IPO Analysis: Yatra Online

IPO Analysis of Yatra Online

Yatra Online is India’s largest corporate travel services provider and the second largest online travel company in India among key OTA players in terms of gross booking revenue and operating revenue. Company have largest number of hotel and accommodation tie-ups amongst key OTA players of over 2,094,000 tie-ups, as on  FY2023. India is one of the world’s largest and fastest growing economies, with a large middle class, increasing disposable income and a rapidly growing online consumer segment. India’s GDP growth is expected to rebound to 9.5% in FY22 from a decline of 7.3% in FY21 due to the impact of pandemic. Given the size and growth dynamics of the India travel market, we have strategically focussed both on the corporate and consumer markets. Company is the leading corporate travel service provider in India with approximately 700 large corporate customers and over 46,000 registered SME customers and the second largest consumer online travel company (OTC) in the country in terms of gross booking revenue for Fiscal 2022.

Company go-to-market strategy spans the entire value chain of travel and hospitality covering B2C (business to consumer) and B2B (business to business which includes business to enterprise and business to agents) They believe that the combination of B2C and B2B channels enable them to target India’s most frequent and high spending travellers, namely, educated urban consumers, in a cost-effective manner. Approximately 700 large corporate customers employ over 7.00 million people who along with their families form a large part of the consuming upper middle class of India. In addition, travel agent network provides additional scale to their business by leveraging our integrated technology platform in order to aggregate consumer demand from over 28,000 travel agents in more than 840 cities across India as of September 30, 2021.

Leisure and business travellers use mobile applications, website, www.yatra.com, and other offerings and services to explore, research, compare prices and book a wide range of travel-related services. These services include domestic and international air ticketing on nearly all Indian and international airlines, as well as bus ticketing, rail ticketing, cab bookings and ancillary services within India. Yatra Online also provide access through platform to hotels, homestays and other accommodations, with approximately 93,500 hotels in approximately 1,400 cities and towns in India and more than two million hotels globally, which is the largest hotel inventory amongst key Indian OTA players.

Yatra's business is based on a common technology platform that serves customers through multiple mobile applications as well as website www.yatra.com. Their common platform approach provides them with a scalable, comprehensive and consistent user experience across each of their go-to-market channels and helps them innovate effectively. Yatra believe that this approach drives Company familiarity with their service and encourages cross sell and repeat usage by their customers, which further enhances customer loyalty for business. This approach has enabled them to reduce development costs and accelerate ‘‘time-to-market’’ as new features and services can be launched simultaneously across channels. Their technology platform has been designed to deliver a high level of reliability, security, scalability, integration and innovation.

In order to further strengthen customer loyalty and provide an incentive to the employees of corporate customers to transact with company as B2C customers, They operate a proprietary eCash loyalty program that enables travelers that book through platform to accumulate and redeem points, where applicable. Their eCash loyalty program acts as a surrogate and fills the loyalty gap that exists across product categories such as air travel (“Air”) and hotels (“Hotel”) in the travel market in India. Yatra currently have over six million eCash registered users on platform. Historically, over 90% of customers’ visits have been from direct and organic traffic. Company have moved towards a “Mobile First” business and have experienced rapid user growth on platform with mobile being the primary channel for customers to engage with them. Leveraging brand and technology platform, company intend to continue to expand and enhance offerings through innovative travel solutions that will grow business, improve customer experience and meet the changing needs of business and leisure travellers. For example, Company have opened up holidays booking platform to third- party vendors enabling them to sell holiday products alongside those packaged by using their platform as a marketplace, providing customers with a wide selection of products and services

Industry Research:

The Indian travel market is growing fast and has significantly evolved with digitalisation. The global distribution system (GDS) was introduced for travel and hospitality service providers in India during the 1990s, at a time internet penetration was low. The trend in online travel bookings was further fuelled with the Indian Railway Catering and Tourism Corporation (IRCTC) launching its e-ticketing services in 2002. Moreover, emergence of OTAs and online travel aggregators during the early 2000s, which initially focussed on airline ticketing, propelled growth of online ticketing.

