Good day, and welcome to the Yatra Online, Incorporated Fiscal First Quarter 2018 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Manish Hemrajani. Please go ahead.

Thank you, Jennifer, and good morning, everyone. Welcome to Yatra's fiscal first quarter 2018 financial results for the period ending June 30, 2017, conference call. I'm pleased to be joined on the call today by Dhruv Shringi, Yatra's CEO and Co-Founder; and Alok Vaish, our CFO. The following discussion, including responses to your questions reflects management views as of today, August 7, 2017, only. We do not undertake any obligation to update or revise the information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements. Additional information concerning these statements is contained in the Risk Factors section of the company's annual report on Form 20-F filed with the SEC on June 30, 2017. Copies of this and other filings are available from the SEC or the IR section of our website. With that, let me turn the call over to Dhruv.

Thank you, Manish. Q1 has been a very exciting quarter for us. We launched our first mass-media branding campaign with Bollywood superstar Ranbir Kapoor, and the response has been terrific. On the business front, we registered our highest growth rate of 33.8% on Revenue Less Service Cost, which is the highest over the last 5 quarters. We expect this momentum to continue for the remainder of 2018 fiscal year as well. As most of you may know, we also recently announced the acquisition of Air Travel Bureau. Air Travel Bureau or ATB is one of the largest corporate travel companies in India and the largest independent corporate travel player in the country. The combination of Yatra's existing corporate travel business and ATB's business, we believe, makes us the largest corporate travel platform in India by gross bookings, servicing over 650 of some of India's largest corporations. On the back of the strength in our organic growth rate and the acquisition of ATB, we are raising our Revenue Less Service Cost growth guidance for fiscal year 2018 from our prior guidance of 30% to 35% growth to a new revised guidance of 35% to 40% Revenue Less Service Cost growth. The travel industry in India is witnessing a period of sustained growth, and we are very excited to be a leading player in this sector. Revenue from our air ticketing business grew by 25.6% in the first quarter, largely driven by higher growth in our B2C and corporate businesses, which was partially offset by lower growth in the B2B business. On the standalone hotel front, our room night growth accelerated significantly, delivering 70.5% growth in room nights over the same quarter last year. Mobile traffic also scaled up rapidly. And during this quarter, 73% of our traffic came from mobile devices.…

Thank you, Dhruv, and good morning to everyone. As Dhruv mentioned in his opening remarks, we are obviously very pleased with our performance during the quarter ended June 30, 2017. On an overall basis, the Revenue Less Service Cost improved by 33.8% year-over-year to INR 1.63 billion. Gross air passengers booked were 1.9 million, representing year-over-year growth of 14.7%, with a favorable mix towards international travel. Standalone hotel room nights booked were 0.5 million, representing, an increase of 70.5% year-over-year. Revenue from our Air Ticketing business increased by 25.6% to INR 1.06 billion into 3 months ended June 30, 2017. This growth was driven by an increase in gross bookings by 25.8% to INR 17.4 billion in the 3 months ended June 30, 2017. Our net revenue margins were flat at 6.1% on a Y-o-Y basis. On the Hotels and Packages front, our Revenue Less Service Cost for this segment increased by 38.8% to INR 438.5 million in the current quarter. This growth was led largely by the strength in stand-alone hotels, and also marked improvement in our Hotels and Packages net revenue margins of 13% during the 3 months ended June 30, 2017, versus 10.9% in the year-ago quarter. This increase in net revenue margin is due to change in business mix in favor of hotels and also a higher-margin as negotiated from the suppliers. Moving on to the expenses. Marketing and sales promotion expenses saw a big jump of 248% to INR 1.2 billion in the 3 months ended June 30, 2017, from INR 330 million in the prior-year quarter. This was primarily on account of increases due to marketing campaigns with a new brand ambassador that Dhruv talked about, on TV and print media, consumer promotions and loyalty incentive programs. Our personnel expenses increased by 95.6% to…

[Operator Instructions] We will go first to Jed Kelly with Oppenheimer.

Just touching on the marketing mix, the sales and marketing promotion up pretty significant year-to-year. Can you just talk on what should we expect for a trajectory on that spend? And then some of the return you're seeing on that? And when that start to benefit the top line?

Sure, Jed. Thank you for your question. So the spend that you see and the increase that you see is partially driven by the consumer marketing and branding efforts that we've done on the back of the new campaign that we launched with our new brand ambassador. So the cost of that campaign has pretty much come in this quarter. We expect that to be a one-time cost or rather a cost which will not happen on a consistent quarterly basis, but in fact, will happen with a gap of every couple of quarters. So from an expense modeling point of view, I think the level at which we are right now, would be the level that we would have maybe for another quarter or so, before we start seeing marketing begin to taper off. So we would expect this kind of spend momentum to continue for maybe another quarter or so before it starts coming down to a more normalized level, which I think we would pitch at somewhere close to -- given the growth in the market at the moment, between 50% to 55% of our Revenue Less Service Cost.

