MakeMyTrip Limited (MMYT) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the MakeMyTrip Limited Q2 Fiscal 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Jonathan Huang, Vice President of Investor Relations. Please go ahead.

Thank you. Greetings and welcome, everyone, to MakeMyTrip’s Fiscal 2018 Second Quarter Earnings Call. We wish to remind everyone that certain statements made on today’s call are considered forward-looking statements within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and, by their nature, are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date and the company undertakes no obligation to update the information to reflect changed circumstances. Additional information concerning these statements are contained in the Risk Factors and Forward-Looking Statements section of the company's annual report on Form 20-F filed with the SEC on July 18, 2017, and copies of this filings are available from the SEC or from the company's Investor Relations department. On the call today are Deep Kalra, our Founder, Chairman and Group CEO; Rajesh Magow, Co-Founder and CEO, India; and Mohit Kabra, our Group’s CFO. And now, I would like to turn the call over to Deep to start off the discussion for today.

Thanks, Jonathan, and welcome, everyone, to our second earnings call for fiscal year 2018. I'm sure everyone on the call is keenly aware that India remains one of the fastest growing large economies in the world with a commensurately, rapidly expanding travel market. As we completed the first half of fiscal year 2018, we continue to see strong demand for domestic air and hotel bookings across the country. Our recent HVS research report showed greater hotel occupancy rates across all major parts of India. At the same time, we have seen strong interest for international outbound travels from new and existing users. With this strong travel demand backdrop, we have further improved by the latest estimates of Internet users in India. The latest projections estimate that India has over 450 million mobiles Internet users, a base that second in size only to China. More encouragingly, the current base of Internet savage users who book and pay online is estimated to be in the range of 50 million to 70 million users, thereby providing us with a long runway for growth. During fiscal Q2, the MMYT Group continued to drive tremendous online scale and reach within India’s travel market. For example, our total unique visitors have now surpassed 154 million and we have a base of over 27 million transacted customers. Additionally, our cumulative app downloads have crossed over 101 million, and we have over 87 million monthly shopper visits and over 15 million monthly active users accessing our brand. We believe the strong brand recall is largely driven due to the high volume of transactions executed though our platforms and our focus on providing the best pre- and post-sales experience to our customers. Furthermore, we are also constantly driving the offline to online behavior shifts through targeted campaigns and addressing any hesitations customers may have with booking online. We believe, as market leaders, we need to invest behind driving some changes, which will help grow the overall online travel industry’s addressable market. For example, we continue to use mass media campaigns to drive increased online booking behavior, particularly focused on Tier 2 and Tier 3 cities within India, where smartphone adoption and internet usage is relatively low but being aggressively promoted by the large scale course telcos. Among other things, we have been focused on its driving higher customer loyalty. Last quarter, we introduced our newly revamped loyalty program called MMTBLACK, where enrolled member can earn wallet credits based on how much they spend with us. I’m excited to share that more than 73,000 have enrolled already in the program and we have seen repeat pays with improved NPS scores from this group. Last quarter, we have also launched a new paid membership program called MMTDoubleBLACK aims at acquiring new high-frequency travelers. Enrollings of DoubleBLACK will receive benefits including free cancellation of flights and hotels and also auto enrollment into our MMTBLACK program. Currently, this annual-paid subscription program is still in its invite-only phase, but we have already had more than 16,000 enrolled and have been seeing improved NPS scores from this group. Going forward, we plan on making both loyalty programs smarter, more personalized and even more rewarding for our members. Last quarter, we announced our entry into the small corporates of SME travel markets with the launch of MakeMyTrip's MyBusiness app. I’m pleased to say that traction from this initiative has been strong, as today we have a growing base of 2,000-plus small companies, who have transacted with us for travel to over 335 cities and towns across India. Similarly, brand Goibibo has also rolled out its own SME-focused program called GoStay. Our innovative corporate solutions of our registered customers’ unique travel deals, while helping their finance teams, easily track and manage travel spends via tech-enabled solutions. We are very excited to see this level of success so early on, which was achieved with zero marketing dollar spent on physical sales force utilized. As a result of the traction theme, we remain highly optimistic of the long-term growth opportunities from this SME segment. Now I would like to share some of our latest developments across our all-important mobile platforms, where nearly 79% for our India’s standalone hotels reservations were made 59% for domestic flight bookings and over 74% for intercity cross visiting take place. Our aim is to make our mobile experience more personalized, highly relevant and the primary way for customers to search, shop and receive travel support from us. During Q2, I am excited to share that we have introduced GIA, or G-I-A, our new AI-powered port on brand Goibibo. GIA’s conversational based engine is live on our native iOS app, WhatsApp and Facebook Messenger and is helping us increase the use of automation for consistent and round-the-clock availability for our customer service needs. Furthermore, customers of our three brands are now able to receive and officially use the e-tickets at the airport that were delivered via WhatsApp, which is India’s most popular chat app with over 200 million users. This feature was made possible as our development team harness the capabilities of the WhatsApp business API, which has resulted in immediate improvement in customer satisfaction. We believe we are first travel company ever to deliver e-tickets to customers via this messaging application. In closing, I would just like to reiterate our optimism for the large and fast-growing online travel market opportunity ahead of our company. With our portfolio of well-recognized online travel brands, coupled with our culture of rapid innovation, has dedicated solely to helping travelers discover, plan, book their journeys as effortlessly as possible. We believe MMYT is well poised to achieve sustained high growth and widen our leadership in the Indian travel market that is expected to exceed $23 billion in online bookings by 2021. Rajesh will now share more details of our business accomplishments in the quarter followed by a financial overview by Mohit. Over to you Rajesh.

