that we have made over the past year have allowed us to significantly scale our direct traffic to our online properties. We do not think we need to maintain similar levels of investments going forward as we focus more on better conversion of the higher traffic now. In the ATB business, we expect further growth and improved operating leverage once it is fully integrated. We believe that there is an opportunity to cross-sell Yatra’s hotel inventory to the now combined over 700 strong corporate customer base. We also recently launched a simplified version of our corporate self book platform for SME customers and over 8,000 SMEs have signed up on this platform. Mobile traffic continues to garner the largest share of our overall traffic, with 80% of our traffic during the quarter coming from mobile devices. We expect to see this trend accelerate further in the coming quarters as the cost of mobile data in India continues to drop sharply thereby significantly expanding the market. Our organic mobile app downloads have now crossed the 15.3 million mark as we added over 1.2 million new installs in the quarter. To conclude, we think that on the back of our higher 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 am now going to hand it over to Alok to walk you through the details of financial performance. Alok?

[Alok Vaish:]

Thank you, Dhruv and hello to everyone. As Dhruv mentioned in his opening remarks, we are obviously very pleased with our performance during the quarter ended June 30, 2018. Let me take you through the key financial highlights for the quarter starting with the income statement. But before I get into the details as Dhruv mentioned earlier, I want to highlight that effective April 1, 2018 we have adopted IFRS 15. [Technical Difficulty]

[Operator:]

Ladies and gentlemen, please standby as we reconnect our speaker. And Mr. Shringi, you are live.

[Alok Vaish:]

Alright. Thank you. Sorry, for some reason our call dropped again apologies for that. Let me just start all over again. So, I was just saying before I get into the details, as Dhruv mentioned earlier, I want to highlight that effective April 1, 2018, we have adopted IFRS 15 accounting standard that requires us to reduce certain marketing and sales promotion expenses from revenue. We have also starting from this quarter changed the non-IFRS financial measure revenue less service cost, which we are using until last year to adjusted revenue, which represents IFRS revenue and other income after deducting service cost and adding back the expenses in the nature of consumer promotions and loyalty program costs, which had been reduced from revenue. Our adjusted revenue in the quarter grew 24.8% year-over-year to INR2.04 billion or $29.8 million. We also recorded a reduction of revenue, which was related to the timing and recognition of revenue required by IFRS 15. Without considering the impact of this reduction in revenue, our adjusted revenue would have been INR2,063 million or $30.1 million, translating to 26.2% growth on a like-for-like basis. Gross air passengers booked were 2.37 million that represents year-over-year growth of 26.3%. Standalone hotel room nights booked were 579,000, representing an increase of 23.5% year-over-year. Our adjusted revenue from air ticketing business increased by 18% to INR1.25 billion or $18.3 million in the current quarter. This growth was driven by an increase in gross bookings by 40.2% to INR24.3 billion or $400 million in the current quarter. Gross bookings growth was offset by a decline in our net revenue margins to 5.2% versus 6.1% in the year ago quarter due to a change in business mix in favor of B2E business and slightly higher domestic fares. Corporate business has lower net revenue margin, but significantly better economics due to negligible marketing and sales promotion expenses and payment gateway costs. The resulting change in mix and optimization of our consumer promotions enabled us to deliver 38.4% growth in pro forma IFRS 15 adjusted air revenue. For hotels and packages, our adjusted revenue for this segment was up 20.5% year-over-year to INR528 million or $7.7 million in the current quarter. This growth was due to an increase in hotels and packages gross bookings of 21.2% and continued growth in standalone hotels on the back of largest online hotel inventory in the country. Our hotels and packages net revenue margin was 12.9%, a marginal decline from 13% in the year-over-year quarter. This growth in the hotels and packages business, as Dhruv mentioned earlier, has been achieved in parallel with an improvement in our unit economics and our pro forma IFRS 15 adjusted revenue growth for hotels and packages is a strong 46.9% for the quarter. Other revenue grew by 94% to INR257.5 million or $3.7 million from INR132.7 million or $1.9 million in the prior year quarter. Moving on to expenses, our marketing and sales promotion expenses decreased to INR286 million or $4.2 million in the quarter from $16.8 million in the prior year quarter. Adding back the consumer promotions and loyalty program expenses, which were reduced from revenue as per IFRS 15, our marketing spend would have been INR1 billion or $14.9 million, which would have been – which is about 11.3% lower than a year ago number. This reflects the increasing efficiency of our marketing and sales promotion expenses on increasing gross bookings. This adjusted marketing and sales promotion expense as a percentage of adjusted revenue decreased to 50.1% in the current quarter from 70.5% during the year ago corresponding quarter. Our personnel expenses increased by 8.5% to INR786 million [Technical Difficulty]

