Yatra Online, Inc. (YTRA) Q1 2023 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Yatra Fiscal First Quarter 2023 Earnings Conference Call. My name is Irene, and I will be the coordinator of today's event. Please note all participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference call over to Manish Hemrajani, Head of IR. Manish, please go ahead.

Yes, thank you, Irene. Good morning, everyone. Welcome to Yatra's fiscal first quarter 2023 financial results for the period ended June 30, 2022. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi. The following discussion, including responses to your questions, reflects management views as of today, August 30, 2022. We don't undertake any obligation to update or revise the information. Before we begin our formal remarks, allow me to remind you that certain statements made on today's call may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially. For a description of these risks, please refer to our filings with the SEC and our press release filed earlier this morning. Copies of this and other filings are available from the SEC and also on the IR section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

Thank you, Manish. Good morning, everyone, and thank you for joining us today for our first quarter earnings call of fiscal 2023. I'm pleased to report that we had our best quarter yet since the advent of COVID with gross bookings growing 56% sequentially, demonstrating a strong recovery post-Omicron. Revenue of INR899 million also reflected accelerating growth of 49% Q-on-Q. Adjusted revenue of INR1.25 billion, which is approximately US$15.9 million, increased 28% Q-on-Q. Adjusted EBITDA for the quarter also came in at a post-pandemic high of INR123.5 million is approximately $1.6 million for the quarter. This included our investments behind the freight initiative. This is a very strong start to fiscal 2023, especially in corporate travel, exited the June quarter at approximately 90% of pre-COVID levels as office traffic reverts back to levels seen prior to the pandemic. Consumer business was also strong, domestic travel ending the quarter at approximately 100% of pre-COVID levels. First particularly heartening was that we had our best quarter in terms of new corporate customer signings with a record 27 large medium-sized enterprises, chose the Yatra as platform for their travel needs. It clearly underscores the value and robustness of our proprietary platform as well as the superior service levels that we provide to our customers. National travel has also continued to recover. It's recovering strongly since the easing of international travel restrictions at the end of March 2022, is trending at approximately 60% of pre-COVID levels. India's GDP growth was a strong 8.3% fiscal year 2022. The IMF expects India's GDP to grow at about 7.2% in 2023. As it relates to Yatra, looking at how the travel industry has unfolded through history, we see that travel trends to grow at approximately 2x GDP in developing markets versus a 1.5x multiple in developed markets. We believe we should be able to achieve growth above market rates as we continue to take share in the corporate travel market and as the consumer market continues to secular shift offline to online, with the expansion of the travel industry and the macro conditions continue to be favorable. As aircraft fleet price is expected to almost double over the next five years, the aviation ministry recently forecasted almost 3x increase in air passengers about 400 million in the next decade. Let me give you an example here on how demand is driving fleet expansion in India. Air India, which was recently bought by the Tata Group with aggressive expansion plan. Near term, and this is as early as October of this year, it is looking to add six wide-body and 25 narrow-body aircraft to its feet. It also has up to 200 planes on order fleet expansion over the longer term, this is on a base of about 600 aircrafts currently operating in India. As you can see from here, we've got almost 5% capacity expansion happening in the near-term, just by Air India. In addition to Air India, we've got a new airline, Casa Air, which was launched in August. We've got Jet Airways also coming out of bankruptcy expected to start flying again later this year. The incremental capacity on the airline front, along with the increased airport infrastructure to drive the continued expansion of the travel industry. Having inflation, which seems to be a hot topic globally of late, India is faring relatively well. India’s inflation rate in the month of July was 6.7%. And with long-term averages and down from the peak of 7.8% in April of this year. We believe that demand and consumer confidence in India is relatively high. We don't expect growth to slow down in India, which we are seeing in more developed markets. This is perhaps one of the reasons why the benchmark stock index in India, the NIFTY, is only down less than 5% from its year-to-date peak trading at levels similar now to the start of the year and the NASDAQ is down almost 24% year-to-date. I feel market in India also seems to be opening up. We’ve had an IPO after almost four months last week, and the offer was about 35 times over-subscribed and listed at a 41% premium. Let me provide you some update on our India filings as well. You may recall our Indian subsidiary, Yatra Online Limited, the Draft Red Herring Prospectus, the DRHP, March 25 the Securities and Exchange Board of India, SEBI, is the main regulatory body in India for a potential stock market offering. We are continuing to work with the regulator to obtain the necessary clearances for the DRHP. We expect this offering is completed to strengthen our balance sheet, better position has to take advantage of the rapidly recovering leisure and business travel market in India. The faster than anticipated recovery that we are witnessing in corporate travel, put strong research and revenge travel on the leisure side, bodes very well for us and our IPO plans later this year. At least there is significant demand for online travel stocks in India and the IPO should be well received. While there