Thanks, Deep, and hello, everyone. I would like to begin by highlighting our accomplishments achieved in the first six months of the fiscal year. I am pleased to share that we have reported gross bookings of nearly $2 billion and over $280 million revenue in revenue less service cost or net revenue. Additionally, the contribution of hotels and packages to total net revenue reached over 57%, well on track to represent more than three quarters of the contribution mixed, a key benchmark of our long-term strategic plan. We also achieved more than 11.4 million actual room nights stayed across our entire hotels and packages business, which we believe is unrivaled by peers in our market. In Q2, our India standalone online hotel room nights stayed also increased by nearly 29% year-over-year on pro forma basis. As for our air ticketing business, we have locked more than 15.5 million flight segments flown by our customers since the beginning of the fiscal year. In Q2, our air segments growth of nearly 15% year-over-year on a pro forma basis continues to underscore our leading domestic air market share position even as we rapidly drive higher online outbound flight bookings. Lastly, our bus ticketing business continues to expand rapidly with more than 19.3 million tickets travelled and increased by over 45% year-on-year in the fiscal second quarter on a pro forma basis. During the seasonally low second quarter, our team drove rapid innovations and process improvements in order to deliver customer experience with our brands that is better than before. We also took great efforts to deepen our relationships with our supplier community, which is instrumental to our success, given the fragmented nature of the hotel landscape. In Q2, we sharpened our focus on providing customers with the richest and more personalized experience when they shop across our brands and channels. For example, the landing pages for domestic hostels are now customized based on users’ search preferences and fast in existing bookings, making users experience better and more fluent. We also upgraded and personalized booking funnel experience by adding contextual triggers to help increased conversions and effectively showcase key amenities to drive bookings of higher-end hotels, helping us improve unit economics within the hotels segment. Similarly, the Goibibo hotel booking experience has been enhanced to require less input on users’ upfront. We have also enabled the ability to book multiple room types, including varying hotel rate plans, all within a single transaction, which has helped improve the average room nights per transaction dramatically. To further delight our customers, we rolled out a new service guarantee called MMT Promise, where if a customer has made a flight or hotel cancellation, we pledged to refund money by a certain time. If we don’t, we will pay a high refund amount for each hour passed the promise-to-refund time. We believe this will help reduce further hesitation for first-time online bookers while helping to solve salient pinpoint which most Indian e-commerce shoppers can relate to. As for Goibibo, we have introduced a new flight cancellation protection product, which has also improved conversion. While lots of emphasis was placed on customer experience enhancements, we also kept improving the experience for our hotel supplier partners and making their lives easier. Last quarter, we announced that we had completed the rollout of a single common extranet platform, good news is our suppliers are beginning to realize the benefit, gained by more effectively leveraging the powerful tool to maximize returns on their property, manage complexities of GST compliance, tailored supply to customer promotions based on real time, comparative intelligence and react to real-time customer feedback. Furthermore, our asset-light Assured Hotels and GoStays operating models are also helping budget hotelier, scale up their customer experiences without a need to relinquish control of their properties or experience brand dilution. In the quarter, we continued to deepen our business relationship with our group of 45,000-plus domestic hotels and 13,500 alternative accommodations across India. As a result, an overwhelming majority of our domestic hotel partners are seeing incremental room night bookings by lifting and distributing through our platform. With more than a third of these properties seeing an average more than 100 room nights a quarter. We believe our reach and depth within the domestic online hotels business continues to provide us with a strong competitive advantage relative to peers. Now I would like to make a few remarks on our India-sourced air ticketing business, which continues to witness strong growth relative to overall market trend as we kept investing to drive market share gains primarily in the outbound ticketing segment. We believe there is still tremendous headroom for growth in the coming years within the outbound air ticketing segment and are excited to keep driving high conversions going forward. During the quarter, in line with our strategies, we have also maintained our leading domestic air market share and made numerous enhancements to our customer experience to improve conversions. For example, we have ramped up the rollout of our price prediction tool across all our online channels, both desktop and mobile. We have also added the ability for customers to select seats and pay for checked bag via our android app. Our team has also revamped the shopping review page to include reapplied wallet credits or prefilled with the best possible coupon for a particular customer, thereby reducing friction within the funnel. Lastly, let me share some highlights of the Redbus business, where we are positioned to drive rapid growth in this largely offline market. In Q2, our team has continued to see high growth coming from all geographical regions within India. We have proprietary life tracking of over 10,000 buses across various bus operators, which is extremely useful for Indian conditions. On the backend, we also launched a new platform that helps bring new products and features more rapidly than before to our customers. Further, we have improved the Redbus post-sale support with more contextual self-help modules increased nearby search options to capture more customers and added new payment options available from UPI, Google and Amazon Pay. We’ve also been ramping up the best-suited budget hotels for our customers travelling by bus. Going forward, we will continue to leverage this segment of the travel market to expand our market base, which will provide another leg of long-term growth as areas outside of top metros move online and increase their travel sequences. Now let me hand it over to Mohit, who will share more details of the quarter’s financial performance.