[Operator:]

Ladies and gentlemen, please standby as we reconnect our speaker.

[Manish Hemrajani:]

Please standby. We will resume the call shortly. Thanks.

[Operator:]

And you are live.

[Alok Vaish:]

Thank you. Apologies, there is something wrong with the lines here I don’t know what’s going on. Let me just start where I was which is on the personnel expenses. So, our personnel expenses increased by 8.5% to INR786 million or $11.5 million in the current quarter from INR725 million, which was $10.6 million last year. This increase was primarily due to consolidation of ATB partially offset by a decrease in employee share-based payment expense to INR166 million or $2.4 million in the current quarter from $4 million in the prior year quarter. Excluding the effect of ATB consolidation, our employee costs would have been lower by 7.6% year-over-year. Our other operating expenses increased by 26% to INR803 million, which is $11.7 million in the current quarter from $9.3 million in the prior year quarter. The increase is primarily on account of impact of the consolidation of ATB and increases in payment gateway expense and commission both due to increase in business volume. Based on these factors and operating efficiencies, adjusted EBITDA loss was reduced by INR203 million or $3 million in the current quarter from $8.9 million in the prior year quarter to $5.95 million in the current quarter. Turning to liquidity, our cash position remains strong. As of June 30, 2018, the balance of cash and cash equivalents and term deposits on our balance sheet was INR5.9 billion or approximately $86 million. And let me conclude with the guidance, as Dhruv noted earlier, we remain bullish on the Indian macro environment. We see solid growth potential in air and hotels industry and believe we are uniquely positioned with a strong presence and market leadership in the corporate travel space. For fiscal year ‘19, we anticipate over 20% growth in adjusted revenue with a meaningful improvement in our adjusted EBITDA loss for fiscal year ‘19 on the back of efficiency marketing spends and leverage and operating cost. This concludes our prepared remarks. We can now open it up for Q&A. Thank you.

[Operator:]

Thank you. [Operator Instructions] And we will take our first question from Jed Kelly with Oppenheimer. Please go ahead.

[Jed Kelly:]

Great. I appreciate the added disclosure for the sales and marketing this morning made it easy to update our model before the earnings. So I guess just since the quarter – just since last quarter, it sounds like you are a little more incrementally cautious on some of the macro. I mean, how much in your guidance for that 20% growth, do you have any conservatism factored and what do we expect – are you expecting rising fuel, are you expecting some more rupee depreciation? Can you just unpack what you are thinking about in the macro in terms of your guidance?

[Dhruv Shringi:]

Sure. Jed, hi, this is Dhruv. So, in terms of the macros, I think there is a bit of headwind that we are looking at on account of the oil prices and also on account of the currency. The currency is being fairly volatile over the course of the last 3, 4 months now. So, I think it’s better from our perspective to be a bit cautious on this. So we are cautiously optimistic that’s the way I would put it. There is a bit of a reduction in our own growth forecast that we are carrying right now on the back of these two factors. But having seen how oil has played out in the last week as these kind of trends continue then I think there could potentially be some upside on this number.

[Jed Kelly:]

Okay. And then just on the guidance, I mean, can you help us unpack a little bit what that sort of implies the OTA segment growth, what it implies corporate travel segment growth and then your traditional travel agent segment?

