MakeMyTrip Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 23, 2024

There are 8 speakers on the call.

Operator

Hello, everyone. I'm Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited, and welcome to our fiscal 24 Q3 earnings webinar. Today's event will be hosted by our company by our leadership team comprising Deep Kalra, our company's Founder and Chairman. Joining him is Rajesh Margo, 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 Safe Harbor provision of U. S. Private Securities Litigation Reform Act of 1995. These statements are not guarantees of 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 on the company's Annual Report on Form 20F filed with the SEC on July 25, 2023. Copies of these filings are available from the SEC or from the company's Investor Relations department. I would like to now turn over the call over to Rajesh. Over to you, Rajesh.

Speaker 1

Thank you, Vipul. Welcome, everyone, to our Q3 call for fiscal 2024. We are pleased to report another quarter of Strong operating performance. During this high season quarter for leisure travel, we witnessed robust demand for leisure travel for domestic as well as outbound travel And are pleased to report our highest ever quarterly gross bookings revenue and profit till date. Gross bookings for the quarter reached $2,100,000,000 Growing at 21.7 percent year on year in constant currency terms, while our adjusted operating profit or adjusted EBIT Grew by 70% year on year to $33,400,000 as compared to $19,700,000 in the same quarter last year.

Speaker 1

As per government estimates, domestic aviation traffic is expected to double from current levels by 2,030. To cater to this increasing traffic, there is continued and increasing investment across all categories of travel infrastructure, resulting in significant upgrades across all categories of transportation, including airports, highways, rails And thus offering customers more convenience and choice, the current commitments of close to $11,000,000,000 in airport modernization Should only help meet the near to medium term requirements, but for the first time, planned airport capacity we've put in place Could exceed the projected demand for next 5 to 7 years, which bodes well for the travel and tourism industry. According to Bernstein report, India has gradually been gaining share of the global travel market, now representing 2% of tourism receipts globally, up from 0.7% in 2000. Domestic travel in India is already the 5th largest globally and is expected to become the 3rd largest by 2027. The size and diversity of India contribute to the strength of domestic market and the government's efforts To develop new tourism destinations will help in maintaining this growth momentum.

Speaker 1

Outbound travel from India has also recovered to pre pandemic levels Now and the growth momentum is expected to pick up pace in the coming quarters years. India is expected to be the 5th largest outbound market by 2027. This should lead to India outbound being the fastest growing component of overall India travel spends. We are excited about these opportunities And remain committed to excellence and innovation, meeting and hopefully exceeding the diverse travel aspirations of Indian travelers. As for our business segments, let me start with our air ticketing business.

Speaker 1

During the last quarter, I talked about near term supply challenges, The Indian carriers are taking various steps, including addition of large number of planes in the coming years to fill the supply gap. As per estimates, collectively airlines are expected to add about 150 planes during next year, which will be the highest number of additions in a single year. We are hopeful that the supply situation will start improving from the next financial year. Despite the short term headwinds, our growth on a flown basis Was at 7.2% quarter on quarter, outpaced the market growth of 6%, allowing us to consolidate our market share at 30% plus levels in the domestic air market. As to our international air ticketing business, We have not only fully recovered but have started to grow above the pre pandemic peak.

Speaker 1

We continue to innovate and enhance our product proposition. With demand for business and premium economy tickets showing an increasing trend, we have now completely revamped the business class funnel for international flights To provide an enhanced booking experience to our premium users and cater to the specific needs and preferences, we have introduced an industry first enhanced process for business class flight tickets where customers can view visuals of cabin comfort, meals, in flight entertainment and other amenities. Customers also have a comprehensive view of the extensive business fare inclusions, including lounge access, shopper services and priority services, and can also preview airline miles points before finalizing the booking. It is early days, But we have started to see increasing engagement on our listing pages. Additionally, we have further strengthened our UAE proposition wherein customers Now have the option to seamlessly buy eVisa for UAE during their international flight booking process on our desktop site.

Speaker 1

The initial response to this has been positive, and this feature will soon be launched on our apps as well. Finally, we have further enhanced our price lock feature to now include multi contract price lock where customers can choose from different time durations for which the prices can be locked. Our accommodation business, which includes hotels, home stays and packages, We witnessed strong year on year and quarter on quarter growth in the seasonally strong quarter as well. During the quarter, we touched our highest ever single line check ins of close to about 200,000 people on the back of strong holiday demand. We sold over 63,000 unique domestic hotels across 1760 cities, giving us unparalleled reach and penetration within India.

Speaker 1

On the supply side, We continue to expand our supply, and we now offer over 78,000 domestic properties on our platform. Our international outbound business continues to scale well. During the quarter, new direct flights to various destinations like Tashkent, Baku and Bali had been announced And key international holiday destinations like Thailand, Sri Lanka and Malaysia have announced waiver of visa for Indian travelers. This is likely to fuel greater demand for these international destinations in the times to come. On customer experience side, We enhanced the multi room booking experience.

Speaker 1

Users are now shown more suitable room combination suggestions, And they can specify their preferences explicitly, thus simplifying their decision making process. We have also started offering super value packages, Bundling various value added services with the hotel room, which will help bring more value for the customers. Our homestay business continues to grow with We sold about 16,500 plus unique properties across 800 plus unique destinations. Our holiday packages business continues to scale on the back of our innovative offerings. We have started building on our Spiritual tourism product.