Thanks, Rajesh, and hello, everyone. I would like to begin with a quick recap of our three strategies and financial clarities for this fiscal year along with a brief update on the progress made on them during the quarter. Our top priorities included driving strong year-on-year growth as well as reducing operating losses via improved operational efficiencies, particularly on on customer acquisition spends. I cannot share the progress during the quarter on this three priorities. While growth has been an overarching priority, we have been targeting not just transaction growth but equally strong growth in gross booking values and net revenues. As if you would recollect, fiscal Q1 of this year was the first reported still quarter over the year of the ibibo growth with MakeMyTrip. In the second full quarter post the merger, I am pleased to inform that we have seen growth accelerating, despite this being a seasonally weak travel quarter. While in the first quarter of this fiscal year, we reported net revenues of $141.2 million with a 135% year-over-year growth, and in this seasonally low travel second quarter, we report net revenues of $139.2 million with a year-on-year growth of 156.5% on constant currency basis. This acceleration in growth was a result of implementing a comprehensive multi-brand strategy where in each brand would continue to leverage its relative strengths in each unique customer segment. In terms of adjusted operating losses, while we reported losses of $25 million in Q2 of fiscal year 2017 versus $24.3 million in Q1 of fiscal 2017, in the fiscal year that is pre the ibibo Group merger, this year we report reduced losses of $45 million in the second quarter of fiscal year 2018 compared to $52.3 million in adjusted operating losses reported in the previous quarter. We believe the performance in the repeated quarter has helped validate our ability to drive growth with improved efficiency as a multi-brand platform post the merger and it encourages us to accelerate the efficiency gain in the quarters to come. As highlighted by Deep and Rajesh, our multi-brand strategy has helped us stretch our operations for wider cross section of customers across varying price points and service offerings. This has allowed the group to generate over 33 million transactions in terms of about 7.7 million air segments, over 5.6 million stayed room nights and nearly 9.7 million travel bus tickets and also helped us report gross bookings of $1.07 billion during the reported quarter. MakeMyTrip Group during the current fiscal year has emerged as one of the few Indian e-commerce companies whose quarterly bookings exceeding $1 billion, indicating the significant scaling across the business over the last few years. In the strategically important hotels and packages business committed by the ibibo Group of consolidation, our hotels and packages room nights have increased to 5.6 million room nights, which is a year-on-year growth of 140.2% in the reported quarter. Given this, the standalone hotels booked online room nights have grown to 5.4 million room nights at a growth of 185. 9% on a year-on-year basis. It would be relevant to call out that the room nights in the premium segment of hotels registered the highest growth as a result of which our average selling price has improved to about $61 per room night compared to $56 per room night in the same quarter last year. Aided with improvement in net margins to 23.1% for the H&P segment, our net revenues stand at $79.2 million for the H&P segment, which is a 180.4% year-on-year growth in constant currency basis and faster than the growth in room nights. Moving to our air ticketing business. Despite a seasonal weak travel quarter, our air segment had stood at 7.7 million in quarter two compared to 7.8 million in the previous high season quarter and reflected a 64.6% year-on-year growth over the reported quarter 2 of last year. With small improvements in air margins, the net revenue for the reported quarter at $45.1 million was slightly higher than the $45.46 million reported in the previous quarter, reflecting close to 95% year-on-year on constant currency terms. In line with our expectations, the international segments grew faster than domestic segments and we registered 91.6% growth in international segments on a year-on-year basis. In Q2, our other business segments reported net revenues of $30 million, majority of which was driven by a net revenue contribution coming in from the redBus business and travel insurance sales. As I have just mentioned, our adjusted operating losses for the quarter stood at $45 million or 4.2% of gross bookings, which is approximately an improvement of over $7 million compared to the previous quarter at 4.5% of gross bookings. This was largely driven by about $6.5 million reduction in marketing and sales formation expenses in comparison with the previous reported quarter. This is in line with our strategy of continuously building efficiencies in our customer requisition spends, while driving scale and growth particularly in the hotels business. With this, I would like to thank you for joining this call and open up the call for Q&A. Operator, please?