[Dhruv Shringi:]

Sure. So from a growth point of view, what this is implying at this point in time is a bit higher growth on the corporate travel segment. We do expect corporate travel to be less price sensitive given the nature of that business. Whereas on the consumer side, we feel consumer demand as we have seen in the past does tend to be a bit more price sensitive, especially in the near-term. It has the habit of recovering and recovering fairly quickly, but there are some short-term blips that happened when prices move up. So, the way we are modeling it right now and looking at this is that we expect corporate travel demand to be stronger. We expect the consumer travel demand to be slightly muted giving us this blended growth rate.

[Jed Kelly:]

In your corporate travel segment that’s going to be profitable this year, correct?

[Dhruv Shringi:]

That’s right. Yes.

[Jed Kelly:]

Can you share any profitability metrics?

[Dhruv Shringi:]

At this point in time, we will not be sharing the blended number and directionally what we are pointing towards is a meaningful improvement in our operating performance and a significant reduction in our EBITDA loss. What we are also guiding towards Jed as you would have seen in Alok’s commentary is around the marketing expense and where do we see it trending and we see a very meaningful reduction in that as a percentage of adjusted revenue.

[Jed Kelly:]

Yes, so on the marketing following up, I mean, your expense comps obviously in marketing get tougher now after what happened as you said you are moving to the next three quarters. I mean, should we expect a little bit of growth. Do you think you will be just some low single-digits and can you give us any sense on like the magnitude of marketing leverage you think you are going to drive this year?

[Alok Vaish:]

So in this year’s numbers, I think we should – we are looking at them to be flat to slightly lower than last year on a like-for-like basis and then going forward looking at mid-to-late single-digit growth going forward?

[Jed Kelly:]

Okay. And then could you just give us an update on competition, looks like your largest competitor is being a little more rationale with their marketing spend, is that I guess, given that corporate travel is going to drive a lot of the profitability this year and it’s probably going to be the main story people should concentrate on. Can you give us a sense on competition in your corporate travel segment too?

[Dhruv Shringi:]

Sure. So on the corporate travel segment, there are two sets of competitors that we have, one is the foreign players, which is Amex and Carlson Wagonlit. They typically will play in the higher end of the segment and then on the Indian side, we have got a couple of homegrown players, people like Thomas Cook and Cox and Kings and their Indian arms, which are operating here versus both of these segments, we think we have hit a real sweet spot in the market and we have got a product market fit going absolutely right. We are offering a technology solution today, which is far more customized and far more localized with Indian content, including as we said over 6,000 SMART hotels over 95,000 other budget hotels in India. And from a pricing point of view, we are much sharper than most of our peers for a comparable solution. So we have got the added benefit of a technology platform, which most of our other peers don’t have. This technology platform will integrate into the company’s ERP systems, into their HR systems right into their expense management systems. So, it’s a fairly sticky proposition that we offer, which allows the organizations to customize their workflows, manage their expenses much better through a very tight quality compliance tool that we have in-built into this solution. So on the competitive landscape on tariff, I think we continue to be the dominant force and we expect that we will continue to gain market share on the back of the technology solution that we have.

[Jed Kelly:]

Okay. And then just one more for me, any partnership opportunities, I saw your largest competitors partnering with Flipkart, any opportunities for you?

[Dhruv Shringi:]

I think there are few opportunities as we continue to explore. There is a partnership opportunity that we are looking at with people like Jio, who are rolling out a large 4G mobile network. We had something in place with them earlier. We are trying to see how best we can expand the purview of that. And likewise, there are other commerce players as well in the country with whom partnership opportunities exist in the market.

[Jed Kelly:]

Thank you. I will get back in queue.

[Dhruv Shringi:]

Thank you.

[Operator:]

We will take our next question from Mark May with Citi. Please go ahead.

[Mark May:]

Thank you. Just regarding your comments in the prepared statements regarding airline profitability and possible headwinds there, how would that likely show up in your business and in the financials? Is that more of an impact on bookings or is that more of an impact on net margins, just trying to anticipate a little bit of how some of these macro factors kind of flow through the business?