are worries about recession in the U.S. and Europe, as economy is growing at a brisk space, as it continues its journey from a developing to a developed nation. India IPO structure also opens up an opportunity for us to explore strategic alliances with partners might not have been comfortable with an overseas structure. Now coming to our June quarter results and focused largely on sequential Q-on-Q comparisons financials as it doesn't really make sense for us to compare year-over-year and that last year's numbers were extremely depressed count of the disruption also by the Delta variant. Adjusted revenue for the quarter ended 30th June 2022 came in at INR1.25 billion, which is approximately US$15.9 million, 28% quarter-on-quarter. Sequentially, air gross bookings grew 57%, partly on account of an increase in yield for domestic flights, along with the increase in mix of international travel to yields were considerably high due to the various international factors that we've been talking about. Adjusted revenue, however, grew 19% net for air, and this was largely on account of fixed nature of our earnings and with a higher mix of corporate business. Hotels continue to outpace overall growth with sequential hotel gross bookings and room nights by up 110%, 85%, respectively. Sold 585,000 room nights in the quarter is the highest number of room nights we have reported since the December 2018 quarter. We continue to take market share as our breath of supply continues to stand out in a more benign competitive environment. Adjusted EBITDA of INR123.5 million also improved by 219% year-over-year and 134% Q-on-Q. This was driven largely by the increase in mix of corporate business that I referred to earlier. As of 30th of June 2022, the balance of cash and cash equivalents and term deposits on our balance sheet INR978.7 million, US$12.4 million. The decrease in cash balance from the previous quarter is primarily on account of increase in working capital deployment to the strong recovery of the corporate travel business. Subsequent to quarter end, we have drawn down on INR440 million, US$5.5 million against receivable financing facilities from our banks. We expect the banks to continue to expand these working capital limits the corporate business recovers. Gross bookings for business travel, where we are the market leaders, sits the June quarter approximately at 90% pre-COVID levels, the highest level since February 2020. We remain optimistic that we should pass pre-COVID levels in the very near term. Pleased that the stronger than anticipated recovery in business travel that we have witnessed put to rest any lingering doubts that people may have heard about the future of business travels. It's very evident even being the social animals and while online tools are great enablers being still prefer in-person interactions. We see improving inbound interests and continue to find new customers and increasing base onto our corporate platform. June quarter was the best quarter yet in terms of customer signings, 27 large and medium enterprise customers signing up for our service. In the highly fragmented nature of the market, we believe we will continue to take market share going forward. Our corporate business should accelerate growth to levels higher than they were pre-pandemic as we see an accelerated shift towards online bookings especially as contracts come up for their end of life renewal and rebidding. On the hotels front, our strategic partnership with Flipkart-owned Cleartrip post domestic hotel content from Yatra, which went live in the latter half of the March quarter has witnessed a very strong uptake in the subsequent months. We believe that this partnership has the potential to more than double our hotel volumes over the next 12 months. We believe that the incremental volume that we drive through this partnership not only be accretive from an EBITDA perspective, will also help strengthen our relationship with our existing hotel partners leads to better long-term value creation. Competitive intensity has risen modestly since the last quarter. Overall competitive levels remain manageable on the hotels front. Our brand continues to resonate positively with Indian travelers. As you may recall, India opened up international travel on a full schedule from March 27 onwards, and we are seeing good traction on the international front as borders continue to open up globally. The airlines deploy incremental capacity towards international travel. Let me now give you an update on our freight initiatives. We look towards digitizing the logistics space, our corporate travel relationships with both airlines and enterprise customers, together with our technology capabilities, give us a significant head start. Rapidly scaled up this business over the past few months, and we believe this business longer-term has the potential to be even larger than our corporate travel business. Following a successful Indian IPO, we believe we’ll be in a position to accelerate growth in freight, which is receiving increasing interest because of the freight and logistics challenges the world is facing. Optimistic about Yatra’s continued growth and recovery based on the trends that we are witnessing, believe that our well-recognized brand and healthy balance sheet, puts us in a strong position to capitalize as the recovery continues to gain momentum. We believe the opportunity ahead for Yatra is massive. We believe Indian Internet travel will hit an inflection point in the coming years, we have passed forward. We believe corporate travel just where we are the leaders will recover very quickly. In addition, I also want to highlight that the efforts that we made during the pandemic to improve operational efficiency, already begun leads towards significantly higher levels of profitability. I want to thank our shareholders who have stood by Yatra through these trying times. Hopeful and honestly believe it’s only a matter of time before your patience and understanding are rewarded. I’d like to thank everyone for joining the call today. And as always, we are available for follow-ups. With that, let me hand it back to you.

