MakeMyTrip Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 16, 2023

There are 10 speakers on the call.

Operator

Hello, everyone. I'm Vipul Gag, Vice President Investor Relations at MakeMyTrip Limited, and welcome to our fiscal twenty twenty three fourth quarter and full year earnings webinar. Today's event will be hosted by Deep Kalra, our company's Founder and Chairman. Joining him is Rajesh Mago, our Co Founder and Group Chief Executive Officer and Mohit Kabra, our Group Chief Financial Officer. As a reminder, this live event is being recorded by the company and will be made available for replay on our IR website shortly after the conclusion of today's event.

Operator

At the end of these prepared remarks, we will also be hosting a Q and A session. Furthermore, certain statements made during today's event may be considered forward looking statements within the meaning of the Safe Harbor provision of The U. S. Private Securities Litigation Reform Act of 1995. These statements are not guarantees of the future performance, are subject to inherent uncertainties, and actual results may differ materially.

Operator

Any forward looking information relayed during this event 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 07/12/2022. Copies of these filings are available from SEC or from the company's Investor Relations department. I would like to now turn the call over to Rajesh. Over to you, Rajesh.

Speaker 1

Thank you, Rupul. Welcome, everyone, to our fourth quarter and full year earnings call of fiscal twenty twenty three. Fiscal '20 '20 '3 has been a robust recovery year for the Indian travel industry. We witnessed consumer sentiment to travel improving with each successive quarter throughout fiscal year twenty twenty three. Travel industry was quite relieved to see demand for each of the travel segment with leisure business, VFR, that is visiting friends and relatives, students, pilgrimage, MICE, etcetera, recovering nicely during the year despite macroeconomic headwinds in the current in the recent quarters.

Speaker 1

We at MakeMyTrip also saw robust recovery of all our business segments barring outbound travel recovering nicely to pre pandemic levels. In fact, some of the categories like premium segment of hotels, domestic flights, home stays, and domestic packages have already crossed pre pandemic levels. This demand momentum, coupled with our optimized cost structure, helped us deliver strong performance for the quarter and full year. We achieved our highest ever annual gross booking value and adjusted operating profit during the reported fiscal year twenty twenty three. Gross booking value for the year was $6,600,000,000 growth of 122% on constant currency basis, while adjusted operating profit for the year was $70,300,000 growing to over three times as compared to fiscal twenty twenty two.

Speaker 1

As per WTTC report, over the next decade, global travel and tourism GDP is forecasted forecasted to grow at at about 5.8%, outpacing the overall economy growth to reach $14,600,000,000,000 by 02/1932, thus contributing 11.3% to total global economy. India's tourism sector is expected to grow faster, owing to growing demand from the middle class, higher disposable incomes, favorable demographics, and higher investments in travel related infrastructure. Emerging technologies will be at the forefront in driving online travel penetration with new innovations to make online travel booking extremely simple and convenient, helping push adoption for from smaller cities. We at MakeMyTrip will continue to drive this change and capitalize on on the opportunity that lies ahead. Our tech platforms built over the years are very robust, reliable, and scalable pro provide secure and delightful experience for the customers on our b two c offerings.

Speaker 1

More recently, leveraging our core tech capabilities, we built new platforms like MyBiz, MyPartner to cater to b two b corporate and b two b two c demand segments, respectively. Our platform mindset in building our tech stack has helped us launch all these new offerings over the last few years with amazing efficiency and agility. These investments will help us drive future growth and profitability. Besides building new platforms and launching MakeMyTrip.ae, which is our GCC platform, we have now built almost fully automated, fully self serve model of our post sales interface. As a result, we now offer the best in industry post sales capability across our entire line of businesses, thus improving customer experience for post sales use cases.

Speaker 1

Our data science and engineering capabilities have enabled us to deliver delightful, personalized, and con contextualized experience to our customer to our customers. Leveraging these capabilities with insights driven mindset enabled us to launch several industry first features for our consumers. Most of our new offerings are backed by rich data science capabilities, which we employ cutting edge AI ML models to bring value added differentiated features. Consumer focused products like zero cancellation, fare lock, trip guarantee, hotel ranking, etcetera, and supplier focused products like RevMax, a paid yield management tool for bus operators, demonstrate our superior capabilities in data sciences, AI, and ML. A key part of our growth strategy to drive digital penetration of travel services deeper into the country beyond tier tier one and tier two cities.

Speaker 1

We recently collaborated with Microsoft to make travel planning more inclusive and accessible by introducing voice assisted booking in Indian languages. The new conversational flow powered by Microsoft Azure Azure AI and cognitive services will converse with the user to offer personalized travel recommendations based on their preferences, curate holiday packages based on variable variable inputs like occasion, budget, activity preferences, time of travel, etcetera, and eventually help book these holiday packages. Similarly, it could help book flight tickets with a few simple conversational steps, including payment. This can drive adoption of online travel ecosystem for almost every strata and demography across the country. Currently, the beta version of this integration has been introduced in Hindi and English for flights and holiday cons customers.

Speaker 1

Apart from tech tech capabilities, one of our biggest strengths is the brand is the brands that we have created over the years. All three of our brands have the highest top of mind recall when it comes to travel services with a cumulative transacted consumer base of over 64,000,000 users. Our engagement metrics and repeat rates are comparable with the global benchmarks, which is testimony of trust in our brands. As for business segments now, starting with air business, recovery momentum in aviation sector continued during the quarter despite the lower leisure season season quarter. There was an uptick in both domestic and international air traffic, especially in the month of March.

Speaker 1

We've been growing faster than the market on the back of our innovative product and brand strength. Also, for two quarters in a row, our domestic flown passenger traffic is above pre pandemic levels. International air bookings have seen an expectedly slow recovery throughout the year. The recovery is now in the nineties, and we expect to get back to pre pandemic volumes in the new fiscal year. We continue to innovate product features.