[Dhruv Shringi:]

Sure. Hi, Mark, this is Dhruv. So there are couple of ways in which these macros affect us. The first is in terms of rising fuel prices typically do with the lag effect lead to higher air ticket prices and higher air ticket prices do lead to a slight drop in consumer demand, especially on the leisure travel side. So, we would look at maybe the overall macro market growth slowing down a bit on the back of increased airfares. So that’s one way it flows through. The other thing if it does become an extremely severe circumstance, right, where their profitability gets impacted on a continued basis, there could be some take rate pressure as well. At this point in time, however, we feel given the kind of incremental supply, which is being added by the airlines, take rate pressure is not really going to be the key focus area. So, what we would look out for in the near-term is the impact that it has on overall domestic passenger traffic on the back of these rising fuel prices and how much of this fuel price increase the airlines pass on to the consumer.

[Mark May:]

And at this point, have you begun to see signs of this on the consumer side of your business or are these comments just more anticipatory or have you already begun to see on the French some of this already?

[Dhruv Shringi:]

Sure. So in the 3 months ended June 30 for this quarter, we saw air ticket prices being up 11% versus the same quarter last year. A large part of this came in the month of June itself. So, while there is some impact of the change in mix towards higher value business travel and international airfare, but on a like-for-like basis as well, we have seen domestic air ticket prices go up, especially in the month of June and we have seen a similar trend continue in the month of July and August. So we are beginning to see some increase in airfares. It isn’t at a stage yet where it becomes alarming from a passenger traffic point of view, but this is something that we want to keep a very close eye on.

[Mark May:]

Okay, great. And when you do see these types of macro factors be it higher air prices or whatever it maybe the root cause, what has typically been the company’s marketing strategy during these periods? Do you tend to lean in, in order to maintain share and top line growth or do you tend to kind of pullback, how do you tend to think about your marketing strategy?

[Dhruv Shringi:]

Sure. So from a sales and marketing point of view, the multi-channel approach that we have, I think gives us a unique opportunity. So while we have seen in the past that leisure traffic demand, especially on the French does tend to be price sensitive where customers move away from air and start traveling by rail. On the business travel front, we see that the demand is fairly inelastic. People at least up to a certain increase in price point continue to travel as planned. So we would continue to focus on the corporate travel side and use this as an opportunity to expand our footprint on that side while the leisure travel market may potentially slowdown. So that’s how we are looking at this. We would lean in more on our distribution and the technology platform that we have built in on the corporate travel side to be able to maintain our growth rate as opposed to go after, let’s say, consumer promotions and incentivize and subsidize customers to a greater extent to manage and maintain that growth rate.

[Mark May:]

Great. And maybe one last one if I could, on the business travel side, I believe correct me if I’m wrong, one of your strategy is to try to increase your business with medium and large size businesses. Is that in fact one of the efforts and if so any sort of update on how those initiatives are going?

[Dhruv Shringi:]

Sure. That’s absolutely spot on, Mark and our focus remains on making sure that we can garner a larger share of these large and midsize corporates in India. And with regards to this, we have had a fair bit of success. I mentioned a few key customer wins that we have had in the quarter and these include one of India’s largest telecom players, a very large multi conglomerate, one of the largest pharma companies. So, these organizations cumulatively employ about 45,000 people. So, we continue to see strong traction on this front, on the corporate travel side and the next wave for us is not just at the air level, but beyond this what we have seen is that once companies adopt the platform, it tends to significantly improve our ability to cross-sell. So we are looking at hotels and we should start seeing meaningful contribution over the coming quarters from hotels and we are also looking at expense management to be another incremental revenue stream for us, which will start kicking in from the last quarter of this calendar year.

[Mark May:]

Okay, great. Thanks.

[Dhruv Shringi:]

Thank you.

[Operator:]

We will take our next question from Matthew Brooks with Macquarie. Please go ahead.

[Matthew Brooks:]

Hello. You have talked a little bit about the macro headwinds. So I just wanted to ask the business levers where our travelers take fewer international trips when the currency is lower and is that something in your sort of conservative optimism?