Thank you. [Operator Instructions] And our first question comes from Gaurav M from Citi. Your line is open.

See your standalone room nights growth on a pro forma basis was around 36% last quarter, it has come down to 29% this quarter. So just want to get a sense as to given that we are still very early in terms of penetration, why has it been a steady decline in the growth rate? That’s my first question, please.

Largely as I called out, Gaurav, the focus has been on also kind of improving the mix of room nights within the overall room nights that is in cloud, and therefore, the focus has kind of shifted from growth across segments to growth largely been driven from the premium segments. That’s one of the reasons for the small tempering that we’ve seen in growth in the current quarter. Again, this would kind of even more be a tactical quarter kind of a thing considering that this also happens to be a low season quarter.

So this is not something which is like a change in strategy that you will now start focusing more on the more premium hotels and less on the budget hotels. This is just more project with seasonally slow -- Is that correct?

Yes, Gaurav, maybe I can just add to what Mohit said. No, you’re right, it’s not that we are shifting our strategy to move away from growth focus on this domestic segment as we rightly pointed out. It is a multi-penetrated segment. And also our strategy remains to focus on all segment of hotels and potentially alternative accommodation as well. But I guess what Mohit was trying to say was that given that we also want to make sure as we have looked at post merger both the brands more deeply in terms of looking at the economics of the business, n general we are also rationalizing promotions and discounts, et cetera, so it might so happen in a particular quarter, especially in a low season quarter, where we would try to tactically kind of optimize these spends, not necessarily completely go overboard going after room nights, et cetera and then kind of prior to meet dual objective, which is continue to keep growing but also get kind of high quality growth, if you will. And you will see our focus on growth will continue, but at the same time, we would also, like I said, we would like to rationalize the promotions in a way that we continue to kind of keep improving the economics as a well.

And Gaurav, if I can just add, this has been -- what Rajesh mentioned has been amply kind of played out. If you look at the increase in ASP, that's over 11%. So then overall the revenue growth is actually higher and with that focus. And I think what is not odd, it’s pretty clear that the loyalty in the higher end of hotels is also higher, whereas the liquidity or the propensity to move away when there are discounts in the lower-end hotels we have seen to be higher. So this is part of that, but - I don't think anything which should be raising towards a trend going forward.

Okay. Just a follow-up on the seasonality and seasonally slow quarter. Last quarter adjusted for the -- adjustments you made as part of the accounting standard, your marketing and sales promotion was around $142 million in 1Q 2018, and this is slower quarter in 2Q. And if I make that same adjustment and it’s like $136 million. So I would have assumed that the marketing would have sort of come off little bit more, given that it is a seasonally slow quarter.

Yes, Gaurav, if you also look at it in tandem with the revenue growth, the revenue growth kind of continued to be strong as well. And to this point, revenue growth hasn't been in line of - in the 29% in line, but overall revenue growth is much higher.