Speaker 1

During the quarter, we launched a Yudhir train charter product with 800 passengers. We plan to scale this and other similar offerings in the coming quarters. For outbound packages, Bali and Singapore were the top destinations and witnessed strong growth, While new destinations like South Africa, Japan, EMEA have started to grow meaningfully, our bus ticketing business Witness robust growth in Q3, Redbus is now also available in Hindi, giving us a higher share of new customers From Tier 2 and 3 towns, particularly for bookings on RTCs, we continue to work with various state road transport corporations to bring them online. The government controlled bus inventory on our platform has increased meaningfully with the onboarding of UP State RTC And additional inventory being made live by Kerala and Telangana RTCs. A new RTC, Chandigarh Transport undertaking, has also come onto the platform in this We have undertaken tech optimization to improve real time inventory status for RTCs to lower booking errors.

Speaker 1

The overall sentiment amongst private bus operators is also very positive now, and we expect a steady increase in private bus supply over the next few quarters And should help drive growth. On our Red Rail app, we are acquiring new customers in Tier 2 and 3 towns driven by our continued efforts to scale up acquisition, Seasonal demand and driving organic growth by leveraging the Redbus user base. As a result, we continue to gain market Share in train bookings on the back of all our three brands. Leveraging on the strength of our extensive inventory, we launched a connected travel feature for users to discover confirmed travel options through bus and rail combinations on routes that have lower availability or lesser frequency of trends. Let me now share some details on our brand campaigns during this high season quarter.

Speaker 1

We leveraged the ICC World Cup, which was held in India, We have multiple brand campaigns to build and maintain top of the mind recall and showcase our value proposition to our existing and potential customers. During the quarter, MakeMyTrip launched campaigns around hotels and homestays, while Goai Vivo launched its campaign with Kareena Kapoor, a well known Bollywood celebrity as brand ambassador. During the quarter, we also integrated Book my forex product offerings on the MMP platform and launched the new brand campaign to drive forex demand on our platforms. Our corporate travel business, we have both our platforms, Mybase and Quest to Travel, are scaling up steadily with every passing quarter. Our active SME corporate customers count on MyBase is now over 56,000.

Speaker 1

And for Q2T, the active customer count has reached 334 large corporates. We continue to innovate our product offering based on customer feedback. We recently Reimagined our Mybiz homepage offering the corporates the capability to customize the homepage according to their preferences In terms of theme and layout, additionally, we have now provided the option to users to enter their preferences In terms of seats and frequent flyer numbers leading to greater personalization for corporate employees on

Speaker 2

the platform, we have also enhanced our workflow to include ground transport options in our corporate offerings. With this, let me now hand over the call to Mohit for the financial highlights of the quarter. Thank you. Thanks, Rajesh, and hello, everyone. During the Q1 of this fiscal year 2024, I had called out that while the pandemic is now well and truly behind us, the business is well positioned to leverage the investments made during the pandemic impacted years In key strategic areas such as building wider offering of travel and travel related services, driving supply side expansion and choices for our customers End the technology investments in building efficiencies, improved personalization and curated platforms to scale new demand segments.

Speaker 2

It is heartening that these have helped us achieve multiple milestone numbers across financial and operating metrics such as gross bookings, revenues And operating profits during this seasonally strong quarter. Gross bookings for the quarter grew by 21.7% year on year in constant currency terms To an all time quarterly high of $2,100,000,000 compared to $1,700,000,000 in the same quarter last year. Revenue as per IFRS grew by 26.9% year on year in constant currency terms to $214,200,000 From $170,500,000 in same quarter last year, EBITDA witnessed strong growth and has more than doubled to $29,400,000 as compared to $14,300,000 during the same quarter last year. Adjusted operating profit or adjusted EBIT registered a growth of about 70% year on year and reached $33,400,000 Compared to $19,700,000 in the same quarter last year, adjusted operating margin for the business It's expanded by about 50 basis points to 1.6% of gross bookings compared to about 1.1% during the same quarter last year. On a YTD basis as well, the adjusted operating margin stands at 1.55% versus 1.05% in the 1st 3 quarters of the previous year.

Speaker 2

Our eticketing gross bookings for the quarter came in at $1,300,000,000 Witnessing a year on year growth of 19.8% in constant currency. Adjusted margin stood at about $79,200,000 Restoring a year on year growth of 14.2% in constant currency. Take rates for the integrating business We're in line at about 6.3 percent as mentioned by Rajesh. While the longer term outlook for growth in the domestic aviation market is strong With large aircraft routers having been placed by the leading carriers, there are short term capacity headwinds given issues around supply And servicing of aircraft engines. We expect that these headwinds will start easing out by the next financial year.

Speaker 2

Gross bookings for the quarter for the Hotels and Packages segment came in at $559,000,000 witnessing a strong growth of 27% Year on year on constant currency basis, linked to seasonality and improved pricing, the adjusted margin growth KMB much stronger at 38.8 percent year on year on constant currency terms and stood at $98,800,000 during the quarter. Our take rates for the quarter were in line at about 17.7% in this segment. We witnessed strong growth across both domestic And international destinations with our international hotel business surpassing the pre pandemic peak. We continue to work On sharper targeting of various demand segments via a multi platform approach, while also increasing the breadth of our offering Through directly contracted hotels, both in the domestic as well as the international markets, this 2 pronged approach is helping us drive strong growth in this business segment. In our bus ticketing business, gross bookings for the quarter stood at $269,800,000 Growing at 20.3 percent year on year in constant currency terms.