Okay. And that's helpful, and then on the guidance. How much of the changing up the guidance is related to the acquisition versus continued strength in the business?

I think there are some elements of both, which have gone into driving up the guidance. It's hard to give an exact number around each one of them. The integration, while we had stated earlier, will add about 10% to 12% of revenue on a annualized basis. There are some challenges, which every integration have, though not significant in this one, but will still be there. So I think there is strength that we are seeing in both our organic growth in the business and also some part coming in from the acquisition. So it's not just led only by the acquisition; there is this incremental growth. And as you can see from the quarter, the quarter itself has come out more towards the top end of the guidance at 34%.

Okay. And then just one more for me. Can you just give us an update on the overall competitive environment? What you're seeing over the last 3 months? And what you expect since you made the acquisition?

Sure. So the competitive environment varies according to the line of business that we are operating in. So while on the consumer direct side, we have seen competitive intensity to be high, given that it's the peak summer travel month. On the other parts of our business, which is the enterprise business and the B2B business, over there, competitive intensity now is beginning to wane down, as that market -- the B2B market is getting towards a certain amount of maturity and rationality. And the consolidation, which has played out on the corporate side, which we've lead, will also bring more sanity in terms of pricing and improve the operating margins and profitability in that sector as well. So while on the consumer side, we do continue to see consumer marketing pressure and we continue to see competitive pressure, in the other 2 parts of our business we are beginning to see rationality begin to creep in and the benefits of consolidation in the industry beginning to accrue.

We will go next to Kevin Kopelman with Cowen.

I want to ask about the international air increasing in the mix. Can you give us any more color on the key drivers behind that? And then where are you today in terms of international, kind of, mix in passengers and bookings in air? And if you can talk about any disparities between your share with domestic carriers versus foreign carriers, I think that would be really interesting?

Sure. Kevin, I might not be able to give you the exact breakup of the mix because that's not something in the public domain. But let me just walk you through some of the growth drivers, which have helped drive up the mix of international flights in our overall business. There are 2 growth drivers, which we see coming through. One is actually the increase in penetration. So international flights, as you would recall, is coming from a much lower online penetration as opposed to what's been there on domestic flights. And we've begun to see the benefits of demonetization, that got implemented in November last year, beginning to now play out in the key summer month, because people don't have that much currency in circulation. So an increasing number of people are now buying high-value international tickets also online, which earlier wasn't the case. So there is a market shift, which is happening. And the other factor which is there, is, we believe, the improvement that we have done in our online search algorithm for international flights. This is something that I had spoken about on our last call as well on our last quarterly earnings call. And we feel that is allowing us to find better and cheaper fares and fare combinations for our customers. And that's helping us improve the conversion. Likewise, the new product that we've launched in beta at the moment, which is Explore the World. This product, we think, could potentially be a game changer. It allows the customer to find the cheapest fare over a 12-month period. You don't have to do multiple searches. It allows you to group fares by regions. So if you have a preference of going into Europe from India, and you're not fixated on a particular destination, it will show you the prices across various destinations. You can drill down, look at different dates, look at different months. So we feel it's the product features like these, which help replicate the offline buying behavior of the consumer, which are also helping the online penetration. So it's a combination of market shift which is there, aided by the improvement in the product and technology that we are doing at our end, which is helping us gain market share on the international front. This is on the consumer direct side. On the enterprise side and on the B2B side, obviously, there is much higher mix of business travel spend that happens on international travel. Because from a transaction value perspective, there is a very healthy mix of business travel that gets appropriated on the corporate side. So we are seeing the benefit of the mix of corporate travel also aiding the growth in our international flights TTV, total transaction value. So there are multiple factors, which are playing into this increase.

Got it. And then I guess, just if I could ask one other question is, you mentioned that in the hotels business that your commission rates from your suppliers were going up somewhat. Why do you think you've been able to have success there?

So there are 2 factors, which are playing through over there. One is that the mix is shifting more towards stand-alone hotels and the margin and the take-rate on stand-alone hotels is higher. The second, which is also there, is that we are working with some of our hotel partners in terms of finding ancillary revenue streams from hotels. So which is providing them sponsored listing, providing them preferential placement on the search results. And there is also some increase in volume-led bonuses and earnings which is happening. So it's all of these factors combined, which are driving up the improvement in the take-rate on the Hotels and Packages side.