Speaker 1

For instance, we not only scaled up our fare lock feature to cover 95% of domestic flights, but also launched this feature for international itineraries with about 95% coverage. While according to Center of Aviation Kappa, next year outlook for Indian domestic aviation sector is quite positive with a projected growth of about 20% year on year. Recently, Gopher's airlines having a small market share of about 6% filed for voluntary insolvency resolution proceedings before the National Company Law Tribunal, NCLT, in India seeking interim relief, citing failure of the global engine supplier to replace the faulty engines from time to time, resulting into grounding of half of their fleet and consequent operational and financial issues. Interim relief was granted by NCLT, and the airline is making all possible efforts to resume the operations. In the short term, this event has affected the supply, although we expect it to be temporary as the other airlines in the market have started to fill the supply gap with additional deployment of planes on key key routes.

Speaker 1

Our accommodation business, which includes hotels, packages, and home stay segment, continues to shape up well. Leisure travel has gone beyond pre pandemic levels, and corporate travel has recovered strongly on the back of conferences, exhibitions, and events. With our continuous focus on supply expansion, we have surpassed our pre COVID supply with more than 71,000 sellable accommodations listed on our platform. This has helped us increase our market share and further strengthen our supply mode. With international outbound travel picking up, we have now started to expand our direct contracting for destinations where Indian tourists travel frequently.

Speaker 1

Vietnam is one such example of a new emerging destination where we are now building inventory through direct supply contracts to deliver better value to our customers. Gross booking for accommodation business has surpassed the pre pandemic levels on the back of strong growth in premium and medium mid premium category of hotels. Our endeavor has been to build a platform that is innovative, intuitive, simple, and delivers the best value to the customer. During this quarter, we launched Book at Zero, which is an industry first initiative where customer can now reserve their preferred property without worrying about upfront payments and pay closer to the travel date, thus solving for any anxiety related to uncertain travel plans and offering huge flexibility to the customers. This feature is now available for all properties across India and outside India.

Speaker 1

This is helping us change the consumer behavior to book in advance, which will help better yield management for our partners. We continue to scale our home stays business with leisure destinations contributing to most bookings. To discover and promote properties at drivable distance, we launched hidden gems. This feature has been built on interactive maps to improve the discoverability. To make decision making informed and seamless for home stays, we introduced some other features showcasing information related to food and dining at the property.

Speaker 1

Our holiday packages business has also continued to scale up and has already surpassed pre pandemic levels. Coming to our bus ticketing business, continues to deliver strong results. We are now start starting to see some buoyancy in the supply ecosystem with multiple large operators confirming new fleet orders to OEMs and addition of new EV intercity buses by newer players. A few large bus operators who had paused or shrunk their operations post the COVID lockdown have restarted during the quarter with an effort to get the full fleet back on the roads. With favorable macro environment, like new expressways and highway expansion, demand growth due to more in office working, especially in IT companies in the South India and easing of the supply constraints in motor vehicles production, we expect a capacity expansion in intercity bus buses during this financial year.

Speaker 1

Product related initiatives continue to focus on driving online penetration for the category and enhancing customer experience. The Regional Transport Corporation bus booking experience has been further improved and customized to each RTC. This has improved the conversion rates for RTC bookings, leading to an increase in the rate of new customer acquisition. Further in nontraditional bus markets like Central And East India, we have added significant inventory to drive the penetration. We intend to double down on these efforts to make Redbus truly pannational with meaningful business contributions coming from every region in the country.

Speaker 1

International markets are maintaining their growth momentum and now contribute upwards of 10% of our overall bus revenue. Our other ground transport services such as intercity cabs, rail tickets, etcetera, continue to scale well. This segment is helping us acquire new users of the platform. We are investing in this business as we foresee an opportunity to disrupt this segment through technology interventions, innovating offerings, and supply consolidation. We opened our trip guarantee offering for users who haven't booked their train ticket from MMT platform to further expand our reach to to real users.

Speaker 1

Our MyPartner, b to b to c platform, where we offer both flight and accommodation booking, is gaining positive traction from our affiliate partners. Engagement levels from existing partners are improving as we continue to ramp up onboarding new partners every quarter. Business travel is gradually normalizing, and we continue to add more capabilities on our both MyBiz and Q2P platforms. We recently completed end to end integration flow with Davinbox, giving complete solution to the corporates from travel request to expense management. Our revamped portal of Q2T has now gone live, and our MyBiz platform is now ranked as second best travel management software globally and first for small business segments SME by g two, which is a global peer to peer review platform.

Speaker 1

With with the scaling up of our corporate and B2B2C platforms, we are now able to target all customer demand segments directly and more effectively. With this, let me now hand over the call to Mohit for financial highlights of the quarter.

Speaker 2

Thank you, Rajesh, and hello, everyone. We are pleased to report another strong quarter both in terms of business growth and profitability. As mentioned by Rajesh, despite the few macroeconomic headwinds, demand for travel continues to be resilient and robust. We are seeing an improved trend across all our segments, and we believe fiscal year twenty twenty four will be the year of growth over pre pandemic levels. Through the pandemic impacted years, we have been investing in the areas of future growth, and this should strengthen our modes and help us stay ahead of the market.

Speaker 2

During reported quarter four of fiscal year twenty twenty three, gross bookings came in at about $1,700,000,000 witnessing a growth of over 80% year on year in constant currency terms on the back of strong travel demand. Adjusted operating profit or adjusted EBIT was about $19,000,000 as compared to about $12,000,000 during the same quarter last year, an improvement of over 58% year on year. Through the last few years, our strategic focus has been towards driving profitable growth, and we are pleased with the results delivered through FY 'twenty three. While Rajesh has called out that we have achieved our highest annual gross bookings and adjusted operating profit in fiscal year 'twenty three, I'd like to add that we have now been consistently EBITDA positive on a GAAP basis for the last five quarters in a row. During fiscal year twenty twenty three, we delivered GAAP EBITDA of $51,000,000 with a margin of 8.6% as compared to an EBITDA loss of just below $1,000,000 in the previous fiscal year.