Speaker 2

Adjusted margin is still at $26,900,000 registering a strong year on year growth Of over 33.8 percent in constant currency, take rates for the bus business again came in line at about 10% for the quarter. During this high season quarter, we invested behind our brand campaigns to drive top of mind recall for our brands Further, thus helping us increase the mix of organic traffic. As a result, the marketing and sales promotion costs for the quarter Came in slightly higher at 4.9% compared to the 4.6% in the previous low season quarter, but were lower Then the 5.2% in the comparable quarter of last year. While the return on these brand campaigns Tends to build over a longer duration, the initial response has been positive and should help us continue to target around 70% of our orders coming in From our existing customers or via repeat orders, all other costs were largely in line and we continue to drive year on year efficiencies in our fixed cost base. Another highlight of the quarter was our strong working capital management during peak seasonality.

Speaker 2

While The previous quarter had seen a deployment of about $12,000,000 in working capital as we were getting into peak seasonality. We saw a much higher working capital release of about $35,000,000 during this quarter. Accordingly, compared to the $37,000,000 in cash operating profits for the quarter, The cash position has improved by almost $70,000,000 over the previous quarter, taking our total cash position to about $608,000,000 at the end of the quarter. During the last quarter, we announced the signing of the agreement to take a majority position in Savari Car Rentals. And I'm happy to report that the transaction was concluded by early December.

Speaker 2

The teams are working on consolidating all the supply With Savari and thereby driving efficiencies in supply acquisition and management. With this, we expect to drive Much better efficiencies in our supply acquisition, facilitating the scaling up of our intercity cab business. We recently filed an intimation For our 2028 note holders on their right to tender the notes were repurchased at par by the company At the end of the 3rd year of the notes as per the terms and conditions of the indenture on 15 February 2024, We shall update the progress of the tender process in due course. With that, I'd like to turn the call back to Vipul for Q and A.

Speaker 3

Thanks, Mohit.

Operator

Anyone wishing to ask a question from the management may raise may click on the raise hand option And we will take the questions 1 by 1. The first question is from the line of Vijit Jain of Citi. Vijit, you may please ask your question now.

Speaker 4

Thanks, Rupul, and congratulations on a terrific set of numbers yet again. My first question is, just looking the Hotels and Packages business obviously has done really very well in the current quarter. I was wondering on 2 things. 1, can you call out any specific benefits in terms of, you know, either the average realizations So per room night or in terms of your profitability that you had during this quarter because of both Cricket World Cup as well as other In general, travel appetite, is there anything any special or any Shortenary gains that you had in this quarter from that side and how should one think about pricing in your margins in this segment going forward? That's my first

Speaker 1

question. Yeah. Maybe I can take that, Vijith, and thank you. You're right, No, Dylan packages growth, given that this is also a season quarter and we had the demand momentum, especially After World Cup, it sort of picked up significantly because till the World Cup, it was sort of the focus was a lot more While there were some gains for specific cities where the India was featuring in terms of They're World Cup games, but largely people were sort of focused on watching World Cup matches over the weekend. And therefore, the first half of that quarter of this quarter till the World Cup was relatively speaking, The seasonality momentum hadn't really picked up.

Speaker 1

But the moment World Cup was over, it sort of took off. And I guess sort of more than made up You know, overall on a on a quarter basis. So overall seasonality momentum was great. But specific to the, you know, to your question, was there anything extraordinary? I won't say there was anything extraordinary or temporary in nature.

Speaker 1

The mix, if you will see our overall mix of, you know, revenue on a on a revenue basis, Coming in from the hotel and packages has improved from 40% to 45% now, which is great. And that is on the back of You know, the overall sort of mix changing. But from a demand in general standpoint, all segments actually that we saw demand going up. And I guess additionally, the emerging trend on homestays specifically has also started helping because that has added On one side, a new set of supply and and and also new demand use cases, you know, that have That have also emerged off late, which has added momentum to the overall demand on the hotel And the commutation side and within packages, we saw outbound packages, you know, sort of coming back in this quarter with the bank as well. So I would say overall, it's a bunch of factors, but lot more on the demand side And sort of all segments sort of rising, which is helping the overall hotel and packages business grow in this quarter.

Speaker 4

Got it, Rajesh. Rajesh, just taking on that hotels thing, do you have any comment to make on, in general, the And in the supply situation, at least on the premium hotel or the branded hotel space in India, how do you think that And do you think ADRs therefore remain resilient or even go up further from here? And a related question to that, do you think that is kind of at least in that segment impacting or take, bringing some shift over into the international outbound side from India. You did mention international outbound is doing very well. So I'm just wondering if you're seeing some kind of a shift there and how does that affect you in general?

Speaker 1

Yeah. No. So I think it's a good question. So if you look at, you know, past couple of quarters data or or more, And the ideas on the premium segment, I would say even on the mid segment, have been fairly robust. But I think we should never forget, sort of factoring in The 2 years lull period where there was, you know, thanks to COVID, there was no real price increase On the hotel side on all segments that had happened.

Speaker 1

So if you factor that in and adjust it to sort of overall cumulative inflation And normal inflation for the last, I would say about 3 years, you would realize that the price increase is about 10%, which is fairly reasonable In my view, I don't see this sort of as an exceptional price increase, excepting For certain days where there will be, you know, demand, exceptional demand over the long weekends, etcetera, that would always be the case Because there will be more demand and less supply and then because of that gap, there could be increase in prices, Which to my mind is very normal and that happens in any market. But otherwise, I think, you know, the there is a certain degree of Stability in pricing in terms of the new base that is setting in, in the market and which I think is sustainable In, you know, like an overall level. Now outside of that, I think it'll be a function of whether it'll Further increase from here or sort of sometimes in the market where So in certain weeks, certain weekends, certain around the events, etcetera, the prices could go more Or could go less will be a function of how much demand and how much, you know, what's the sort of demand and supply gap equation that works out.