Thanks, Dhruv. Irene, we can now open up the call for questions. Thank you.

Of course. Thank you. [Operator Instructions] Our first question comes from Scott Buck from H.C. Wainwright. Scott, your line is open.

Hi, good morning, guys. Thank you for taking my questions. I guess the first one, Dhruv, for me, could you give us a little bit more color now that you’re back to essentially pre-COVID levels, where is the incremental revenue going to come from in 2023 and 2024?

Hi, good morning, Scott. When we think about the incremental revenue going forward, Scott, at this point, the first factor, which is there is international travel. International travel is still only at about 60% of its pre-COVID levels. We expect that to continue to scale up and get to the pre-COVID kind of numbers by the end of this calendar year. In addition, we are seeing very secular growth happening, travel in general in India. So the kind of things that people are talking about in the more developed markets, the inflation, consumers holding back spending, doesn’t seem to be the case like that in India. Bonds is recovering very strongly in India. And we anticipate this demand for travel and disposable income growth in the hands of consumers continue to be there. Income levels are rising. We’ve got a growing middle-class population. Secular trends are all pointing towards a very strong travel industry. As I mentioned in my opening remarks, we expect travel to grow at almost 2x of GDP growth rates. There’s a very strong secular trend that’s happening with growth in travel at a more general level, specifically for Yatra, there are two factors that I think are playing really well for us is on the corporate travel side, we are seeing very strong inbound demand. Our conversion ratio on new customers is looking extremely healthy as more and more companies want to adopt technology. The companies have been through a significant amount of disruption due to COVID. Going forward, people have realized that they want to work in a more digitized environment as opposed to an off-line environment. So that’s leading to a very strong amount of inbound interest on our corporate travel side. It’s one lever for us that will drive believe tremendous amount of growth going forward. The other is the more secular trend in terms of just online adoption that we are seeing play out on the travel side, on the leisure travel side. What’s happening in Tier 2 markets in India? These markets were typically serviced by the offline agent. The offline agencies, a large number of them shut shop during COVID, some temporarily, some permanently. We are seeing tremendous amount of uplift happening over there. Customers moving online from these markets as well. To get all these customers have pretty much done everything signed in the past two years, right? People who have been stuck in doors or under lock down, the grocery, home delivery, e-commerce, everything online. So there is hardly anyone in these markets today who can also turn around and say not tech-savvy. So the online adoption we are seeing on the consumer side also has not significantly accelerated post-COVID. These two factors, I think, will drive a tremendous amount of growth for us. Then there is obviously new business lines like freight, which we’ve initiated will add on to growth from here on.

Great. That’s very helpful. And then my second, on the corporate travel side, you signed 27 large and medium-sized customers during the quarter. What’s the pipeline look like for fiscal 2023, was the first quarter just particularly strong? Or should we expect these elevated levels to continue through the year?

See, the way we are seeing the pipeline at this point in time, we expect this pipeline to continue, and we would like to actually see exploration happening in the second half of this year. So as more and more contracts come up for renewal, they come up for rebidding, companies just have begun to come back to a full-time working environment only largely in this quarter, right, till January, February, we had Omicron. It’s only been post April as we’ve seen companies come back to full-time working. This quarter, the first real quarter where we’ve had companies come back and work full time. I think the traction should continue and only accelerate going forward from here.

Great. That’s helpful. Will you guys need a meaningful ramp in OpEx to support the top line growth? Or are you pretty comfortable with the cost infrastructure you have in place?

The cost infrastructure should not change drastically from here. As we’ve been talking through COVID, we spend a significant amount of time and effort during COVID in automating our back-end processes. And just ramping up the technology stack, and that’s putting us in really good state at this point. The other change which we are also seeing is just in terms of sheer consumer behavior. The corporate travels side as well. The adoption of the self-book platform has gone up meaningfully. The higher the adoption on the self-book side, the lower is the manpower cost that we need at our end. Now just to give you a sense on the corporate travel side, in 90% of pre-COVID volumes, about 60% of the staff.