Speaker 2

During the last couple of years, we have made efforts to optimize our cost structure and from here on, there will be gradual improvements in profitability on the back of operating leverage as we build scale. Our air ticketing gross bookings for the quarter stood at $1,100,000,000 witnessing a growth of 84.9% year on year on constant currency terms. Air ticketing segments grew by 10.3% sequentially despite weak seasonality on the back of strong growth in air traffic. Adjusted margin stood at about $74,300,000 raising a growth of 81% year on year on constant currency basis. Gross bookings for the quarter for Hotels and Packages segment came in at $388,600,000 witnessing a strong growth of over 78% year on year in constant currency terms, in line with demand trends.

Speaker 2

Adjusted margin for our Roodles and Packages business stood at $63,500,000 during the quarter, witnessing a growth of over 64% year on year in constant currency terms. In our bus ticketing business, gross bookings for the quarter were at $213,500,000 growing at over 66% year on year on constant currency basis. Adjusted margin stood at about $19,300,000 registering a strong year on year growth of about 70% in constant currency terms. The take rates of margins for all these three reported segments that is air ticketing, hotels and packages and bus ticketing continue to be in line with the previous quarter. Adjusted margin for the other businesses in the reported quarter of Q4 came in at about $9,000,000 witnessing a growth of over 73% year on year in constant currency terms.

Speaker 2

Operating leverage built over the years is now clearly visible, and we continue to be efficient with our marketing and customer acquisition related spends. Our overall marketing and sales promotion expense for the quarter came in at about 5% of gross bookings as compared to 5.2% in the previous quarter. Most of the other expenses continue to be in line with the previous quarter. At the end of this quarter, our cash and cash equivalents were about $487,000,000 as compared to $449,000,000 at the end of the previous quarter. That's an addition of about $38,000,000 during the quarter.

Speaker 2

The cash addition was stronger than the profitability linked cash generation due to working capital releases in a seasonally weaker quarter. Our balance sheet strength gives us the flexibility to invest and pursue new growth opportunities both organically and inorganically. And lastly, in the recent past, there have been some media reports about our India IPO plans. I'd like to take this opportunity to share our view on the matter. We are an Indian company with a strong India brand and a predominantly India business.

Speaker 2

So while there could be valid reasons or arguments for us to list in India, we currently have no plans to pursue this thought at this stage given the strong cash position on our balance sheet. With that, I'd like to turn the call to Vipul for Q and A.

Operator

Mohit. Any participant who wish to ask a question can please click on the raise hand, and we will take the questions one by one. We will just wait for a minute for the question queue to assemble. The first question is from the line of Manish Alouki of Goldman Sachs. Manish, your line has been unmuted.

Operator

You can talk you can ask your question.

Speaker 3

Great. Thanks, Hippul. Hi, team. Thanks for taking my question. So my first question is on the hotels business.

Speaker 3

Now while you did call out that recovery has generally been strong across all travel segments and within hotels, you said that premium hotels are tracking above pre COVID levels. But when I look at your overall reported hotels revenue or volumes, they are still tracking reasonably meaningfully below pre COVID levels. So just trying to understand that from a mix standpoint, how weak is the budget segment still to drive the overall hotel revenues and volume for MakeMyTrip to be that much below pre COVID level? And there, what's your outlook in terms of demand recovery, let's say, the next six to twelve months? That will be my first question, please.

Speaker 2

Sure, Manish. And maybe I can just take that. If you really look at in terms of our mix of bookings or room nights pre pandemic, it used to be you know, budget segment used to contribute close to about, you know, mid forties in terms of the the overall mix. Like I had mentioned, you know, currently, we are seeing, you know, the budget segment contributing close to about a third of our overall kind of bookings. So clearly, there's a, there's kind of lag in recovery in the budget segment.

Speaker 2

And we do expect that it would probably take another six to twelve months for the mix to get restored or get closer to the pre pandemic levels.

Speaker 3

Thanks, Mohit. A follow-up there. I mean, this demand weakness in the budget segment, is it also a function of higher ASPs or meaningfully higher ASPs in that category versus what it used to be in the past?

Speaker 2

Absolutely, absolutely, Manish. Very relevant and important to bring that out. The ASPs, particularly in this segment and this segment being a lot more price sensitive, the impact on volume recovery has been higher because as we noticed, historically pre pandemic, there used to be a lot of significant promotions, deep discounting that used to happen from multiple players in this particular segment, which pretty much has kind of gone away. And therefore, the pricing impact in this segment has been sharper compared to the other segments, other price points. And therefore, the recovery has been lagging a bit.

Speaker 2

And like I said, it's a segment which is even more price sensitive than the others. And that's one of the key reasons for the delayed recovery on this one.

Speaker 3

Thanks, Mohit. And should we assume that the take rate that you've reported now, which is about 16.3%, that should be the new normalized take rate? Or are you seeing some headroom for that number to move upwards, let's say, in the course of next few quarters?

Speaker 2

Pretty much normalized, except for the fact that, like I was mentioning that budget segment mix kind of comes back to pre pandemic levels, there will be marginally scope for improvement over here.

Speaker 3

Understood. My next question is on the Air business. Now there, of course, the volume numbers that you reported have been quite strong. But what we also noticed in the reported financials is that the promotion spend that you report against the Air segment, that's consistently moved up from about 2% of gross bookings pre pandemic to now being about 3.4 of gross bookings. Is there like a meaningfully higher competitive intensity that you're seeing in the air segment now than what you had in the past?