Ticketing services across travel segments have undergone a dramatic change thanks to increased internet penetration, greater affordability of smart phones, user friendliness of online platforms, convenience in terms of comparison and varied modes of payment offered (credit cards, debit cards and net banking), and faster pace of service providers adopting digital platforms for their businesses. Online penetration of the Indian travel industry — defined as share of bookings done online through captive websites of the service providers or through OTAs — as stood at ~59-61% as of fiscal 2020. This share is further expected to increase to 71-72% by fiscal 2025, supported by growth in online transactions.

The Indian travel industry was estimated at Rs 1,590-1,610 billion in fiscal 2015. Led by a growing economy, geographical and cultural diversity, and various government initiatives, the Indian travel industry grew at 8-10% CAGR between fiscal 2015 to 2020, to a size of Rs 2,470-2,490 billion. The growth momentum is expected to continue. We expect the industry to grow annually by 5-7% to Rs 3,350-3,370 billion by fiscal 2025, driven by development of tourism infrastructure, rising income levels translating to higher discretionary spending on travel and tourism, increase in frequency of travel business and leisure purposes, reforms in visa and increase in connectivity across means of transport.

The Indian travel market is growing fast and has significantly evolved with digitalisation. The global distribution system (GDS) was introduced for travel and hospitality service providers in India during the 1990s, at a time internet penetration was low. The trend in online travel bookings was further fuelled with the Indian Railway Catering and Tourism Corporation (IRCTC) launching its e-ticketing services in 2002. Moreover, emergence of OTAs and online travel aggregators during the early 2000s, which initially focussed on airline ticketing, propelled growth of online ticketing.

Ticketing services across travel segments have undergone a dramatic change thanks to increased internet penetration, greater affordability of smart phones, user friendliness of online platforms, convenience in terms of comparison and varied modes of payment offered (credit cards, debit cards and net banking), and faster pace of service providers adopting digital platforms for their businesses. Online penetration of the Indian travel industry — defined as share of bookings done online through captive websites of the service providers or through OTAs — as stood at ~59-61% as of fiscal 2020. This share is further expected to increase to 71-72% by fiscal 2025, supported by growth in online transactions.

Industry estimates indicate that air ticketing had a high online penetration of 68-70% as of fiscal 2020 as the segment was among the earliest to adopt online channels. This was followed by railway ticketing at 72-74%. Commencement of e-ticketing services by IRCTC since 2002 has helped the online railways ticketing segment gain ground. In contrast, online penetration in hotel bookings has remained on the lower side at 24-26%. The fragmented nature of the Indian hotel industry as compared with airlines or railways and comparatively slower adoption by hotel brands and chains, especially the mid and small-sized ones onto the digital platforms including OTAs has kept the online penetration of hotels relatively low. CRISIL Research expects online penetration for airline ticketing, hotel booking and rail ticketing to improve to 79-81%, 35-37% and 81-83%, respectively, by fiscal 2025, largely driven by the convenience offered by online channels vis-à-vis offline ones. Online penetration of hotel bookings is expected to increase on account of supply expansion as more players, especially from smaller tier 1, 2 and 3 cities come onto the online platform. Moreover, support from higher penetration of internet and increased smartphone usage, coupled with a youthful population which has rapidly adapted to the digital era, are expected to increase consumers’ preference for online travel booking across segments in the medium to long term.

Within the online air ticketing segment, OTAs enjoyed a high share of 81-83%, with captive websites comprising the rest, as of fiscal 2020. Ease of comparison and competitive pricing have played a major role in OTAs’ achieving dominance in the sector. In the case of railways segment, IRCTC is the dominant player in online rail ticketing. While OTAs have ventured into the rail ticketing segment; the bookings are routed via the IRCTC platform itself, limiting the earning margins of OTAs. IRCTC has also initiated a number of measures to improve the user interface and ensure ease in booking process across its mobile and web platforms, which is expected to limit the growth potential of OTAs in this segment.

Within the online hotels booking segment, OTAs enjoy 78-80% share. Higher degree of convenience offered by OTAs with regards to number of options, ease of comparison and competitive pricing have played a critical role in their gaining dominance. In case of bus ticketing, while online penetration remains low on account of ready availability of tickets with state transport corporations as well as private players, OTAs enjoy a higher share at 75-78% in comparison with captive players. Industry interactions indicate that this is largely on account of higher degree of user friendliness of OTAs platforms vis-à-vis captive websites.