Okay. And just last question on the overall competitiveness in this sector, if you can just give us some thoughts on how you’re seeing the likes of Paytm, OYO, booking.com?

Yeah, sure, Gaurav. So, Gaurav, in the high-end segment, we definitely are seeing booking.com more so and I think there has been an increase I think in gradual but in a very measurable manner. We are seeing more of booking.com. Paytm we don't see much on the hotels side actually hardly at all, but very active on the ticketing side, air, bus as well as rail. And OYO, as you know have been active on the budget hotels sites and they have some variants out there, but essentially all in the budget still, and we are seeing them. The other brands are also there, but from a hotel point of view, we are largely seeing booking in the higher end and OYO in the lower end hotels as the main competitor. You see Yatra and Cleartrip a bit as well, but these would be the main brands.

And in terms of when you are seeing bookings getting more into the high-end hotels, does it - is it in terms of - are they giving higher discounts versus last business times? Or how are you seeing them getting more aggressive in the hotel space?

Yes , not higher discounts, what we are largely seeing is a bigger spread of more inventory being offered, so more hotels added on some through the aggregators like OYO and that has increased inventory that bookings offering.

Okay. And is OYO after its recent funding has become more aggressive?

Yes, I think they have been fairly aggressive this quarter. We have seen them to be fairly aggressive.

Thank you so much.

Thank you. Our next question comes from Parag Gupta from Morgan Stanley. Your line is open.

Thank you, everyone. So I have a couple of questions maybe just sticking from the earlier point on competition, what I just want to understand from you, Deep, is that you know while booking maybe offering you rooms from the likes of OYO, I’m just trying to understand how does one perceive the booking.com brand in India. I mean do people think of booking.com for booking any type of hotels? Or do you think they primarily stand for four star and five star because that’s what they really stood for in the past? And do you see any massive difference in pricing, let’s say, of an OYO room on Booking website versus that on OYO website and does that really mean that people go to Booking to book an OYO room or do you think they’ll go more to an OYO to book that same OYO room. So I think that’s one point just to understand how Booking is looking at driving traffic by bringing in these new listings. The second question that I had is related to OYO. Could you help us understand how is your Value+ offering been targeted? I mean, do you see a reason for Value+ to increase a lot more dramatically to take on the competition from OYO? Or do you think budget is a space where while transactions could obviously add up, they may not really move the needle from the booking perspective and hence one needs to be more measured. So I just wanted to understand your views on Value+? And the third is on the sales and marketing spends. While you spend about $135 million, $136 million and I think you’ve tried to control your adjusted EBITDA losses, could you give us some sense of how does the sales and marketing spend break up into various segments, especially with respect to the one of the new segments that we are trying to grow, which may not have added to bookings or revenue in a big way but probably have resulted in higher sales and marketing spends. So just some sense on how to break that up into various segments? Thank you.