Speaker 2

I mean, it's a factor of a couple of things. One part of it is clearly kind of, you know, linked to competitive intensity, but the other part is also linked to the fact that, you know, through the pandemic, you know, the airlines have been kind of, you know, promoting, you know, the the the volume buildup on the on the air ticketing side, and and therefore, see that the recovery is much stronger over there. It's a little bit of a, a grossing effect. So you would see the take rates kind of staying strong and firm through the last couple of years. And also the kind of promotional expense being slightly higher compared to pre pandemic levels.

Speaker 2

So it's largely, I would say, a combination of both of these factors.

Speaker 3

Thank you. Just one last quick question. So margins obviously have remained very strong. Cash EBITDA margins now well in double digits. So from here on, again, margins, should we expect them to be range bound?

Speaker 3

Are you looking to reinvest, let's say, margins into growth? Or should margins be expanding from here on as the monitor covers further?

Speaker 2

See, this year has seen a very strong kind of growth over the previous fiscal year, right, because last year was kind of impacted to some extent by the pandemic. And therefore, the margin expansion has also been significantly higher this year. Going forward, we would expect margin expansion to continue, albeit on a smaller measure, But we do expect some small margin expansion to continue.

Speaker 3

Thank you so much for answering all my questions. All the best.

Operator

Thanks, Manish. Thanks, Manish. The next question is from the line of Gaurav Dathiri of Morgan Stanley. Gaurav, you can ask your question now.

Speaker 4

Hi. Am I audible?

Operator

Yes, please. Go ahead.

Speaker 4

Hi. Congrats on good performance. Couple of questions. The first one is related to the specific event that happened in the airline industry in India. What's our exposure with respect to any balance sheet advances that could be potentially at risk?

Speaker 4

And secondly, how should that play out with respect to impact on the overall volume growth for the industry in the next three to six months?

Speaker 2

In terms of, you know, the industry event, you know, as far as Go First is concerned, I guess you would have kind of picked up, you know, and CLP has actually appointed an interim resolution personnel, and and and he has been tasked of kind of, you know, getting the airline back to running on an ongoing basis, you know, with a going concern concept. And therefore, we believe there's really no no risk in terms of, you know, our our login balances, you know, with the airlines because as soon as, you know, the air ticketing, you know, kind of window opens again, these will get utilized very quickly. So I think it's more a matter of time. Don't really see us in even exposure over there right now. In terms of, you know, the impact on industry, go first, like Rajesh had called out, used to be about six, seven percent of, you know, the overall market, but the impact on the market is unlikely to be that large.

Speaker 2

It's gonna be much more smaller because most of the other airlines are kind of, you know, pressing in, you know, more kind of flights and, you know, particularly on the key routes where where they used to operate. And therefore, the overall impact on the industry is gonna be much lesser than their than the market share that they used to have, you know, before they kind of, you know, closed operations. Rajesh, you would like to add anything? Yeah. No.

Speaker 2

Happy to happy

Speaker 1

to add what you said, Mohit. So, Gaurav, what Mohit said is right. Right? He's not the overall share was low, and there are other stronger players in the market. I mean, whether it is Indigo, you know, or Air India or Arakasa is also trying to to ramp up quite nicely, actually.

Speaker 1

And not only planning to, they were actually already, as we speak, deployed, you know, additional planes. So I think there will be obviously temporary sort of demand supply gap, and then that could potentially have an impact on fares as we recently saw as well. But as soon as we have the more supply coming from the other airlines and the the gap, gets bridged, and hopefully, also, you know, as we are heading in the couple of for next couple of weeks, if Goya is back in the skies, then that should ease out the situation as well.

Speaker 4

Got it. Second question, just a data point on market share that you used to share always on the domestic air segment, how that has fared this quarter versus the last quarter?

Speaker 1

Yeah. A little better only, Gaurav. I mean, you know, despite whatever might be happening in the market overall, you know, in this quarter was also I mean, we have been sort of in the range of 30 to 31%. So if last quarter was 30%, this time, it was 30.5% plus. So a little better than the last quarter.

Speaker 4

And would it be possible to get a sense of where we stand on market share for international outbound segment?

Speaker 1

Actually, it's very hard, Gaurav, to to get to to the actual number because, see, domestic, it's very easy because there are third party, you know, sort of source data available, as you know, from DGCA. But, for international, given that there is also inbound and there are a lot of international players and all, it's very hard to sort of, get to the and, you know, we use, surrogate all the time. I don't think there has been any, significant change in the market share for the international overall. And the reason for that is simple. I mean, you know, as we sort of covered in our commentary, the overall international outbound travel, travel, thanks to high fares, maybe mostly for long haul and some of the operational issues related to visa, etcetera, is still in the recovery mode.

Speaker 1

I mean, it used to be last quarter, if you would recall, was about 75%. We are getting into nineties now. And, you know, first, we just get out of the, recovery mode and get into a growth mode this year. And then hopefully, you know, there will be some, share gains as well.

Speaker 4

Got it. Third question is with respect to the new channels that you talked about that you started over the last two to three years. Cumulatively, all these account for what percentage of the overall gross booking for us? And is there any target from a next one to two year perspective? And last question from for Mohit, like you've always given a sort of a range for the ad spend as percentage of the total gross booking, 5% to 6%.

Speaker 4

We have pretty much in the lower end of that band for last one to two years. So how should we look that number going forward, let's say, for fiscal twenty twenty

Operator

four? Sure.

Speaker 2

I think on the spend side, I would say, we kind of pretty much kind of look to remain within that range of 5% to 6%. Again, depending on multiple things, including competitive intensity, including kind of what kind of promotional expense coming, particularly from the supplier side, etcetera, we believe we should continue to be in that same range of 5% to 6%. And we should continue to see some amount of margin expansion also happening at the bottom line while maintaining this range of spend. So that is that is how I would look at it. Probably, there will be a, you know, more kind of a, you know, higher mix of kind of brand related spends, you know, going forward out of the entire entire customer acquisition cost.