Speaker 1

But it's going to be a very normal sort of, up and down that we would see. I think there is a new base that is It up there from a demand standpoint, we've seen, you know, customers in general sort of upgrading on the back of I think it's a behavior change that we have noticed in terms of maybe taking more holidays or maybe spending More percentage of the available disposable income in consumers pocket to experience travel, Which means more demand in the market. So there is definitely more upside on the demand, which is helping. And therefore, and, you know, within that, I think it's also a behavior of, you know, upgrading from a particular segment to the next level And for a mid segment to, let's say, a premium segment. And last point I would make on this also is that, You know, it has also, you know, specifically to premium segment, lot of the non leisure travel events like whether it is The corporate off sites or it's, you know, specifically the MICE activities or for that matter weddings, You know that during the season, you know, more and more you see the trend of these events happening in the hotels And because of which, obviously, there is more demand relative to the historical period.

Speaker 1

And that's also sort of helping You know, sustaining the price levels that you would typically see or are seeing in the market. But I think all the factors will have to be brought together To analyze and jump to conclusion in terms of what kind of whether this is sort of sustainable or not. In my view, there is again, at certain level, these are sustainable with plus, minus 5%, 10%, up and down that will happen, which will be a function of regular demand and supply gap.

Speaker 4

Got it, Rajesh. My last question, just on the international outbound from India, If you can give any color on where you're seeing in terms of channels, at least where you're seeing growth from, is it coming more in the packages side Or because you also have, direct, you know, holiday booking feature available on your platform. Then there's the travel agent business also that you do. So I'm just wondering where do you see the most momentum overall? My question is more on the international outbound side, but maybe if the answer is relevant in domestic as well, you can answer that.

Speaker 4

Thank you.

Speaker 1

Sure. So specifically on international travel, we have seen Actually momentum on our business on packages side for sure, like I was mentioning earlier, I think it's part of the script as well. And because we were expecting, I mean, 2 quarters ago, the recovery on outbound was relatively slower. And we were expecting that to sort of pick up at some point and it has picked up in this quarter. And that is on packages.

Speaker 1

It's also on international hotels, we have seen similarly for flights as well. And in fact, what also adds to this international travel momentum is the, know, as I was mentioning, even in this script, the announcement that happened on either the direct connectivity, you know, solving for direct connectivity, Like, you know, the three examples that, that I gave. And similarly for making the visa, you know, more easier and smoother and convenient for people. That definitely sort of helps because then there is a comparison point with the domestic, You know, sort of comparable destination versus and short haul outbound destination and then you end up taking the call. And the fact that the outbound travel was slow, was a little sort of slow to Get up and get back to pre pandemic level.

Speaker 1

It has now reached to pre pandemic level because of demand coming back. In terms of channels, we see it a large part of it is coming from our holidays packages business this quarter. Standalone bookings, not necessarily packages with respect to hotels or flights are b to b channel also contributes. In fact, Pleasantly surprised with the contribution coming in from there, as well besides the B2C, which is the regular Sort of channel which when we see the demand coming back on an overall platform in terms of traffic growth, all sort of For products and services we have on our platform get benefited out of it.

Speaker 4

Got it. Thanks, Rajesh. I'll jump back into the queue.

Operator

Thanks, Vijit. The next question is from the line of Sachin Saludankar of Bank of America. Sachin, you may please ask your question now.

Speaker 5

Thanks, Vipul. Congrats again for a fantastic set of numbers. I have three questions. First question, just wanted to understand You know, on pent up demand versus actually a demand where consumers are traveling a bit more. And clearly, when we look at this quarter numbers on a base of The growth is strong.

Speaker 5

So the question out here is, and I know it's difficult for you guys and you guys don't give a guidance, but Should general growth for the sector continue to remain strong in next 12 to 18 months? And if you could help understand what are the some of the drivers in terms of our Indians traveling a lot more than before But has something changed which is leading to that growth? And a related question is, of course, any color you could give in terms of how this So upcoming quarter is trending. That would be helpful.

Speaker 1

Yes, Sachin. So, thank you, firstly. And I would actually say 2 factors. And I would stay away from saying whether it is 6 months or 12 months or 18 months. But 2 fundamental factors, you know, from an Look standpoint, we feel clearly that seems to be happening.

Speaker 1

And one is on the demand side, and the second one is on Just the overall improvement of the infrastructure. On the demand side, from a consumer behavior standpoint, we certainly have seen now There is a pattern that is emerging where, the frequency of breaks that the consumers were taking earlier It's definitely going up, point number 1. Point number 2, which to my mind is a fundamental change. Point number 2 is that we've also seen some new use cases that are sort of emerging, which is Also adding to, you know, the regular standard use cases for travel. So, you know, when I say use cases, it's effectively purpose for travel.

Speaker 1

So purpose for travel for leisure, for pilgrimage, for, you know, visiting family, etcetera, was a standard purpose for travel or for work. But we've also seen now new use case. There's more and more emerging. And specifically, you know, On the echo space, we are seeing, alternative accommodation getting benefited out of it. The celebration use case Of the milestone, you know, sort of celebration use case in the family with the friends, extended family, group travel, You know, trying to celebrate whether it's a birthday or an anniversary or, you know, some other family milestone And getting together and sort of doing the celebration, etcetera, more than what used to happen in the past.