Okay. That’s helpful. And then last one for me, just on the potential Indian IPO. What should we be thinking about in terms of timing? And reading the release, it seems like the language there might be a little bit of hedging that actually gets completed. So is there a real risk that this doesn’t happen?

I don’t think they’re trying to hedge, and I don’t think the language should in any way suggest that we are trying to hedge, continue to work with the IPO. And I, in fact, want to say that market is looking much better than what it has over the last four months at any point over the last four months. Recent example that we saw of the IPO that got subscribed, it got subscribed 35x, it’s trading at a 41% premium. It does definitely show that the markets in India are looking up. I do agree that one summer doesn’t make a swallow, but I feel that it’s enough and more tailwinds behind the India markets as to have a successful IPO in the near-term.

Great. That’s helpful. I appreciate you guys taking my questions and congrats on the quarter.

Thank you so much, Scott.

Our next question comes from Lisa Thompson from Zacks Investment Research. Lisa, your line is open.

Thank you. Good morning. So I have two questions for you. First is, given current situation, what’s your feeling about the next few quarters? Are you going to see normal seasonality? Or is pent-up demand changing things? How should we look at it?

Good morning, Lisa. In terms of seasonality, firstly, there will be some effect of seasonality now coming into play as we are nearing our pre-COVID levels from a volume perspective. But it should not be a very significant impact as yet because we are beginning to see still some pent-up demand. Sparks of revenge travel still continue to be there. The seasonality effect – while the seasonality effect is beginning to play in, it’s still at a relatively modest level.

All right. That sounds good. And then my other question is, where you are now, when you look back at pre-COVID your business model, how is it going to be going forward after everything that's happened? What is your feeling about gross margins compared to back then and EBITDA margins? How has the world changed for you?

See, for us, the one big difference which has happened is happening on the EBITDA margins. And we are seeing meaningful improvement happening, the EBITDA margins as we go forward. This is largely on account of just change in consumer behavior, both on the corporate side and on the leisure side where customers are getting much more comfortable doing it themselves and needing much lesser support. So that's definitely one thing which is there. The other thing which we are seeing very good traction on is the adoption of the hotel program, both the consumer side and the corporate side. Hotels as we all recall, have better long-term margins. We do expect as we continue to scale up the hotel business, then should further enhance from there. On the whole, we expect our operating margins to continue to improve as we go forward.

Do you have some sort of number in mind of where you think you can go ultimately?

See, the near term, midterm margins that we've been talking about in the high teens? And we think that if I was just without the investment that they're making behind the trade business for the core travel business, that's the kind of margin number that we are working towards the near to midterm.

Great. Thank you. That's all my questions.

Thank you, Lisa.

Thank you. Our next question comes from Anja Soderstrom from Sidoti & Company. Anja, your line is open.

Okay, great. Thank you for taking my questions. I want to start off with a follow-up on the Indian IPO. Do you have any more color on the timing of that? I think you talked before about that's happening towards the end of the summer and we are there now. So what's the timeframe for that?

Yes. So Anja we continue to work with the regulator in India and we are working very closely with them. And the timing, as I said, the markets are beginning to look up. So we've seen the first IPO happened in almost four months now, period of four months, there was no real, no IPO that happened in the market. We've had one that's happened. We have another couple, which we believe are lined up the near term, that is give us a good indication of the kind of secular trend markets are projecting. Then based on market conditions expect that we should be looking at this. And we had always said this that time around [ph] the September, October kind of timeline, but we had initially anticipated and we continue to work towards those.

Okay, thank you.

We are beginning to look after. Yes.

Okay. Thank you. We are looking forward to that and pardon me, I missed part of your prepared remarks. I don't know if you had touched on this. But in terms of the air passenger traffic that's sort of picked up to 83% of the COVID levels – pre COVID levels. How has that been trending since June for you?

Since June, there is some seasonality impact, which is there in the air passenger traffic numbers. These are published by the government and the aviation authority in India. So there is some impact of seasonality, but it's not as stark as what one would've expected COVID. There is still, I think, some pent-up demand, which is there on the travel side. So it's helping maintain volumes.

Okay. Thank you. And I think during the call, you sort of reduce the salaries during the pandemic? Has those gone back or what can we expect in terms of that?