Yes, sure, Parag. So let me take the first question. So Bookings and we have done a fair amount of customer research here. Booking is quite aggressive when it comes to SEM. So they are essentially the playbook as I think most of you are aware and they would be tying up keywords. So we will see them far more active in the five and four stars, but they are also in selective three stars which are popular hotels. At times, I think people could be booking right through with the Booking experience, which is smooth, but they would be very hard to estimate what percentage people would see OYO there and go away to OYO. But OYO from time to time, as we know, is offering aggressive discounting and cashbacks. So there would be a percentage of people who spoke of that. And that is precisely the divide that we are seeing between customers who are valuing experience versus price alone and we are seeing quite the same in our own customer base. And therefore, if you see all these efforts, whether it’s the loyalty programs, these are aimed at the more regular frequent user. And all the research that we are doing, we are seeing a very strong affinity towards brands and there are people who are quite happy to continue, despite knowing that there could be a coupon, et cetera, which is offered but not willing to go through the hassle. And the loyalty, inbuilt loyalty is now that more you do, that’s the more you want into your wallets, plus the convenience offered through free cancellations, et cetera. So bookings profile, I think they are fairly well known among the well-aided travelers, particularly those who travel internationally, and then there is an overlap between them as well as quite often high-end hotels in the country. That’s what we see out there. Coming to My Value+, I think, we - Rajesh talked about both MakeMyTrip Assured and GoStays. So if you look at GoStays, that is really where our strategy is that to look at the budget segment to cherry pick and really look at the best properties who would like to maintain their identity. These are very often run by family-owned businesses and people very proud to maintain the identity of the hotel don’t want to switch to any of the other brands and lose the identity or else switched in and come back for multiple reasons. And we have cherry picked these basis on what we have seen through NPS, through reviews of these hotels and through the insights that our market managers give us. And these are the properties which virtually in every micro market are being now offered and promoted on brands Goibibo and GoStays and similarly MakeMyTrip Assured as well as My Value+ as you were calling it, but we are moving more and more towards MakeMyTrip Assured with the assured installments of a certain amount of quality being promoted aggressively on MakeMyTrip. Our research has led up to believe that customers in the budget segment are sensitive beyond price, of course, but are sensitive to location and amenities, not so much to brand. And in any case, except for the real branded chain hotels, so take the case of Ginger or take the case of RedFox or LemonTree, whether the consistent brand being driven through the budget, I think that is the only place where people have a preference toward the brand. Otherwise, each of these properties, there is no real standardization, except the availability of three or four amenities, which is exactly what our brand dominance is also giving in GoStays as well as in MakeMyTrip Assured, and we are seeing more of that. So you will next quarter also see GoStays has been doing well. It is again early days. So the full impact of this will be ramped up. But lots of signups, and who are again proud owners of classic mom-and-pop operations but very bothered about the customer experience, they are the kind of - that’s the profile that we have been lifted and enrolled on to GoStays. Whether experience is assured and therefore we will expect NPS and then customers come back here again to find a similar experience on our platforms. On SNM, I think…

But as -- broadly I would say close to about 20%, 25% of the overall sales and marketing spend continues to be in the growing segments like the international air and also in the overall air bucket and then domestic bus segment. So these are two - we have two kind of - two or three key distinct growth opportunities that we have been calling out with the international air, international hotels and domestic bus. These typically kind of account for close to about 25% of share of the overall SNM spend.