Speaker 1

So these are the 2 Consumer demand side on the behavior, on the buying behavior of travel or spending more on travel Experiences clearly are emerging that we can see. And on the other side, I would say from an overall outlook standpoint that the infrastructure Improvement and the expansion is definitely going to add more because more and more, you know, we make it smoother, easier And convenient for the travelers and also develop infrastructure in the new destinations. You know, we've started creating huge amount of awareness, for instance, of, nearby destination to any key destination. And we've seen demand picking up on those destinations. Now, tomorrow, like I was just mentioning in the script, the spiritual tourism.

Speaker 1

Now if that So let's say the Yodhya event, which is likely to happen, because there's also an infrastructure development that has happened in that city, I see no reason why people and more number of people would want to sort of travel and experience For some of these new destinations, which they had not really explored in the past or the use case earlier was, You know, I'm not going for offering for prayers and, you know, sort of hardcore pilgrimage use case. It might just be an experience, You emerge into a new, you know, sort of use case where people would want to go Visit these destinations more for historical reasons. Right? So I would say these are the 2 big factors that I think are more in nature than temporary, as we have sort of seen the pattern emerging. And that should help The outlook or the growth outlook for travel and tourism industry going forward, So that would be my take on it, Sachin.

Speaker 5

Got it. Very clear, Rajesh. Second question, and it's just taking from where you left. Clearly demand is good and some new cases are coming. So does that mean MakeMyTrip doesn't have to spend so much on marketing going ahead?

Speaker 5

And as a percentage of GMV, it could be much lower than, let's say, the earlier guide at 5%.

Speaker 2

I think

Speaker 1

Go ahead, Mohit. Go ahead. Go ahead.

Speaker 2

Sure. Maybe I can take that. And, you know, we've largely remained, you know, within the 5% kind of a guidance that we had rolled out switching to the year. And therefore, I believe that continues to hold good. I mean, overall, if you really see this quarter also, and generally we tend to do this, If you look at historically also, during peak seasonality quarters, like Q1 and Q3, we generally tend to kind of spend a little more On the brand marketing side, and which is what we have seen even during this quarter.

Speaker 2

But even with that, the overall spends came in at about No. 4.9 percent. And we're still kind of, you know, well below the 5.3% in the same quarter previous year. So I guess the The 5% kind of a ballpark number should be a good number to kind of, you know, keep in mind, at least for this year. And we'll continue to see if we can kind of keep building Efficiencies, some efficiencies will scale in the coming years as well.

Speaker 5

Got it, Mohit. Very clear. And my last question, And anecdotally, I'm sure you guys also seen it. There is generally also a school of thought is coming that travel, traveling around is becoming expensive in India. For example, in the years, traveling to Goa was a bit more expensive than, let's say, going towards, Thailand or Bali.

Speaker 5

Is that something a risk what you guys are seeing, which could potentially impact Some demand. And how do you guys think in that direction?

Speaker 1

I would say, Sachin, I think we should see This scenario more from a healthy competition between the destinations. Now whether it is going to be domestic market destination or an international market or comparable To domestic destination for that matter in the peak period. I don't think this will have an impact on demand. It would actually in turn mean that there will be healthy competition between the markets. And from that point of view, because I don't think that's going to impact the travel demand because if, let's Say all 3, you know, hypothetically, comparable destinations are pretty expensive, then people will still travel, but they might go to a, You know, their plan B destination, but it may not mean that they would not travel.

Speaker 1

You know, so I don't see That scenario happening, given at least based on whatever patterns that that we've seen in emerging, and which therefore would mean Is that every in the ecosystem, people would start to sort of look at Specific markets would start to look at all the data and accordingly price their products rather than You know, sort of taking one destination as a threat to the other. I think that is what is likely to happen Rather than overall because it's expensive and therefore I would not really travel.

Speaker 5

Very clear, Rajesh. Thank you and all the best.

Speaker 1

Thank you. Thank you, Sachin.

Operator

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

Speaker 3

Hi. Thank you so much. I had a few questions. So first one was on The B2B, you spoke a lot about on the B2C side, but on the B2B segment, you've seemed to be have kind of scaled that, you now have a patch with Zoho as well. Rajesh, would you mind kind of giving us an update here on that segment and what that may mean for whether that be growth or The impact on working capital and the likes, I'll be really curious to understand that.

Speaker 3

Thank you.

Speaker 1

Yeah, sure, Aditya. No, I think it's a good question. And I think we gave a couple of data points to give an indication of how our corporate business is growing. And Just from an outlook standpoint, I do see there is headroom for growth there. There is actually good headroom for growth there.

Speaker 1

And the way we, again, our product has been sort of recognized in the market for whatever it's worth, from, just from a voice of customer standpoint, We feel very confident that this is, this definitely is going to add more and more sort of Growth revenues for us, both in the small and medium enterprises as well as in the large enterprises for both the platforms that we have, whether it is Mybiz Or quest to travel. And the other point I would also make is that what we are trying to do on the product Saiid, just enhance just continue to keep enhancing the experience significantly. Just based on feedback, You know, keep sort of adding more features for the, for our B2B customers, which is a delightful Full experience for them. And basis that we have our retention rate, which is like, you know, benchmarked with the world class B2B, outfit already. And we'll continue to keep doing that on 2 counts.