[Dhruv Shringi:]

And what we have seen on the business travel side is that there isn’t that much of an impact of the currency swing given that the Indian economy itself is growing at a very brisk pace, business travel continues to keep pace with that. But on the leisure side, yes, you know that’s something that we would typically see an impact of, this quarter was the high season. This was the peak summer holiday period, so a lot of people had already baked in their travel plans. If the currency remains at this level, then the quarter which would be October, November, December and the next peak from our leisure travel point of view is the one that we would need to closely look at to see how people behave. In the past, we have seen instances where people have deferred their leisure travel a bit, but then usually this seems to come back with a lag effect. So, you would see the deferment happening for a quarter or two, but post that once the new reality of the currency sets in, we have seen demand come back, but we haven’t really seen any detrimental effect of currency movements on business travel.

[Alok Vaish:]

Just to add do that even on the leisure travel I think lot of it depends on what the outlook is as generally people think this is a temporary depreciation in the Indian rupee therefore they will defer their travel, but if it is seen that this is the new normal then I guess very quickly people readjust their spends according to that and you see the activity back. And we have seen this couple of times in the past as well when Indian rupee went from almost INR57 to INR64 and then to INR68 and now to INR70. So I think people just wait for sometime to see whether this is the new normal or this is a temporary phase that they will go through.

[Matthew Brooks:]

Okay. And is there a period of time where it has to be at a new level to the people to adjust is it like 3 months, 6 months?

[Alok Vaish:]

I think really over a 3 – maybe 2 to 3 month timeframe people get a sense whether this is now a new normal as opposed to just a temporary phase. I think we are still in the early days of that. So I think we will probably have to see it for a couple of more weeks before it comes down to that this is a new normal for them.

[Matthew Brooks:]

Okay. And can you explain, was there anything to talk about in terms of the driver, the lower margin in hotels?

[Alok Vaish:]

There was a marginal decline, which was 12.9% versus 13%, that was again largely because of the change in business mix as opposed to any change in the margins from the standalone businesses. As you know we have two or three segments in there, which is a standalone hotels, is it the corporate hotels and then maybe hotels – sorry, holiday packages. So, all of those three combined, so there wasn’t any decline in any of the individual components, it’s just the way the business mix played itself out. There was a slight decline from 13% to 12.9%.

[Matthew Brooks:]

Okay. And I guess last one here, can you give any guidance about how much the sales and marketing expenses were as a percent of bookings in say the last four quarters or something so that we can adjust for IFRS 15 going forward?

[Alok Vaish:]

I think we have always seen ourselves looking at as a percent of revenue as opposed to percent of gross bookings, while we can go back and give you that number. I think the way we have looked at this as last year that number was about 57% as a percent of revenue. A year prior that number was 47%, the increase was only on account of the brand marketing and the brand ambassador campaigns that we did. But as we mentioned earlier, we will see pullback on all of those spends given that we have invested a fair bit on that and bring that number down to lesser than 50%.

[Matthew Brooks:]

Okay, thank you very much.

[Dhruv Shringi:]

Thank you.

[Operator:]

We will take our next question from Ranjeet Jaiswal with Jefferies. Please go ahead.

[Ranjeet Jaiswal:]

Hi, everyone. I would like to first understand, what is the status of ATB acquisition, wherein you had mentioned that you had acquired majority of the stake in August ‘17 and you need to acquire minority stake, so can you help us understand that?

[Alok Vaish:]

So I think what we put out was I think put out in the 20-F as well that the timeline for that is somewhere in the current quarter is what we are looking to work that through. It has to go through certain steps in terms of the audit of Indian financials and then the purchase price calculation based on that. So that is what we are all working towards and we will update that once we have better clarity in terms of what those final deadlines look like.

[Ranjeet Jaiswal:]

Okay. One more follow-up question on this. So x of ATB, what was your growth for both air ticketing and hotel and packages business on an adjusted revenue basis?

[Dhruv Shringi:]

Sure. On an adjusted revenue basis for our hotels and packages, there is very little contribution that comes in from ATB, so that’s largely pretty much Yatra and on the air ticketing side, around the 40% growth in gross bookings, about 10% to 12% would have come from ATB.

[Ranjeet Jaiswal:]

Okay. Because I just wanted to understand you have – you are guiding for 20% growth for this fiscal wherein for the first quarter, we had ATB contribution because of which we grew by 20%. But for the rest of the year, ATB contribution was largely there last year. So how confident are about this growth for the current fiscal?

