YATRA ONLINE – Is it time to look at this battered OTA Pioneer?
Indias travel market has exploded in the current millennium due to a slew of factors like rising disposable incomes, opening up of the economy, burgeoning service sector, demand for Indian skilled labor across the globe etc. Foreign travel and airline travel has become a status symbol as well as a necessity.
Evolution of Indias Travel Market:
The travel business was dominated by the physical travel agencies till 2000s. In the first decade of the millennium Online Travel agencies (OTA) started operations in the landscape. They quickly grabbed market share with a combination of ease of use, discounts etc . Now the OTAs together has cornered c. 80% of the travel market. Please find below a snapshot of the major events in the OTA landscape in India.
There were 3 phases of evolution in the OTA industry in India:
Phase I – (2000-2010): Launch Phase
The major players in the OTA market include Make My Trip (MMT), Yatra Online, Ease My Trip (Easy Trip Planers), Ixigo (Le Traveneus Technology), Clear Trip (Acquired by Flipkart), Goibibo (MMT Acquired Go Ibibo ). All of them launched their operations during this period .
Phase II – (2010-2020) : Hyper Growth Phase- Land Grab- Listin/ funding
MMT is sort of a harbinger in the industry and they were the first to list in Nasdaq in c. 2010 when they raised 75Mn$ followed by multiple rounds of fundraise. This early sojourn helped MMT grab market share in this growth phase. Yatra Online Inc. also got listed in 2016 in Nasdaq (raised 92 mn$) but their listing got delayed due to the collapse of Kingfisher. Yatra lost precious time and market share to MMT and others during this critical phase due to lack of funds.
Phase III- (2020 onwards ) : Shifting focus to Profitable Growth
Post covid all the OTAs which had not had any year of profits till then (Easy Trip was profitable) started focusing on profitable growth. By then OTA combined share in Indian Air ticketing had grown to C. 80% overall and discounting was only hurting the industry. During this phase OTAs like Yatra Online, Easy Trip Planners, Ixigo etc. got listed in India and raised capital to funnel the next leg of their growth.
Why Yatra?
The dean of wall street Ben Graham has given the analogy of Mr. Market as a “manic depressive” and in bouts of extreme pessimism towards a sector or a stock ,we investors get some battered down businesses below their intrinsic value.
Yatra is the largest Enterprise OTA in India:
While rest of the players are focusing on the crowded B2C space, Yatra is smartly pivoting to the B2B space. B2B in Travel industry comprises of corporate business and Travel Agent business.
While the B2C business has better take rates (Revenue/Gross Booking Value), Enterprise business has better EBITDA margins due to lower marketing & promotion spends and better ROCEs.
Shown below is a comparison between B2C and Enterprise business and its respective margins and return profile.
*In the above example, take rates taken are blended for air travel and hotel bookings on a Rs 100 base GBV.
Yatra has consistently improved its enterprise business over the years. For instance, Enterprise business pre IPO was 40% of overall which has grown to c. 55% as on date.
Enterprise business comprise of c.40% of all travel bookings in India and account for costly tickets, last minute bookings including business class, higher consumption of food and beverages and also aids in hotel bookings.
Yatra started focusing on Enterprise segment in 2013 amidst hyper competition in B2C segment and later acquired Air Travel Bureau in 2017. Yatra has c.1200 enterprise accounts (Erstwhile 850 accounts + 360 new accounts from acquisition of Globe Travels in Q2 FY24). Against this MMT has 351 enterprise accounts (serviced by subsidiary Quest2 Travel).
Figures as FY Q2 FY 25
- Yatra has a bluechip customer base with low churn
Yatra has a strong brand with high recall
Strength of the brand is evident from the fact that 93% of the overall traffic is derived from direct and organic channels.
Post Listing Yatra is well capitalized to drive the next leg of growth
Yatra.com raised c. Rs 600 cr through IPO in India for funding strategic acquisitions and to refresh the tech stack. Yatra lost significant market share due to paucity of funds in the hyper growth phase II of the market. With the fund raise yatra was able to update the technology, acquire companies like Globe India Travels and invest prudently in some targeted marketing in B2C segment. They have also launched an expense management solution in tie up with Zaggle Prepaid called RECAP to be sold to enterprise and SME accounts.