And could you give us a sense of how much would these be as a percentage of gross booking or net revenue, just to get a sense of what are the economics on this right now?

I don’t had some of these segments ready, but happy to kind of share that in a follow-up.

Okay. Thank you, Mohit. Thank you, everyone

[Operator Instructions] Our next question comes from Kevin Kopelman from Cowen & Company. Your line is open.

Hi. Thanks a lot. Sorry about that. First, could you just give us an update on how you’re thinking about as you going forward growth in the air versus packages versus standalone hotel? And then I have a couple of more questions. Thanks.

Sure, let me just take this. Hi, Kevin, this is Rajesh here. So as far as air segment is concerned, as we have called out earlier also and we believe that’s going to continue on the back of overall market growth that is happening so that our growth is going to be either in line with the market growth or more as far as both the brands of the domestic air business is concerned. Our market share just to remind you and everyone else of the domestic air market about 23%, which is very healthy, and we kind of holding on to or incrementally improving. So that’s as far as air business is concerned for the domestic travel. For the international travel, we do think the growth rate is going to be higher and will continue to be higher, given the fact that we have more headroom in terms of right now international flight segment being underpenetrated from an online penetration standpoint, albeit at a slower pace, but the growth rate is going to be significantly higher that the domestic air segment. As far as packages business is concerned, the fact that a lot of the growth now is coming and also for the consumer behavior is changing definitely in the domestic hotel market or domestic leisure travel market to book a hotel’s ala carte, and therefore our growth focus segment is more domestic hotels and not necessarily packages. So packages, we are not going after growth as far as the bundled product is concerned, but as far as outbound market is concerned, which is travelling outside of India, there are focuses definitely on packages growth as well. And then given the fact that packages are distributed more offline through offline channel, whether it is called centers or we have the holiday expert channel or the retail offices, if you will, so relatively speaking, the growth rate is going to be lower than the Internet kind of growth rate, but there is definitely growth that is going to continue we believe in the outbound segments of packages in line with the market also, by the way, growing for outbound travels. As far as hotels is concerned, as I mentioned earlier, the growth focus will continue and we will continue to try really a better quality growth going forward, which will be on the back of the room nights growth as well as the mix changing for -- the mix changes we will have the higher ASP. And like I mentioned earlier, the focus will be there to play into all the segments, including budget segments, which remains a very important segment for us, and it is a big segment and big growth driver, if you will, but all in all, domestic hotels as well as outbound hotels ala carte will also continue to be the growth focus. And now we’ll continue to invest behind that as just like I said, just making sure that we keep the quality of growth also in line.

Okay, great. And then just a separate question on the kind of profit versus growth. As you guys are thinking about driving growth but maybe reducing discounting somewhat, can you help us think about free cash flow for this year? And also just specifically in Q2, it looks like the cash flow went up a little bit, is there -- can you help us think about seasonal elements versus what the trajectory looks like? Thanks.

Sure. I think that the - yes, the deployment of cash, the usage of cash also has certain deployment into working capital, which typically happens ahead of a peak season quarter, considering that the next quarter is a seasonally high travel quarter. So it is - it gives about $9 million getting deployed in the working capital, which also needs to be factored in. Other than that, if you really look at it in terms of cash and cash equivalents on the balance sheet, we have close to about $440 million on the balance sheet, a large part of which kind of continues to be in terms of free cash flows - free cash relating to our term deposits. So from a line of sight, to kind of being able to keep going at this bond rate, or albeit reducing bond rate as would have seen in Q2 versus Q1, and that is kind of a grading that we would like to continue in the coming quarters as well and do not really see a concern on the to fund books on these cash balances.

Okay. And just one last question. Can you talk a little bit more about the new DoubleBLACK loyalty program? What you’re seeing for the initial reaction there? Do you have a timeline for growing that out more fully? And then are there any -- what are the kind of financial impacts we should be thinking about? Thanks.