[Operator Instructions] We'll go next to Matthew Brooks from Macquarie.

I wonder, can you talk a little bit more about some of the key drives of the growth in the stand-alone hotel bookings? The 70% growth is pretty impressive.

Sure. So in terms of the key drivers, which are there, we are beginning to now see the benefit of the wider supply that we have on the hotel side. So we've got the largest hotel platform in terms of number of hotels listed on the platform. And what we are seeing is that the competitive landscape on hotels, on a fair number of hotels now which are listed on Yatra and are unique to Yatra, all are available only on 1 or 2 other competitors. We are beginning to see conversion rates improve on those properties because the competitive landscape for them is not as intensive. So that's allowing us to scale business without needing to deploy the same kind of capital that we've seen competition deploy. And the other which is also there is that we've seen some moment on the competitive intensity side. We've seen competition, which is trying to adopt a multi-brand strategy play around with different brands. And there are times when they have to a certain extent, scale back on the promotions that they are running on specific brands. And we've seen the benefit of that accrue to Yatra because the Yatra brand itself is a very strong brand in the market. And with all else being equal, the customers do prefer the Yatra brand. So we do see that benefit also accruing to us at the moment. So it's the fact that we've got a deep inventory of differentiated hotels and the fact that there is some easing off in the competitive landscape, which are both helping us drive the incremental growth on the stand-alone hotel front.

Right. Just as a sort of follow-up to that, are you seeing some sort of mix shift in the bookings to lower Tier cities or lower star hotels, because the average daily room night would be down compared to last year maybe?

So what we have seen is that we've seen an increasing mix shift towards the consumer direct part of our business. And given that the consumer-direct average transaction value is lower than the corporate average transaction value, you are seeing the blended value of the transaction come down. So it's more of a business mix issue as opposed to change in the product mix.

Right. Got it. And last one for me, given the acquisition and the change of guidance, can you give us some sort of update on when you expect to achieve profitability?

So from a profitability standpoint, I think at the moment we will continue with our original target. And at this point in time, we anticipate the integration process to go smoothly. We do hope for some upside, but I think we will just wait for the integration process to get a bit further along the way before we can give you some concrete guidance around that.

We will go next to Shaleen Kumar with UBS.

Few questions over here. So interestingly, I was seeing that your revenue has grown by somewhere around 15%, but your service cost has come down, and that has led to your Revenue Less Service Cost growth of around 34%. So can you please tell me what has happened in the service cost? Or is there some element of -- there is a cost shift over here?

So Shaleen, what's happened is that the business has moved more towards stand-alone domestic hotel. The service cost element comes in only in the case of packages. So given that there is much faster growth which has happened in the stand-alone hotel's part of our business, the service cost element, which is related purely to holiday packages, has grown at a slower rate. And that's why you got a larger amount flowing through into Revenue Less Service Cost.

That's impressive, Dhruv. Dhruv, so basically in this phase what we have seen or whatever concerns the investor is that revenue is being driven by -- I'm not seeing it in your case, but it has been driven by marketing spend. Now I have a few questions on that bit. So is there kind of an annual budget we have for the marketing spend, one bit? And do you think -- what do you think about the stickiness of this revenue, because your marketing spend has also gone up? And is there a portion of discounting element in terms of free couponing or something in the marketing spend?

Sure. So in terms of the stickiness of the revenue, there are couple of factors which come into play. One, there is some revenue growth which is coming from the corporate and enterprise side. So that is largely sticky by its very nature. On the consumer direct side, what we've seen is, with the eCash rewards program that we have, our program actually is acting as a great surrogate for any rewards program across the country. So if you look at the Indian hotel industry and the same holds true for air as well, but let me talk about hotels first. It's a very fragmented industry. And most of the hoteliers, apart from the chains, don't have their own loyalty rewards program. So our program is working as a great surrogate for a rewards program across the hotel category. And we are beginning to see consumers value that rewards program. So they earn on flights, so they earn on other products on Yatra, and they come back and they consume it on hotels and vice versa. So we are seeing stickiness by -- being created by virtue of the strength of the eCash program. Now to address the question that you raised, is all this demand sticky? Definitely not. There will be a percentage of this which is going to be a value-conscious customer, who is coming purely on the back of maybe a promotion that we are running at certain points in time, and that's what's driving his buying behavior. But we feel that is a relatively lower and smaller part of the overall mix of new customer acquisition that we are doing. We feel the branding campaign that we ran with Ranbir has helped us drive more brand recall. It's reflecting in the significant increase in direct traffic, and that direct traffic usually converts at a significant premium to paid traffic. So you'll always see, in the case of companies, that direct traffic tends to be more stickier and better converting than traffic which is coming from other sources. So that's another reason why we are seeing this improvement come through, it's not just led by pure discounting. It's being led by a combination of the enterprise business. It's led by an increase in traffic on the back of the branding campaign that we've successfully run. And yes, there is certain element of it, which is also being coming through on account of the promotional activity, which is being done.