Speaker 1

1, adding more products and more use cases so that it becomes a One stop platform for the corporate. And the second is, like the way conceptually we do personalization on B2C, You know, use that concept to to actually do a personalized customer experience for the corporate travelers, which would be very different than b2c Because the behavior when you buy your own travel for your personal purpose is very different than what you end up doing it as part of your work trip on your on any of the corporate booking platform. So and we have great insights on that. And we are focusing on that and just enhancing the customer experience significantly to make it very, very smooth and easier for the Corporate Travelers. So on those two areas, we've been working very hard and we continue to keep sort of rolling out new features.

Speaker 1

And so therefore, looking at the growth that we already have, the acquisition engine that has already been established And how the wallet share is sort of increasing and the fact that we our product We'll continue to keep improving to become world class. I definitely believe there is a lot of headroom for growth for us In the B2B segment. As

Speaker 2

you add to your other part, which is on the

Speaker 1

Working capital. Yeah.

Speaker 2

Capital and the overall margins on the B2B side, I mean, the way we've kind of put these platforms in place, we Kind of significantly leveraging technology, particularly the core B2B, which is the corporate driven platforms, because the other platforms, which are the Once we are powering these small travel agents or say the affiliates, those are more extension of, you know, the B2C platforms, right? B2B2C kind of platforms. And on these corporate platforms, I think we're kind of seeing that we are kind of gaining very good traction, both with the Small and medium enterprises as well as with the large corporates. So growth is coming in good, from an opportunity sizing point of view, like we have said, you know, At least 1 fourth, if not 1 third of the market would be kind of, you know, largely business driven or corporate travel demand. And therefore, there is a long Big headroom to kind of keep making gains in this area.

Speaker 2

And with the unit economics kind of addressed To kind of meet b2c like kind of, you know, net margins, growth should come in, you know, kind of accretive, both at the top line and the bottom line. And On the working capital side as well, we don't really kind of deploy working capital on the B2B side because like I said, these are largely You know, kind of, you know, pay and kind of transact kind of, you know, setups that we have created without having to invest significantly in

Speaker 3

The second question I had was more of the outbound opportunity, right? Now you spoke a lot about the connections and the new routes and a few use cases. But Rajesh, it would be great if you can maybe frame that opportunity So even in broad terms, how should we think about this the scale of this opportunity even if it's over the next, say, 2, 3 years Compared to where our domestic business is at because I think a lot of our modeling etcetera is focused mainly on the India domestic piece and so I'm really curious to see How are you thinking about scale of international Advant?

Speaker 1

Yes, Ritir, as I was alluding to earlier, It is, if you look at it from a little mid term to long term perspective, the outlook is actually quite positive for outbound. And the fundamental sort of Underneath point for that is, all what you have to look at it is the airlines all the airlines orders that have been placed Bringing in new fleet into their into the market, the next, say, Next 3 or 5 years or more. And then some record orders have been placed already, as you know. Significant chunk of that It's also going to get deployed in the, you know, to open up some of the foreign destinations for them or to grow the foreign destinations for them. So I think that is one data point, which is important.

Speaker 1

And if you from a demand standpoint, as I was making the point earlier, On an overall demand standpoint, I definitely see from, let's say, a middle class to the upper middle class To HNIs, the way sort of per capita income or the disposable income growing in the country, That's definitely going to be the other driving force for sort of demand to go out for the outbound destinations. And there are, by the way, some third party reports and maybe we can take this offline and you can look at some of those Specific reports on outbound, specifically from CAPA, for example, I don't know if you have seen it or not and that independent research has also Captured many data points to make this point and they have tried to sort of size the overall opportunity in the next 3 to 5 years as well. In fact, headlined it as outbound could be the new domestic for the next 3 to 5 years as well. It's a quite neutral and credible sort of research report, and maybe you should look at that and maybe form your own view on top of that. But in terms of just the drivers for this, these would be the 2 drivers, and we'll be happy to share the report if you want offline.

Speaker 4

Thank you

Speaker 3

so much, Rajesh, for that. And I guess the final piece for me was, I guess, as a finally, the platform has kind of reached the scale. You've seen the kind of software that you're going to come through with the cost Industry structure is kind of a bit more favorable compared to previously discretionary expenses rising. So all those kind of demographic dynamics are playing out here, Plus there's cost discipline. Pareesh, a specific question for you is about and also the fact that you're kind of cashed up, The platform is generating free cash flow.

Speaker 3

Again, the specific question to you is what worries you mean? So like what are some of the things which you're Guarding against as you're going to plan for the business in the next 6 to 12 months.

Speaker 1

Interesting question, Aditya. Yeah. I guess the worries in in this business as we've Seen in the past is more the macro than the micro. You know, and so we we would always sort of wish like Sometime back, the new variant of COVID, you know, the murmurs had started and, you know, and that definitely causes concern as we know what happened during COVID, etcetera. And so fundamental structure overall, as you rightly mentioned and articulated, seems to be Well in place now, poised for a new level of growth, etcetera, both on the demand side, supply side, everyone is in investment mode, infrastructure improving, all of that It's great.

Speaker 1

You don't really want any disruptive macro event happening, which means neither You nor I can or anyone for that matter can control. But if there is one disruption that we've seen over the last, let's say, over 2 decades that we've been in the business. It is the macro events that sort of cause Our concern, Orie, in the whole industry's mind, if you will, then your own sort of You know, micro issues or items. So operationally, in Within the organization, we feel much better, confident, well poised. And again, not to say that The eyes have to be taken off from an execution standpoint relentlessly, because this business is also about a lot of it is also about Consistent and relentless execution as well.