B2C Business has reached a bottom and can grow marginally from here: Guerilla marketing strategies in B2C
Yatra estimates 7.5 mn employees in the corporate accounts that they service as their potential cross sell opportunity. In my previous corporate job, since Yatra was our enterprise travel partner, I used to use the same for my personal hotel and travel bookings (ie: if the prices were comparable ).
They have optimized their B2C discounting and let go off c. 90 employees in the vertical, possibly improving the operating leverage in coming quarters. While yatra is pivoting towards more and more Enterprise business and H&M (Hotel bookings and MICE), management expects B2C business to grow at least at industry growth rates of 10% going forward.
Management commentary of 20% + sustainable growth
Management has maintained projections of sustained growth rates of 20% in topline. With improving margins due to higher proportion of Hotels & MICE and increasing share of enterprise business leading to Gross margins at c. 25% and with further improvement in operating leverage, the PAT margins are projected to grow at c. 30%.
Improving contribution of Hotels and MICE :
Typically Hotel bookings and MICE (meetings, incentives, conferences and exhibitions) segment has better take rates and better margins. The India MICE market was valued at approximately USD 3.3 billion in 2023 and is projected to grow to USD 10.5 billion by 2030, reflecting a compound annual growth rate (CAGR) of 18% from 2023 to 2030 presenting significant room for growth and value migration from inhouse and unorganised players to organised and OTAs like Yatra.
Amalgamation of subsidiaries:
Yatra Online Limited got approvals for a scheme of amalgamation between itself and its six wholly-owned subsidiaries. The primary objective of this amalgamation is to simplify management, operational, and corporate structures, thereby enhancing efficiencies and generating synergies. The management of Yatra Online believes that, among other benefits, the amalgamated entity will achieve greater operational and economic efficiency.
Management
Yatra.com was cofounded by Dhruv Shringi, Manish Amin, and Sabina Chopra in 2006, started as a 3-member team in Gurgoan. They are with the organisation since inception and holds the roles of CEO, CTO and COO- Corporate business respectively.
Risks and Red flags
- Online travel business is marred with cutthroat competition. Yatra has been continuously losing share in the crowded B2C market and might continue to do in the onslaught of competition despite the best intentions of the management.
- Big players like MMT and co. can increase their focus in B2E business and can use their B2C playbook to undercut Yatra and grab share even though its not easy due to better stickiness and integration with the corporates ERP system etc.
- Yatra and other OTA players are subject to macro risks that can impact the travel market.
- KMP remuneration looks to be on the higher side for a 1200 cr market cap company.
Financials :
Quarterly Trends
Annual trends and projections
Valuations
- As on 24st March Yatra is trading at Rs 79 with a market cap of c. 1250 cr
- The current P/E = 46
Price Performance
Yatra Online got listed in Indian bourses in Septemeber 2023 at Rs 136 and hit a high in Jan 2024 of Rs 179 . Since then it has been dropping and in the recent carnage it hit a bottom of Rs 69. Prices have recovered to Rs 79 since then.
Summary
Yatra Online is one of the pioneers in Indian Online Travel industry and is a well-known player with good brand recall. Due to funding issues and cut throat competition, Yatra Online lost market share to well heeled operators in B2C segment. Since then, they have smartly pivoted to the Enterprise market and is the undisputed leader in the enterprise OTA business. With value migration towards Online players in the enterprise travel, hotel booking and MICE, Yatra online is well placed to capture significant market share and grow exponentially. They have utilized the IPO proceeds smartly by acquiring a company with good synergies and better margins in the Enterprise business and also updated their backend tech stack. With the recent price drop in line with the entire market , Yatra Online I believe presents a good opportunity to invest in a good operation with significant near term growth opportunities and descent management.
References:
DRHP of YatraOnline : https://www.bseindia.com/corporates/download/378593/DRHP_20220405191605.pdf
Company Presentations and quarterly filings
Company Investor Calls
Company Annual Report FY24
Excellent report by Nitin Padmanabhan of Investec Bank PLC
Glossary of terms in OTA business with a sample P&L statement with help of Chat GPT
Disclosure: I have positions in the stock at an average price Rs 72
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