So there is some rationalization that's happening on the salaries. As the market is really hot for talent in India, like most of the parts of the world there is ongoing war for talent. So to speak off the salary levels are back in most cases to pre-COVID levels, but we've also been able to rationalize our headcount quite significantly using technology. As I mentioned in response to Scott's question to get the corporate travel side of things, we are now tending towards 90% of pre-COVID levels, about 60% of the workforce. So while there might be individual salary costs which have gone up on a collective level, they able to keep our cost in check.

Okay. And it seems like the corporate travel is picking up. What is there any sort of, do you have any correlation or sort of any quantification there on that? How much of a pull that is for also the leisure travel then to pick up with you in tandem with the corporate?

See, typically we've seen leisure come back faster than business travel. The travel will come back and recover faster and that's what happened out here. To travel, I think recover with a one to two quarter kind of lag, which is what we are seeing. So while leisure travel has been at elevated levels, it's October, November of last year the travel has only begun to really gain traction since March, April of this year. There is a – maybe a one to two quarter kind of lag in consumer travel and corporate travel. That's why I was suggesting that by the end of this year or early part of next year we'll have corporate travel also since pre-COVID levels.

Okay. Thank you. And the last one is in terms of the competitive landscape, has that changed at all for you?

See, we've seen the competitive landscape here a bit more benign at this point in time compared to pre-COVID levels. Some of the disruptors like, we had Paytm, OYO all of these guys have scaled back. Competitive intensity has creating a more level playing field so to speak off.

Okay. Thank you. That was all for me.

Sure. Thank you for your questions.

Thank you. Our next question comes from Jeff. Mr. Jeff, your line is open.

Great. Thanks. Thanks for taking my questions, guys. Just a few from me if I could. First on the balance sheet, just thoughts on, on cash flow and cash balance over the next couple of quarters you commented on working capital, and I think the credit draw down. But just talk about what you're seeing and expecting with respect to cash flow, cash balance for the next two quarters. Maybe start there and then I've got a couple follow ups?

Sure. So on the cash balance side, there is deployment of working capital that's happening as the corporate travel business is recovering, given that now we've reached 90% of pre-COVID levels. We are expecting some growth from here on. There will be some cash consumption that will happen on the working capital side of thing. That's largely coming in from the draw down that is done for receivable financing facilities that we have. That's where the cash will come in. And we also expect these facilities to increase in size as the business continues to recover. Just to give you a comparative, pre-COVID facilities were about $25 million, which at this point in time are about 5.5 [ph]. So as the business continues to scale up, we expect these facilities to also continue to go up help finance the working capital requirements.

Okay. That's helpful. And then on the freight side, just refresh, I wanted to be clear on the answer; I think you gave to the earlier question about high teens target near-term margins. on the EBITDA side and then you talked a bit about, I think that was pre, the investments for freight. So can you just touch on freight again and help us understand expectations around both revenue and investments there?

So the investment that's happening on freight is in the range of $200,000 to $300,000 a quarter. That's the kind of investment level that we are looking, at the operating side. And there is some working capital deployment also about $2 million to $3 million, which is there on the freight side. In terms of revenue expectations, revenue expectations actually to be in the range of about $3 million to $4 million as we had spoken about earlier. The freight business, from that perspective, as I said, are – we are investing behind it, but it's not investment of an earth-chattering amount, right? So it's only to the tune of $200,000 to $300,000 a quarter. We expect this investment to happen another two to three quarters at max, and then we should start seeing portability come through from the freight side as well.

Okay. And last then on the 27 new corporate medium and large businesses you signed in the quarter. Is there any way to put some value around those signings and give us an anchor point to compare that to just to get a sense of bookings momentum?

We – obviously, we track that quite closely, but it's not something that we publicly disclose. And at this point, we need to keep our disclosures consistent with what we are disclosing in India in the DRHP and what we are disclosing in the U.S. So we have to just maintain parity. This is something going forward that we can consider sharing.

Yes. Okay. And then on the DRHP, just to get one point of clarification on the IPO. So when the DRHP gets approved, what is in your understanding, the typical time line from approval to actual completion of the IPO?

So from approval to completion, can be a four to six week kind of time frame of – it then depends on market conditions as well, Scott – sorry, Jeff, as you well know, right? So it will be a function of that, but the markets are conducive, can happen in a six week time frame.

Got it. Okay, thanks so much for taking the questions. Appreciated.

Not at all. Thank you.

Thank you. Currently, we have no further questions. Therefore, I would like to hand back to Manish for any closing remarks.

Thank you, Irene. Thanks, everyone, for joining the call today. As always, we are available for follow-up questions. Thank you so much. Take care.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.