Speaker 1

But that we feel better and confident And given the track record, we'll be at it. But if there is one thing that would I have to call out as potential concern Or worry, area would only be any of the micro events. So if we have a smooth run on that, I think It's definitely poised for better times in the coming years.

Speaker 3

Thanks, Rajesh. All the best.

Speaker 1

Thank you.

Operator

Thanks, Aditya. The next question is from the line of Manish Rookia of Goldman Sachs. Manish, you may please ask your question now.

Speaker 6

Yes. Thanks, Ippal. Hi, good evening. Thank you so much for taking my question. So just picking up the conversation from where Aditya left, When you think about it in the last few years, right, the single biggest driver of your profitability has been the fact that marketing promotion spends have come down Quite dramatically and even from an outsider's perspective, it seems like the market is fairly competitive with a number of players.

Speaker 6

Your numbers suggest that competition is relatively low, at least lower versus what it used to be pre pandemic. 1, in your view, why is competition low? And a related question, what may Need to change or what could potentially change for competitive intensity to go up again, let's say, in the next 1 or 2 years? Your thoughts, please.

Speaker 1

Right, Manish. Again, a very interesting question. The way I would address this, Manish, is not Specific to let's say Mykma Trip or within travel, I think this is a very welcome change in the ecosystem overall. You know, the competition is still there as you rightly pointed out. It's not that competition will never stop and, you know, and the healthy competition is always welcome.

Speaker 1

The word has changed it within their competition. It is not necessarily super disruptive or You know, just super aggressive for the sake of being aggressive. And now within competition, everybody is sort of also focused You know profitability at the end of the day in the entire Internet ecosystem. To my mind, it's a very, very welcome change for the entire Internet industry. Great.

Speaker 1

You know, forget about, you know, travel tech industry work for that matter. And that is what has happened. And the other aspect of this also I believe is, which is again a fundamental ecosystem level change Is also the just the availability of capital. And from the investor side, I think everybody is sort of more cognizant Of investing behind the right assets and the right areas. And that's the sort of guidance rather than just playing Super aggressively with the sort of aggressive amount of capital push And trying to sort of win the market.

Speaker 1

And I think it's also to do with the learnings from the past. It's also to do with the How the market has evolved and people have also become a lot more knowledgeable of what works in the market And what doesn't really mark in the market and what's sustainable, what is not sustainable in the market. So part of it, I will attribute it to the evolution of the market. I think it has reached that stage where, because it's been going on now for, you know, I think Internet industry in India is over You know, 2 decades definitely or, you know, old, if not a little bit more. And that is a Good enough time for anyone to learn the amount of capital that has got invested in this market is also huge.

Speaker 1

So and I think in this response is the answer to your second question as well, that what would change You know, for it to go back to again sort of same high intensity competition, etcetera. I actually think given the fact that this is far more and part of it could be wishful thinking as well, But bear with me for that. But I do think given the fact that the market overall is relatively evolved and matured And the entire ecosystem has tremendous amount of learning at every stakeholder level. For it to go back to the same You know, super aggression in the market for the sake of being aggressive, I'm not sure. I mean, the likelihood of that, Who knows for future, but likelihood of that might be relatively speaking much less than what I would have said maybe 10 years ago.

Speaker 6

Thank you, Rajesh. That makes a lot of sense. My second question, how should we think about the operating leverage in the business? I mean, you're Growing top line at north of 20% right now, and let's assume that your marketing promotion intensity that just stays in the same ballpark. Some of the other expenses, employee costs, outsourcing, etcetera, how should we think about what, let's say, The right growth number for that could be in the next, let's say, 2 or 3 years.

Speaker 6

Rajesh or Mohit, your thoughts there.

Speaker 2

Yeah, sure. I mean, Alright. Kind of, you know, the way we are looking at operating leverage being continuously driven is that, you know, we have seen good amount of, you know, improvement at the net coming in over the last few years. And we want to kind of maintain that momentum, but we also want to kind of, you know, make sure that we are, You know, kind of more and more is going towards growth and kind of, you know, not necessarily kind of trying to optimize only on driving profitability improvement. So I think The medium term kind of the next 2, 3 years kind of a, you know, approach would be to try and see if we can take this Close to 15% on adjusted margin or say 1.5% of, you know, gross bookings, in a net net adjusted operating margins that we have, More closer to say about 1.8% to 2% of gross bookings.

Speaker 2

I think that would be a very healthy kind of, you know, adjusted operating profit margin Level to kind of maintain. And that would be the endeavor to kind of, you know, see, you know, coming in as an improvement over the next 2 to 3 years.

Speaker 6

Thank you, helpful. Last question, on use of cash. So, the buyback amount that you've carved out 136,000,000 understood and thank you again for flagging that. But when you think about the business, I mean, this quarter alone, dollars 37,000,000 of cash EBITDA annualized close to $150,000,000 and That number is only growing. So and then you have 600,000,000 plus of cash in the book.

Speaker 6

So like when you think about a steady return to shareholders, I mean, Could buybacks become like an annual affair in the business? Because from what I recall last you mentioned that there are not too many meaningful M and A opportunities out there. So how do you think about this growing cash balance and uses of cash as you go along next 2 3 years? Thank you.