Speaker 2

So that's probably the only small tweak that I see, you know, going forward, but more overall kind of shifting the range per se. Gaurav, you would just kind of point me back to the previous question before

Speaker 1

I Maybe I'll take that point. I can take that. It was about the new new channels. So, Gaurav, maybe I can take that. So the the way we are looking at, Gaurav, in all fairness, the new channels is that the first couple of years is always onboarding, ramping up, scaling up, engaging, you know, either the corporates and acquiring corporates or, let's say, onboarding travel agents for my partner platform.

Speaker 1

And, you know, from all those metrics, they have been doing really, really well. Now it's just a question of, you know, and, of course, on our platform, we've been adding, more capabilities in terms of product offerings and so on. And the and and early signs of traction traction on, you know, engagement and as well as the transactions happening, you know, on both sort of SME segment and the large corporates on my business, pretty robust. Now given that they've just started in just a couple of years, and, you know, we will wait to sort of, get that to scale for us to be able to sort of give you, any more color in terms of, you know, what's their con current contribution? More importantly, you know, how are we sort of looking at it them contributing?

Speaker 1

See, right now, our focus is very simple. The focus is that we want to just reach out from a reach standpoint to every possible demand segment. And with the that intention and goal, you know, from a midterm and a long term goal standpoint, we made these investments. And we are quite happy with the progress so far in terms of, you know, sort of, all these, key KPIs that, you know, early, a part of the journey, they become very, very relevant, and they're doing really well. Let's just wait for some more time for us to be able to to get to the actual numbers of in terms of business, how much is the contribution happening.

Speaker 4

Alright. Very useful. Thanks a lot, and all the best.

Speaker 1

Thank you, Gaurav.

Operator

Thanks, Gaurav. The next question is from the line of Mahesh Shah. Mahesh, you may please ask your question now.

Speaker 5

Hi. Can you hear

Operator

Yes. Yes. We can hear

Speaker 2

Thanks.

Speaker 5

Thanks, Pupul. Rajesh, maybe a question for you. Just on ONDC, right, the open network for digital commerce. The scope and vision of the platform seems fairly broad. It could overlap with some of the categories that you play in.

Speaker 5

You just talk a little bit about how you're looking at it? What are the opportunities and risks to keep in mind? And, you know, it would be great if you could talk about it separately for air versus hotels because, you know, maybe the consideration could be different.

Speaker 1

Yeah. No. I think it's an interesting observation, Mihir, and, you know, NDC has been in the news for, for a while now and, you know, maybe off late a lot more in the public domain. And we've been we've been, actually watching the space very, very carefully. Not only watching, we've been sort of, you know, off and on engaged with the with the ONDC, you know, management also, just to to, you know, continuously keep sort of understanding from their point of view how are they looking at evolving, their own platform.

Speaker 1

To be honest and, you know, and it's all in the public domain, this news is that, you know, the categories that they have launched, so far, they're obviously waiting for that to sort of scale up, you know, and and get full traction, etcetera. From from mobility standpoint, I mean, anything related to travel and tourism is is later. But, you know, before that, I think it's, right now, there is, you know, some soft launch on the mobility side first because that's a high frequency item, and they wanted to probably solve that for a, for for first before before they get to the actual travel and, you know, let's say flight bookings or hotel bookings later and all of that. Because, you know, I think there could be also a realization that these are fairly, complex products at some level, especially the hotel bookings or the, you know, let's say, international flight bookings for that matter. Relatively domestic flights might be easier.

Speaker 1

So at this point in time, you know, it's basically wait and watch, and just see how the other categories and all the seller side and the buyer side sort of operate, and how do they solve for the overall, post sales customer experience, the the you know, from product commerce standpoint, the the delivery and the, you know, all the the related issues that come along with it. And they've been sort of grappling, and there've been some reports again and again in the public domain from their point of view that, you know, there are issues that are not necessarily everything is sort of very smooth and frictionless. So I think it's going to take some time for it to evolve. You know? Can it sort of offer, for the long tail of sellers a good platform, you know, that they can sort of pass participate in, in ecommerce?

Speaker 1

Perhaps the answer is yes. You know, can this possibly scale this up to bring in more categories? We'll have to wait and see. And more from, you know, just solving the end to end sort of experience problem because we do believe the travel is very, experience oriented. And therefore, you know, while it might look pretty simple on the front end from a booking standpoint, but it's fairly sort of complex when it comes to the post sales experience as well.

Speaker 1

So I think at this stage, Netnet, I would say, keep watching this space carefully, and see how it sort of evolves and, and then, accordingly, sort of plan your plan your moves moves on it.

Speaker 5

No. Appreciate it. Thanks a bunch, sir. And, Mohit, maybe one for you. Could you just talk about the current mix of international flights?

Speaker 5

How much is it as a, you know, percent of the flights business? And as it normalizes, would that be a tailwind for your margins in the in the air business?

Speaker 2

It should definitely be a a tailwind, you know, particularly in terms of, you know, incremental contribution of growth coming in. And like Rajesh called out, you know, the, you know, the the recovery on the international side has been lacking. And also, we see, you know, a lot more kind of potential future growth in that particular, you know, segment of flight. And just to, you know, kind of give a color in terms of pre pandemic versus current mix, pre pandemic internationally was contributing close to about 38, 40 percent of, you know, the overall air ticketing margins, and currently, it is at about 25%. So clearly, a lot of headroom over there, we should be tailing for the coming years as that supply kind of improves and the prices kind of come in a little better.

Speaker 5

Appreciate it. Thanks a bunch.

Operator

Thank you, Mihir. Thanks, Mihir. The next question is from the line of Aditi Suresh of Macquarie. Aditi, you may please ask your question now.

Speaker 6

Thank you for taking my questions. I had a few questions, but maybe the first one was just the industry structure itself. Right? So so, you know, obviously, have Tata more active. You have go first with issues.

Speaker 6

The specific question was with regards to your blended commission or take rates and your kind of different levels of engagement with the suppliers, whether it be GDS or direct. So can you help us understand what the current industry structure does for your blended commission or take rate?