And Dhruv, any guidance or any guidance on the budget for -- marketing budget for a year or annual thing, something like that?

See at this point in time, the guidance is being limited to revenue guidance or rather Revenue Less Service Cost guidance. I think, as we go forward, we will start introducing guidance towards other elements as well. But for the moment, it's limited to Revenue Less Service Cost guidance.

We will go next to Gaurav Rateria with Morgan Stanley.

Dhruv, couple of questions. Firstly, what is the growth in the domestic air transactions for the quarter? Has it lagged industry rate? And is it due to because peers may have gained market share?

So we haven't disclosed the growth in stand-alone -- sorry, flights for domestic separately. So it's hard for me to comment on that. We've shared the overall air passenger book number as opposed to the domestic one. But I think the thing that we can share as a commentary that it's not lagging the industry growth level.

Sure. So I was just checking the overall industry data, it's in the range of 17%, 18% for the quarter. And if overall growth for you is 15%, and there's been a mix shift towards international, then ideally the domestic would have grown slower and hence this question?

No. In terms of mix shift, while there is mix shift which is happening on the international side, that's why you see transaction value for us growing at a faster rate. So if you look at the overall transaction value growth that we have in gross bookings for air tickets, you see 26% growth happening with 15% growth in international -- sorry, 15% growth in air passengers booked. So that's what's the impact of the increase in average transaction value with a shift towards international flights.

Sure. Secondly, question on the guidance. Last time on the call for the ATB acquisition, you were talking about incremental contribution of 8% to 10% on your revenue growth from this acquisition assuming 8 months of consolidation, and now it reflects around 5% increase in the guidance. So is there any deceleration happening on the organic side?

So the guidance increase, it depends on which point you take, right. So if you go from the base of 30% to an increase of 40%, then it's a 10% increment, right. And if you go from the midpoint, then you are looking at a 7.5% increase. And as I mentioned to Jed's comment earlier, there is no slowdown in the organic growth. And as you can see in the quarter itself, the organic growth rate was more towards the top end of the guidance. So at 34%, it was definitely towards the top end versus being at the lower end of the guidance. So we don't see any slowdown happening in the organic business either. The reason we are talking about a 35% to 40% guidance is that as we go through the integration process and as we go through the GST being rolled out across the country, there might be some slowdown which ends up happening for a month or 2 as corporates especially go through this GST implementation process at their end.

Sure. So one question on how many feet on street you may have with respect to your hotel -- stand-alone hotel business in India?

Again, unfortunately, that's not a publicly disclosed number. So we haven't really given that split out in terms of number of people.

Sure, Dhruv. Last question. What do you think is the addressable market opportunity for the B2B travel in India?

I think the market over there still continues to be extremely large, given that the SME segment is still dominated by the B2B travel agents. What we've seen is that the B2B travel agents do extend a valuable service in terms of personalized service and also extending credit to the SME customers, which is something that the online players typically do not offer. And that's the reason why there is an increased amount of stickiness, which the SME players have towards B2B agents. And given this new GST regime, we feel the B2B businesses, like ours, which are more regulated and in the formal sector, will benefit as an increasing number of SMEs move from the unorganized sector into the organized B2B players. So in this environment, they get the same benefits that they do get otherwise from a servicing standpoint, but they get the added benefit of being able to claim GST and input credit as well. So we see this move of GST benefiting both our corporate and our B2B businesses.

And at this time, there are no further questions.

Thanks, Jennifer. I'll hand it over to Dhruv for any closing remarks.

Thanks, Manish, and thank you, everyone, for your time today. As you would have seen, we've delivered a very strong growth quarter, and we expect this growth momentum to continue over the next few quarters. We believe we've built a very unique and differentiated business that combines the best of the B2C corporate and B2B businesses. And from a business model perspective, we feel this is the model that is best suited for an emerging Indian market. So we expect to continue to see this growth happening in the near term and the next few quarters. As we go forward, we will start sharing more information about the corporate travel business as well, and we will start sharing more KPIs around the evolution of that business over the next few quarters. So thank you so much for your time today. And I look forward to interacting with you in the rest of this coming quarter.

This does conclude today's conference. We thank you for your participation.