Investment Rationale:

Growth in the customer base using cost-effective technology solutions

Company intend to grow our customer base by continuing to provide business and leisure travelers, a seamless and integrated technology platform that meets all their travel needs. Corporate customers collectively employ 7.00 million workers who believe form part of a vibrant, fast-growing customer base with disposable income. These employees constitute a target customer base of approximately 28 million customers, assuming an average family size of four people. In this endeavour, they have also introduced a loyalty program to incentivize employees who transact with them on corporate travel platform to cross-pollinate and transact with them for their personal travel needs on B2C platform. This cross-pollination enables them to service this audience in a cost effective way while ensuring increasing ARPU (Average Revenue Per User) .

Grow “Share Of Wallet” With Existing Customers—Leverage Multi-Channel Approach and Loyalty Programs

A number of initiatives have been developed and incorporated in the platform that help them drive and reward customer loyalty. These are specifically targeted on B2C and B2B channels, where they have integrated features, such as (a) loyalty programs (eCash); (b) additional features on the product level to ensure comprehensive travel solutions coupled with value added services and (c) to incentivize corporate travel customers to utilise services for their travel needs.

Further Strengthen focus on Corporate business

As of September 30, 2021, they had approximately 700 large corporate customers and over 46,000 SME customers on platform. Since 2013 they have invested in building an inhouse SaaS (Software-as-a-service) platform for corporate services. These services are currently closely integrated on the platform include travel and expense. SaaS platform allows us to onboard a new customer using standardized product within a 3-week timeframe.

The corporate travel market is expected to grow at a CAGR of 12-14% between Fiscal 2020 to 2025 to reach Rs. 62-66 billion in Fiscal 2025 from Rs. 33-37 billion in Fiscal 2020. We believe our leadership position in corporate travel, integrated technology platform and speed to market in bringing customers onboard gives us a distinct advantage over the competition.

Company recently launched a freight forwarding business called Yatra Freight to further expand corporate service offerings. They have existing supplier relationships with the airlines as a result of B2C and B2B travel business and also have corporate relationships with some of the largest pharma and manufacturing companies in India in corporate travel business who are also some of the biggest users of freight services. They propose to continue to leverage corporate and supplier relationship to offer more solutions to corporate clients. By leveraging Yatra’s robust relationship with air-carriers, Large Corporate and SME customers we will be able to provide a technology-enabled digital freight forward platform which will cover Ocean Freight, Surface Logistics and Air Cargo.

Invest in Technology “One-Stop Shop” For All Travel Needs

Company believe that Technology is a significant differentiator and driver of the franchise that they have built. They have invested significant amount of times, capital and effort on what we believe is a market leading technology platform. These efforts include:

•              Creating a real-time and fully integrated B2C Booking Platform which aggregates & integrates airline inventory with customer access in a seamless way. `

•              Aggregating Corporate Travel demand through a dedicated and integrated into ERP/ HRIS systems of the corporates
To ensure that Yatra remains a market leading Travel-Technology platform, we will continue investing in our common technology platform in order to ensure that they can introduce new product offerings in an efficient and timely manner and deliver on vision of being a ‘one-stop-shop’ for customers when it comes to travel and travel related products. Given focus on sustainable growth, which means that they do not intend to rely on aggressive promotions and discounts to grow business, innovation is a key driver for business as it enables us to provide customers with a differentiated high quality offering. In order to provide customers with selection and choice, Company have launched a marketplace platform that enables them to sell own inventory as well as the inventory of third-party vendors and intend to launch similar innovative platform enhancements in the future.
They adopt a platform approach in corporate business by offering full suite of travel products such as air, hotel, bus, rail, cabs and insurance on a common technology platform. Additionally they have also added capabilities in adjacent business such as expense through a partnership with Zaggle that can drive further growth in the Corporate vertical. Additionally they recently began offering Freight forwarding services to existing corporate customer base further demonstrating cross-sell opportunities within platform.