Speaker 2

So, Aditi, you know, the industry has kind of, you know, been seeing consolidation over the years. So it's not a new phenomenon. And if you really look at, you know, the the share of Indigo over the years, it's been kind of steadily increasing. Right? And and keeping that in mind, we have been kind of, you know, guiding what we believe could be sustainable air ticketing rates, and we're kind of pretty much in that range right now.

Speaker 2

A slightly more kind of, you know, contraction in the in the integrated margins could possibly be driven by, I would say, you know, lower kind of, you know, payment gateway costs or kind of lowering of payment gateway costs over the years. As that happens, there's clearly a potential for some of the, you know, some some more margin compression over here. But otherwise, we feel we're kind of in a in a reasonably kind of in a stable, you know, margin kind of a phase. And this is, you know, actually more across segments, not just air ticketing, across, you know, all the other segments as well, whether it is bus ticketing, whether it is models and packages, we do believe margins will largely remain stable.

Speaker 6

Mhmm. And No. Just the Yeah. Classification would be that, like, if Indigo did take share, right, incrementally, I would have thought that that would be dilutive to your blended air take rate. Would that would that be a fair comment?

Speaker 6

Or

Operator

Probably not necessarily there offsets?

Speaker 2

Not necessarily, Aditi, because, you know, in the manner that the, know, the take rates are kind of, you know, built up, you know, for the industry in India, at least for the OT industry, large part of the take rates kind of, you know, come in as as fees from the customer side and not necessarily as commissions from the airline. In fact, commissions from most airlines, the upfront commissions have been down to zero for a fairly long period. So that hasn't really kind of, you know, changed the structure very significantly. Yes. You know, if you would see probably, like, about eight, ten years back when it was predominantly a commission led model, we have seen a change coming from that model to the to the current one.

Speaker 2

But over the last few years, it's been it's it's largely been stable on these lines.

Speaker 6

Thanks, Kwok. The the next one was was just in terms of you you mentioned operating leverage, etcetera. Right? So just as a conceptual dynamic, not to kind of hold you to any specific number, but I think I asked this question last quarter as well. But let's say that we incrementally add $100,000,000 of revenue next year.

Speaker 6

What sort of incremental EBITDA margin do you expect to make? And I get there is really inherent operating leverage given that your key kind of lines would be customer spends, employee costs, which seem fairly those are those are lines you can kind of keep in check if if required, right? So can you just give us any thoughts or color on that?

Speaker 2

Aditha, like I had mentioned last time also, we don't kind of, you know, give, you know, either growth guidance or profitability guidance. We'll leave some part for for you to kind of, you know, make it out of the trend lines.

Speaker 6

Or maybe just as a as a specific like, so for example, staff costs, right? So that's a fairly big part

Speaker 2

of your DLS I'd leave this for you to kind of make out of the trends. We don't really issue guidance on future kind of growth or profitability as such.

Speaker 6

I appreciate that, Mohit. The question was more in terms of how should we be thinking about your employee base. Are you looking to add more staff to kind of cater to this growth? Are you looking at staff salaries in, say, double digit kind of inflation territory? Like how are you thinking about staff salaries, for example?

Speaker 2

Yeah. Like, I've been calling out, you know, consistently even the last time when you asked this, you know, we're not really looking at adding any significant, you know, employees, you know, to the to the team. It's largely gonna be more inflation led or or kind of increases and not any significant headcount addition. And that's been the trend over the last few years, if you see as well.

Speaker 6

Thanks, Will. Thanks for clarifications.

Operator

Thank you, Aditya. The next question is from the line of Manik Panitcha of Axis Capital. Manik, you may please ask your question now.

Speaker 7

Thank you for the opportunity. I hope I'm audible.

Operator

Yes. Please go ahead.

Speaker 7

Yeah. So I basically had question related to the adjusted EBIT line, and you partially answered or provide an outlook on how we should be thinking about margins. But given the alternative fee that we are at about one to 1.1% of GBR and the fact that our stock compensation has been coming off, if you could give us sense some sense of how we should be thinking about the ESOP cost as well as the adjusted EBIT margins, please.

Speaker 2

Yeah. Like I said on the on the on the margins, you know, whether adjusted EBIT or adjusted operating, like I just kind of, you know, mentioned on the previous question, don't necessarily kind of, you know, give guidance either on growth or on or on the net margins. But when it comes to, you know, share based compensation, I can share some color that, you know, we expect it to kind of largely remain in line. We don't really kind of see this increasing in the coming years. Albeit, it might only see little bit of a reduction, you know, going forward.

Speaker 2

Very unlikely that it will kind of, you know, see an increase. So therefore, from an operating leverage point of view, it is one of those lines which will contribute to some operating leverage.

Speaker 7

Thank you. All the best to the future.

Operator

Thanks, Manik. Next question is from the line of Achal Kumar of HSBC. Achal, you may please ask your question now.

Speaker 8

Yeah. Hi. Thank you, Rupul. I hope I'm audible.

Operator

Yes. Please go ahead.

Speaker 8

Perfect. First question was around the the competitive intensity. So, of course, you know, Ease My Trip has rapidly captured a significant market in in airlines. And and now they are talking about capturing capturing share in the hotel side. So what's your what's your thought on that?

Speaker 8

How can you protect your your market share, you know, in in in airlines, but also in the hotels? So if you could please share your thoughts around that.

Speaker 1

Yeah. Maybe maybe I can take that, Mohan. So, Achal, I don't think it'll be fair to comment on a specific competition. I don't think it's it's fair. I think maybe you should, you know, sort of ask them the the their strategy and their, you know, questions around how are they looking to expand, etcetera.