[Dhruv Shringi:]

Sure. So just looking at that, what we have looked at is the kind of macro trends out there and the kind of new customer wins that we have on the corporate side. There are some large corporate customers who have gone live in the current quarter and there are some more who are in the pipeline scheduled to go live in the coming quarters. So, on the back of that, we are fairly confident of being able to get to these kind of numbers, there was some delay in terms of implementation of a few key customers with customers grappling with their own GST implementation till the March 31 timeline and then subsequently in the month or two post that and that’s the reason why those few large accounts got pushed back into the current quarter, but now that those have ticked in, we expect that the organic growth rate will also lift up on the back of those accounts coming through.

[Ranjeet Jaiswal:]

Okay. Thanks a lot. That’s all from my end.

[Dhruv Shringi:]

Sure.

[Operator:]

And we will take our next question from Andrew Carreon with the University of Notre Dame. Please go ahead.

[Andrew Carreon:]

Hi, thanks for taking my question. Just one quick question based on the new IFRS 15, it looks like about 70% of the overall marketing and promotion spend was counted against revenue and about 70% to 80% last year same quarter. Just curious how that differs quarter-to-quarter throughout the year? And then it seems like in the past, it’s been messaged that most of the promotion and marketing spend would be to enhance brand recall. So, how do you kind of reconcile that with us now saying that 70% of the spend is counted against revenue?

[Alok Vaish:]

Sure. So, at a macro level, our view still continues to be the same that a large part of this consumer promotion, which is being done is to build habit. It’s being done to get customers who would otherwise have bought online to come in and buy online. So, it’s category creation work, which is happening. So, we still contribute to believe in that wing and that’s the reason why we continue to show revenue less service cost as adjusted revenue in a pro forma manner. The reason why the change has been done is obviously on account of the implementation of the new accounting standard, but from our perspective and the way we look at the business right, we still view this as an essential cost of long-term customer acquisition and getting people to migrate from the offline channel to the online channel.

[Andrew Carreon:]

Got it. That’s really helpful. And then just curious on the recent share issuance, at $5.50 a share, I think it’s pretty meaningfully below the price at which the company came public is back and I think quite a bit below what a lot of people would consider a fair value for the business. So, just trying to understand from a shareholder view why that seems like a good thing to do and then maybe some uses for the capital now that there is $86 million on balance sheet?

[Dhruv Shringi:]

Sure. So there is a bit of background to that and I will do a quick summary of that. Our stocks actually went through a phase where on account of some distribution by our early stage shareholders to their LPs and some other charities. There were non-core shareholders who came into the Yatra shareholder base and these non-core shareholders were offloading stock in the open market at a certain rate. Given that we had come through a SPAC process, we did not have a large enough shareholder base to absorb that kind of incremental supply. The idea behind doing the raise was partly to offset that right. The idea was to get a larger shareholder base and a better quality shareholder base, which would enable us to take on some of that incremental supply that comes through. So that was part of the reason behind doing it and obviously, yes, over a period of time we would have needed incremental capital as well and that capital we want to deploy behind growing our corporate business, behind growing our SME platform that we launched recently and also looking at selectively M&A opportunities, which might exist in the market.

[Andrew Carreon:]

Got it. Thank you.

[Dhruv Shringi:]

Sure.

[Operator:]

We will take our next question from Gaurav Rateria with Morgan Stanley. Please go ahead.

[Gaurav Rateria:]

Hey, Dhruv. Couple of questions. Firstly, on the air transaction side, ex of ATB, has there been any shift or change in the market share trend for Yatra?

[Dhruv Shringi:]

Ex-ATB as well, we have seen fairly strong growth in our business and we continue to see especially international flights growing at a very rapid pace. So that’s definitely an area where I feel that the channel shift from offline to online seems to be happening at a very rapid pace.

[Operator:]

Gaurav, did that answer your question?

[Gaurav Rateria:]

Hello?

[Dhruv Shringi:]

Yes. Gaurav, did you get that?