Their eCash program was launched in 2014 to reward customers for repeat purchases. Since inception, over 6 million customers have registered for eCash program. Customers accumulate eCash points on travel booked through them, and these points work as a currency that can be redeemed by customers during future bookings. Since the eCash program was launched, Company have seen a significant impact of this program on business. They plan to continue to use eCash program as an incentive to drive repeat rates from B2C customers and to incentivize B2B customers to transact with them on the B2C platform.

Fuel Growth Through Innovative Acquisition Strategies

The acquisition of companies, intellectual property and talented individuals has been central to growth strategy. In 2010, they acquired TSI and its subsidiaries in order to expand travel agent business, particularly international Air Ticketing for small and medium scale enterprises. In 2012, they acquired the Travelguru group of companies from Travelocity, which remain well-established hotel aggregators in India. Through this acquisition, they expanded hotel business by establishing more direct hotel relationships in India and improved inventory of affordable travel options. Company have also leveraged leading position in the Indian travel ecosystem to make several “acqui-hires,” including the teams from mGaadi and dudegenie, in order to grow business. During the second quarter of fiscal year 2018 and fourth quarter of fiscal year 2019, They completed the acquisition of a majority stake in ATB and the corporate division of PL Worldways known as Travel.co.in Limited, or TCIL, which further reinforced leadership position in the B2B travel segment.

Leverage existing travel agent network in Tier II and Tier III cities

Company will continue to invest in branding and services targeting Tier 2 and Tier 3 markets which, currently have lower online penetration levels for travel. According to the Indian government’s most recent census, more than 200 million people (representing 16% of India’s population) live in the 488 cities and towns comprising Tier 2 and 3 markets. We expect increased travel within and between Tier 2 and Tier 3 cities to drive growth in air and hotels.

Key Management Personnel:

Dhruv Shringi is the Whole-time Director and Chief Executive Officer of Company. He is a chartered accountant and has completed his course from the Institute of Chartered Accountants of India. Further, he also holds a master’s degree in business administration from INSEAD. He was previously associated with Fords Motor Company, Arthur Anderson & Co. and Ebookers.Com Plc.

Murlidhara Kadaba is the Non-Executive Director of Company. He holds a bachelor’s degree in engineering from the University of Mysore as well as a postgraduate diploma in management from XLRI, Jamshedpur. Prior to joining our Company, he was associated with American Express Bank Limited, Citibank N.A. and Reliance Industries Limited.

Neelam Dhawan is the Non-Executive Director of Company. She holds a bachelor’s degree in arts (economics) as well as a master’s degree in business administration from the University of Delhi. She was previously associated with Hewlett-Packard Enterprise India Private Limited as Vice-President, Solutions Sales, and with HP India Sales Private Limited, Hewlett-Packard India Private Limited, Microsoft Corporation (India) Private Limited as their Managing Director.

Deepa Misra Harris is the Independent Director of Company. She holds a master’s degree in arts from the University of Delhi. Prior to joining our Company, she was employed with Indian Hotels Company Limited for over three decades and resigned on March 14, 2015 as the senior vice president-sales and marketing with expertise in hospitality, travel and luxury category. She currently is an independent non executive director on the board of Jubilant FoodWorks Limited, PVR Limited, ADF Foods Ltd , TCPL Packaging Ltd and Prozone Intu Properties Limited.

Rohit Bhasin is the Independent Director of Company. He holds a bachelor’s degree in commerce from the University of Delhi. He is also a qualified chartered accountant and holds a certificate of practice from the Institute of Chartered Accountants of India. Prior to joining our Company, he was associated with PricewaterhouseCoopers Private Limited and Standard Chartered Bank. He is also currently the independent director of Tanla Platforms Limited and Star Health and Allied Insurance Company Limited

Ajay Narayan Jha is the Independent Director of Company. He holds a master’s degree in history from Delhi University,a masters’ degree in arts from McGill University as well as a master’s diploma in public administration from the Indian Institute of Public Administration. He was a member of the Indian Administrative Services. During his service, he was the Finance Secretary with the Government of India. He was also a member of the 15th Finance Commission, constituted by the President of India under article 280 of the Indian Constitution.

Financials:

Balance sheet:

Profit & Loss:

Cash Flow:

Key Risks:

1.) Credit risk:

Credit risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables), including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

2.) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the consolidated entity aims to maintain flexibility in funding by keeping committed credit lines available.

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