Speaker 1

But if you look at, you know, sort of make my trip and the numbers that we've reported out and the track record of the, market share numbers also that we reported out, we have only, been gaining market share. You know, pre pandemic on domestic flights, we used to be at 27%. We are now at thirty, thirty and a half percent. And, similarly, our hotel business recovery has been very, very robust. And, you know, there's, actually, you know, the the reality is that at this point in time, the kind of hotel, product that we have in terms of, supply depth and breadth and the the product and the and the kind and the the scale and the size of the business, no one really, in India does that, if you look at, just the OTA market.

Speaker 1

So, you know, I think it'll be fair to say that, we have been able to maintain our, market leadership, consistently, and, you know, have a substantial sort of lead and and not necessarily on our flights business, but also on hotel business, and as well as ground transport business. So, you know, from our perspective, the way we look at it is while we are quite happy to have the healthy competition in the market because it's it's always good for the ecosystem, but very focused on how are we going to drive our strategies, where are we going to make the investments to make sure that we stay always ahead.

Speaker 8

Perfect. Thank you. My second question was around a change in the customer behavior. I mean, you know, whenever, I speak to the hotels or the airlines, I think there are couple of things or couple of customer changes. They talk about custom the the changes the customer's behavior.

Speaker 8

I mean, first is, you know, how the customers are actually clubbing work with a a leisure trip. So basically, the gap between the weekend and the weekdays is actually squeezing or reducing because people prefer previously, know, they used to travel Saturday and Sunday, then then now they travel any day of the week, and they can work on two days from the hotel. And then so so there is a there is a change in the customer's behavior, and that is quite helpful for the hotels industry. And and on the other changes that now the now post COVID, I think the people are taking too many short breaks, short, frequent trips, and then then they prefer to drive down to the nearby places. So what are your thoughts around that?

Speaker 8

I mean, you being in the industry, I think you you got you got a sense about, you know, the changes in customer behavior and how that is, impacting the industry or benefiting this industry rather.

Speaker 1

Actually, Achal, couldn't couldn't agree more with you on both. These are exactly the insights that we've also noticed. In fact, picking up these insights early, we have launched, you know, like, a product called staycation, to cater to exactly the insight the first insight that you mentioned. And that not necessarily people are waiting for long weekends to travel because there is flexibility today to operate from wherever you can operate from. If, you know, all of what you have to do is to, you know, have a Wi Fi, and you can log in to Zoom or Microsoft Teams or any of the other, video conferencing tool, and then you can operate from, from that place.

Speaker 1

Right? So so we've seen that, trend increasingly picking up, and it has continued. If there's something that has continued as the business has been recovering coming out of the COVID From a consumer trend standpoint, it is this. And then the other point that you mentioned is also very valid. We've also seen that, you know, the frequency of taking breaks have gone up and short breaks that have gone up specifically.

Speaker 1

So while if the historical trend was that there is, you know, the summer break, April, May, June quarter or a winter break or in the quarter, and within that, you will plan a longer duration holiday. Now across the year, even for the nonseasonal quarters, you will see the, you know, trend of, you know, more frequent short vacations that are being, taken by the consumers. So on both the trends, they and these are very positive trends for the for the travel industry in India. And and largely, you know, and so far, it has been India traveling within India. And as more and more sort of international travel also eases out in terms of just, fares getting rationalized, you know, over time, it might even be international travel.

Speaker 1

So we'll wait for that to to see how it happens. But in terms of just positives coming from the consumer trends, these are two big positives.

Speaker 8

Okay. Perfect. Thanks, Rajesh. My next question was around around your loyalty programs. I think you had it in the last quarter, if I'm not wrong.

Speaker 8

So could you please talk a little bit about your how the loyalty performance loyalty programs is performing? Or rather more importantly, how the return rate of customers have been? I mean, is it increasing? Is it decreasing? Could you please share your thoughts around that?

Speaker 1

Yeah. For sure, Rachel. So we do have a loyalty program and and doing very well. It's called black program. It's called MMT Black.

Speaker 1

And, you know, like you rightly pointed out, the kind of the metric that we track for this is that, you know, how loyal are these customers, what is the sort of repeat rate as compared to a normal nonblack customer. And we've, quarter on quarter, we've seen sort of improvement on, Black members coming back or the number of transactions that the Black members do in a year on our platform versus a nonblack member has only been increasing in favor of Black members. So, yeah, so we are very keen to sort of continue to keep expanding, that program and also keep the value proposition very strong for Black members.

Speaker 8

Do you have any do you have any grid, by chance, which shows that, you know, what is the what is the what is the I mean, top 50% of customers or or next 45%, whatever it is, you know, showing that what is the what is the return rate or how many bookings do they make, top 15%, top 20%, something like that. Do you have such that kind of grit?

Speaker 1

No. No. Achal, when we look at it, obviously, at the operating level, I'm I'm sure teams are sort of monitoring some of these detailed KPIs as well. But but at a strategic level, I think what is important and and, you know, sort of maybe sufficient to know is that, let's say, a cohort of non Black members, and if they were doing x, and I'm making numbers up. Right?

Speaker 1

I'm not and these are not the exact numbers. But let's say if they were doing, x, x number of transactions in a year, the black numbers the black members would be doing 1.5 x, for example. So that's the sort of difference that we've seen.

Speaker 8

Understand. Understand. Perfect. Thank you so much, and wish you good luck.

Operator

Thank you, Achal. Thanks, Achal. The next question is from the line of, Vijit Cheyenne of Citi. Vijit, you may please ask your question now.

Speaker 9

Yeah. Hi. Thanks. Thanks, Praful. Can you hear me?

Operator

Yes. Please go ahead.

Speaker 9

Yeah. Thanks. So just my question is on the hotel side, starting with the premium segment, Rajesh. So have you seen competition here in increase from the likes of Booking, Agoda, etcetera, more recently? And given these, my understanding is these companies were always more dominant from a India inbound perspective now that travel is recovering and maybe the hotel partners are seeing more traffic from these global OTAs.

Speaker 9

Is that changing your take rates with premium hotels? Or is it changing your negotiation to the premium hotels on the platform?