[Gaurav Rateria:]

Yes. What would be the growth in the domestic air ticketing transactions?

[Dhruv Shringi:]

That’s not something Gaurav that we callout separately. Yes, what we do callout and have been calling out for the last whatever 6, 8 quarters now has been the overall growth in gross bookings.

[Gaurav Rateria:]

Sure. Secondly, just wanted to understand your growth in the hotel room nights have been very, very strong in fiscal ‘18. And this quarter, we saw – this fiscal year starting off with a slower growth rate, is there a thing which is going on in that particular segment?

[Dhruv Shringi:]

See on the hotel side of things, we have tried to look at rationalizing our consumer promotions, especially on the consumer front on the direct-to-consumer, B2C front. On the corporate side, the growth continues to be strong. So, there is a bit of realignment that’s happening on account of the consumer promotion rationalization. We also in terms of the next quarter onwards have the ATB customers migrating on to our platform. So that we think will create another large opportunity for us hence we have started moderating some of our consumer promotions on the B2C side knowing that we have got a certain amount of visibility on the corporate front where we will have incremental hotel growth coming in, in the second half of this year.

[Gaurav Rateria:]

Alright. Just wanted to check another trend, what’s happening on the budget side, you had announced some partnership with OYO how has that been shaping up? And in general, the overall growth in budget has had been ahead of your overall transaction growth?

[Dhruv Shringi:]

So on the budget segment, we have seen strong growth, but given that at this point in time a larger part of the growth is coming from the corporate side. On that front, it’s more the more mature 3-star chains and the 4 and 5-star hotels, which are driving large parts of the growth. The OYO growth side and the growth story over there, we have got OYO, we have got Treebo, FabHotels, all of them on our platform, but we also have our own portfolio of SMART hotels, which are partner hotels where we are standardizing the supply. We are trying to make sure that there is a certain minimum service guarantee, which is provided by us that’s backed by the hotels. So, our endeavor has been to try and increase the share of SMART hotels in our overall sales portfolio and we think that has a very positive impact on our consumer NPS as well. So, our focus would be to try and see how we can drive incremental demand to the properties, which are on the SMART hotel platform.

[Gaurav Rateria:]

Got it. Thank you.

[Dhruv Shringi:]

Thanks.

[Operator:]

We will take of our next question from Vincent Williams with CBC [ph]. Please go ahead.

[Unidentified Analyst:]

Hi, thanks for taking my questions. Can you just talk about the significant cash outflow and change in working capital this quarter as well as given your revised guidance your expectation for reaching kind of breakeven profitability?

[Alok Vaish:]

So on the working capital, yes, I mean, this one obviously has some bit of investment in working capital in the quarter. Some part of that came from the increase in corporate business given that corporate business when it close obviously has some bit of working capital in there. Also a large portion of that comes from our consumption of the GDS given that, that money is received upfront as opposed to being received in the quarterly basis. So as we keep utilizing those segments, that number goes up to that extent. There was also some small amount that we paid out as advance to some of the airlines as part of our regular business. There was some increase in that. All of those led to some bit of investment in working capital, but I think we should see that number coming off from where it is during the subsequent quarters.

[Unidentified Analyst:]

Got it. And your expectation for kind of reaching EBITDA and cash flow profitability, has that been pushed back in light of the headwinds that you discussed earlier in the call?

[Dhruv Shringi:]

See in terms of the overall business performance, we do expect that our business performance in terms of operating performance will continue to improve strongly on the back of the corporate travel business and the kind of profitability that we envisaged and expect to drive firmly. So, we would expect that we will continue towards our path of breakeven in the near-term, right. So, that remains on track and that’s at an operating level. In terms of cash flow breakeven, I think for that there will still be a bit more time that will be needed given that beyond the operating breakeven, we have got working capital changes which are there and there is a certain amount of CapEx spend also that happens. Plus as Alok mentioned, there are certain receivables for example from the GDS, there is money which is received upfront. So, the impact of that is felt in subsequent quarters from a utilization of cash point of view.

[Unidentified Analyst:]

Got it. And one more question if you don’t mind, given you have $86 million of cash in the balance sheet, do you foresee the need to raise any incremental equity or do you have enough now to kind of get you towards that breakeven profitability?