Yeah, sure, Kevin. So as mentioned in the script, it’s currently in the invite-only phase. We are tweeting the right model and we think now we have got about 15,000, 16,000 people already enrolled. It's a paid model. People have paid between INR 1,000 to INR 1,500, depending on at what point they joined. They get whole bunch of free calculation offers, which is the main premise of it, but then like we have said, you also get automatically added to MakeMyTrip BLACK, so that’s the more you spend with us, the more, once you accumulate, which go into the MakeMyTrip Wallet, which can be used for further budgeters. So early times, we are seeing higher repeat, but like I said, it's only in this quarter. So it's probably too early to extrapolate the trend out, but definitely high repeat, more encouragingly also seeing higher NPS. And we're talking to a lot of these consumers on a daily basis. The team is trying to understand further what we could be doing and what's really valued, and then the pricing I think also we will be probably tweaking it right. So you'll expect to - you can expect to see this during this quarter we actually go aggressively in promoting this. And right through the year, the next three or four quarters we can be acquiring customers. We see a lot of potential here. We see this to get into -- potentially this can become a very large part of the loyalty program for us and I think the closest parallel with the Amazon Prime for this. And because that’s what it was predicated on. We listened to a lot of consumers at the high end with the high frequency of travel and what they valued the most was actually the convenience, and what was one of the biggest returns was actually cancellation and the charges as very often weren’t aware what charges will be, et cetera. So we have tried to address most of those that will also be a better service out here at different lines et cetera. So I think we’ll be able to give you a better projection on how big this is going to go only a little down the line, but definitely something we are going to go forward with and grow.

Just maybe just one more point to add, I mean to your specific question on additional financial impact, no, actually we are not thinking this outside of our overall marketing spend or sales and promotions spend. It is going to be an in to safe play, and it is going to be a fundamental change of approach, if you will, rather than thinking that whatever we are spending, we are spending, whether it is on customer acquisition or on retention and this is going to be a new program and in new scheme with a new overall additional impact. That’s not how we’re continuing about this. This is fundamentally from an additional financial impact standpoint we are saying or any financial impact that we are saying is going to be well within the overall spend that we are already kind of doing. It’s just going to be inter-head kind of play, if you will.

Okay, understood. Thank you very much.

Thank you. [Operator Instructions] Our next comes from Manish Adukia from Goldman Sachs. Your line is open.

Hi, good afternoon and thanks for taking my questions. A couple of very quick questions. Firstly, I think just on your bus bookings this quarter, there was a sharp decline versus the previous quarter. Just want to understand if there is element of seasonality even in the bus segment. That is the first one. Second one, and I’m sorry if I missed this earlier. On the AR net margins again, this quarter was rise versus the previous quarter continues to rise and I know that you’ve guided to 4 to 5% kind of margin so then we’ll have it long-term. Just want to understand if there is any particular one-off that you had this quarter or was it just like a normal course of increase that you saw. Thank you.

Sure, I’ll take the first one and maybe you’ll get Mohit to answer the second one. Yeah you’re right, I mean as compared to the first quarter you would have seeing bus bookings at a relatively lower growth rate, but yes, there is seasonality even in the right business as well and the bus business as well. But you know despite the seasonality, the growth rate is close to 50%, which is fairly good and you know well within our kind of Internal plans as well. So and the reason for that is seasonality and nothing else.

Sure. Manish, I just ask to the repeat the…

Manish, I just ask to the repeat the…

Air margin slightly increase.

Generally kind of see margins across segments slightly better and low travel season quarter and we have to think that you know the gross booking values that are depressed compared to what they are in future. And therefore, optically the margins really better. So this is more like an optical improvement due to seasonality.

Yeah, perfect. That makes sense. Thank you.

Thank you, and I am showing no further questions from our phone lines. I would now like to turn the conference back over to Jonathan Huang for any closing remarks.

Thank you, everyone, for joining our call today. We certainly look forward to speaking to you very soon. And that concludes our call.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.