Speaker 1

So, Vijay, as far as your first question goes, nothing unusual. To be honest, I mean, this competition was always there. And then like I said, healthy competition is always welcome, and and this is very, competition forward on the back of, you know, the product, the the experience, and the service, etcetera, which we, from our point of view, absolutely love, you know, sort of you know, the the competing on on those, on those aspects, and that's wonderful. And nothing unusual that has happened. In terms of opening up inbound traffic, of course, travel has opened up, and there's been more inbound traffic.

Speaker 1

And they do bring inbound traffic to the country, And they definitely are being but, you know, has that sort of made any impact on our sort of relationship engagement, commercial, etcetera, with the partners? The answer is no. Because there is large pie of the travel is still domestic and will continue to be domestic because the the size of the pie is pretty big. And all kind of, sort of segments of the the travel, you know, that and, you know, that that's that's recovering nicely, and that's and have actually shown a lot of pent up demand as well, like I was just mentioning in terms of, a lot of the the exhibition conferences, you know, corporate opsites, etcetera, happening. And that, and a lot of the preference there is, there is domestic, and, you know, for more than one reason.

Speaker 1

So, you know, clearly, the the it is relatively cost effective because the fares on international, destinations are pretty high. But even let's say they get rationalized in a very steady state, there is the the relative size of the pie for the domestic market is really, really big. And so therefore, from that point of view, the contribution, our contribution is only going to be significant and continue will continue to improve. And therefore, I think there is place for both without sort of impacting each other.

Speaker 9

Got it. Thanks, Rajesh. Rajesh, my second question is, now I if I remember right, last quarter, also, you mentioned that, you know, these hotel some of the premium hotels in India have obviously always their average daily rates and that the occupancy had still some way to recover now. A few of these hotel companies which are reported for you, we can see that there's a little bit of normalization there and occupancies have gone up. Have you seen that more broadly?

Speaker 9

And, from a from an FY twenty four perspective, do you think that is the direction in which you're headed in the, you know, nonbudget segment that is, you know Yeah. The ADRs go down, occupancies go

Speaker 1

Actually, you know, Andy, what you said, Vijay, is right. Right? I mean, especially the data is out there. But if you hear some of the commentary also, from the hotel partners who are public, and, and you would notice that, you know, there's a lot of optimism in terms of, you know, the Indian consumers' ability to sort of pay, more than what they used to pay ever before, and therefore, the the rates are likely to be firm and all. So we will have to wait and see.

Speaker 1

See, so far, that has played out really well. We will have to now see in the context of because it's obviously a function of, you know, the demand momentum continuing, which is linked to, therefore, occupancy, and then what should be the pricing strategy from the hotel partner standpoint. And we've seen that in the past even in pre pandemic that, you know, for example, seasonality versus off season, there could all there will always be a difference and so on, right, which is underneath that is clear function of demand and and supply. Right? You know?

Speaker 1

So from a seasonality perspective. And I don't think that conceptually, it is going to be any different. So if the demand continues to be robust, and and then, you know, there's a possibility that we will especially for the mid and premium segment that that the rates would, you know, continue to sort of stay there at level and and firm up. But if there is a demand slowdown at some level or, you know, the pent up is, is, you know, slowing down and becomes like a steady state, and more supply is in the market, then there may be some rationalization that might take place. So I think it's purely a function of demand and supply, and, you know, and and how they sort of manage their overall yield management.

Speaker 1

I think one important point that you should keep in mind, the reality also is that if you compare it with pre pandemic for the last three years, I mean, except for the last year, I would say last two years, and even before that, the rates had not really gone up. So there has to be some natural annual inflation that you should definitely factor that in, you know, which would mean maybe in over two, three years about 15 odd percent. And that should be a normal sort of, increase in the in the fares or the rates. But anything beyond that will be a function of demand and supply.

Speaker 9

Got it. My last question, Rajesh, if we can. On the budget side now, we as you've pointed out earlier, the super budget segment has been, affected badly because, obviously, the discounts went away and everything. But, it's been a while since the economy has fully opened up and the budget hotels would have opened up. So I'm just wondering if you strip out the impact of, impact on the super budget space from the budget category, are are you seeing, momentum on the supply side or on the demand side more recently?

Speaker 9

And is it is it going to still take a while before this segment, you know, kind of takes grows faster than the premium segment, that is?

Speaker 1

Yeah. We did you know, the on the supply side and the momentum part of it, absolutely. And, you know, and I and, actually, even for the budget segment, it's just the ultra budget segment may be less than thousand rupee a room night or 700 rupee a room night. And then that there may be some churn, and that is you know, because it is the the end user price pre pandemic was was, as Mohit was sharing earlier, was deeply discounted, etcetera, and it's coming back. And and by the way, I I don't think it'll be fair to say that it's not coming back.

Speaker 1

It's coming back actually nicely. It's improving quarter on quarter, and and it's just taken more time. Might take maybe another quarter or two. I'll come back, and eventually, it'll come back. So I I'm not necessarily worried, especially in the context of the impact that it has on the p and l overall because of the Right.

Speaker 1

Levels. Right? So but, you know, at the same time, if you would see anything above thousand, the recovery has been and the momentum has been pretty robust.

Speaker 9

Got it. Thanks, Rajesh. Those are my questions. Thank you so much.

Speaker 1

Thank you, Vijit.

Operator

Thank you, Vijit. We are only out of time. So any anybody who has any questions, please, please mail us mail it to us, and we will take it separately. This brings us to the end of the call. Rajesh, closing comments from you.

Speaker 1

Yeah. Thank you, Rupul, and thank you, everyone, for your time. Thank you for your patience, and we'll stay in touch. Thanks.

Operator

Thank you, everyone. You may please disconnect now.

Speaker 2

Thank you so much.

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Earnings Conference Call
MakeMyTrip Q4 2023
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