[Dhruv Shringi:]

Sure. So from an organic need point of view, we don’t foresee our business needing incremental capital raises. If there are some good M&A opportunities that do come up at some point in the future for that we will evaluate this independently, but at least from an organic point of view, we think we are adequately capitalized.

[Unidentified Analyst:]

Got it. Thank you.

[Operator:]

We will take our next question from Jon Hickman with Ladenburg Thalmann. Please go ahead.

[Jon Hickman:]

Hi. The last caller answered my question. Thank you very much. Appreciate it.

[Dhruv Shringi:]

Thank you.

[Operator:]

We will take a follow-up question from Jed Kelly with Oppenheimer. Please go ahead.

[Jed Kelly:]

Yes. So, of the $86 million you have in net cash, how much of that is going to or you are going to need to pay ATB for the remaining liability?

[Dhruv Shringi:]

Jed, that number as we have stated said earlier, we anticipate the ATB acquisition to cost us between $22 million to $27.5 million and I think there was about $7.5 million, which was paid upfront. So depending on where the final cash calculation or where the final audit adjustments and everything come out for their India business and the purchase price calculation comes out, the balancing figure would end up being paid out. So, it will range from $15 million to $20 million.

[Jed Kelly:]

Okay, that’s helpful. And then just unpacking some of the expectations in the hotel segment given the deceleration, it looks like okay, you are going to – you are seeing some deceleration from more rationale marketing however better ATB integration, more cross-selling opportunities should allow room nights to sort of grow inline with the 1Q 20% growth rate, is that the way to think about it?

[Alok Vaish:]

Yes. So we think on the back of the ATB integration and some key customer wins, which have happened in the recent past, we should expect our hotels or we expect our hotels and packages growth rate to increase from where we are right now and we do expect the standalone hotel room night growth also to pickup steam from where we are right now.

[Jed Kelly:]

Okay. And then just my last question, when you say free cash flow positive near-term, is that a 2020 story or are you pushing that out to 2021?

[Dhruv Shringi:]

See on the free cash flow, Jed, I think let me just clarify what I was talking about was from an operating breakeven point of view in the more near-term. In terms of free cash flow I think it will take us some more time beyond that because of the elements that we highlighted, there is working capital, there is CapEx, there is the impact of the GDS upfront payments, which will all kick in before free cash flow breakeven happens. So, there will be a time lag of between four to six quarters from the operating breakeven to a free cash flow breakeven.

[Jed Kelly:]

Thank you.

[Operator:]

And we will take our next question from Dick [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good morning and thanks for taking my question. Do you anticipate any effect in your business from the drafts of e-commerce policy that are currently making in rounds?

[Dhruv Shringi:]

Dick, that’s a very good question. That’s something that we are trying to keep a close eye on. We have had a few interactions as well with the stakeholders there. We think a policy like that could have a very positive impact on our business, especially if it looks at rationalizing the kind of consumer promotions, which have been running in the market. So, I think some of the consumer promotions we think could be scaled back if the concept of capital dumping does come into the picture. So, that should have a positive impact on the overall economics of the business and the competitive landscape. I also think that a policy like that should strongly favor the number two players, so the players who are more rationale in nature are the ones who should benefit from a policy like that coming through, because their businesses are not being built on the back of weak consumer promotions.

[Unidentified Analyst:]

I appreciate the compliment. Thank you very much.

[Operator:]

And ladies and gentlemen, that does end our question-and-answer session. I would like to turn the call back to our speakers for any additional or closing remarks.

[Manish Hemrajani:]

Sure. Thank you, all.

[Dhruv Shringi:]

Thank you, everyone.

[Manish Hemrajani:]

Well, go ahead, Dhruv.

[Dhruv Shringi:]

Well, I was stating thank you everyone and that concludes our conference call for today. And as always, Manish, Alok and I remain open, if anyone has any follow-up questions, you can feel free to reach out to us at any point in time. Thank you for your time this evening. Thank you.

[Alok Vaish:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today’s call and we thank you for your participation. You may now disconnect.