Speaker 2

Sure, Manish. Clearly, The first priority would be to kind of keep looking for inorganic as well as organic investment opportunities in the business. But beyond that, and clearly like, like you called out, you know, we have now close to $600,000,000 in terms of cash and cash equivalents. And, and that is a large balance to have. And therefore we have been calling out that we do believe that we kind of feel actively look at buybacks as an option To kind of exercise in the years to come.

Speaker 2

Like we have also kind of intimated this quarter, We have kind of put in the intimation on the 2028 note holders because there's a put option that is kind of coming up in the next month. And as we had called out in the in the previous earnings that we would want to kind of, you know, see through this, put option date. And by then, we would also be kind of close to the end of this fiscal year. And therefore, from next fiscal year onwards, we would want to kind of possibly dip in Into the buyback plan or the share repurchase plan is the right earnest. The quantum in size again would kind of depend upon the It depends upon the market, the, and the timing around it.

Speaker 2

But yes, this is one potential, You know, avenue of deployment of the cash.

Speaker 6

Thanks so much for taking my questions. All the best. Thank

Operator

you. Thanks, Manish. We are almost out of time and we will take one last question for now from the line of Gaurav Dothi of Morgan Stanley. Varubh, you may please ask your question now.

Speaker 7

Hi, I'm Audible.

Operator

Yes, yes, please go ahead.

Speaker 7

So thanks for taking my question. The first question actually is on the if you can elaborate on the short term impact On air business that you talked about in the near term and also you talked about things easing out from next fiscal year. Is it likely to be more like a second half Or you think immediately in the first half itself things will ease out based on the plans that you see for the airlines?

Speaker 1

I think, Gaurav, it's going to be every quarter some improvement. I don't think it's going to be Second half more than the first half. I think we'll see some improvement happening first half based on the plan that we see Because, you know, there is practically every month there more planes coming, and there is wet lease, you know, sort of options being explored, etcetera. But we'll see improvement pretty much now. The improvement could be small in the Q1 and the Q2 could be higher, etcetera, but that Would be a matter of detailing, but, but we'll see improvement pretty much every quarter.

Speaker 7

So fair to say that it kind of bottoms out From the supply issues perspective, in the Q4 of this fiscal year and from there on every subsequent quarter, there is an actual improvement?

Speaker 1

I think that will be fair to assume, yes. Okay. I mean, all things being equal, right? I mean, there should not be any new development. But all things Being equal as of today, I think that will be a fair statement to make.

Speaker 7

Got it. My second question is on the volume growth in the Hotel and Package Segment is pretty strong on the back of strong last year. But let's say on a steady state, Given where we are in the online penetration journey, how should one think about this volume growth? Is it like going to be more like in teens? Is it It's something that can actually be in 20s.

Speaker 7

Just trying to understand where we are in the journey of online penetration and what is the scope headroom for growth from next 2 to 3 year perspective?

Speaker 1

So let me try and address, Gaurav, this one rather than just specifically calling out a number because we'll see how it goes. But from a penetration standpoint, relative to the flights market, clearly, it is there's much more headroom there, Especially when you add homestays category also, which is an emerging category and adding more supply by the month, it becomes even more So I would say all things considered, even if we assume like a 20% online penetration or thereabouts As compared to 65 odd percent penetration for domestic flights, there is obviously significant headroom. And I'm saying even if you don't want to consider it going all the way and we look at global benchmarks, The next milestone number for online penetration for hotels and accommodation overall would be 40% at least because that has been the in many markets, it got to about 40% evolved markets in the western side that I'm talking about, 40%. It's just that relative to the transport, it always has taken in every market, relative Speaking, little bit more time than the transport because there are transport actually because of the fact that it's Very unidimensional product. It moves really quickly online.

Speaker 1

Railways is a good example of that, VERS is a good example of that and domestic flights for that matter. Wherever there is more involved purchase experiences and, you know, fragmented market on the supply side, it just takes more time For it to move online completely. So from that perspective, I think we should probably see it, let's see if the overall Travel and tourism market annually is going to grow at a double digit growth rate. You know, anywhere, if I look at some of the 3rd party reports, it talks about 10% to 12%. I think you should think about online Growth more in terms of like say 1.5 to 2x kind of a range The overall industry growth just as a thumb room and then see how the demand patterns emerge In the quarter and this is which we can sort of form a view.

Speaker 7

Great. That's really helpful. And last question, I think you made a very Significant product enhancement and you have been highlighting every single quarter. How easy How difficult it is for competition to replicate that? And have you seen them actually even replicating or this is something that You know, kind of stands apart for us and kind of creates a competitive advantage for us.

Speaker 7

Thank you.

Speaker 1

You know, I would like to believe, you know, on an overall basis and on a continuous basis, it's not necessarily a one Quarter thing, it is actually if there is 1, you know, sort of at the core DNA of the of the company is Continuously keep improving the customer journey, continuously keep improving the customer experience end to end, whether it is pre booking experience or a post sales experience and so on. And come up keep coming up with the and some of the features we've called out are Industry First. And on the back of leveraging the huge sort of data that we have, Which probably is, incomparable to anyone else in terms of How much more do we have versus any of the other players in the market? So that gives you an inherent sort of advantage For us to be able to build on top of that very innovative features And there are many, whether it's a trip guarantee or a fair lock or a 0 cancellation or a book at 0 for hotels. And not to forget AI led some of the innovation that we've already done for our hotels reviews.

Speaker 1

And there are more but there's more work on a continuous basis happening on that front as well, Just to continuously keep improving the overall customer journey, and, you know, and given that we are in a b2c business and the feature will always be out there, And so theoretically, it can get copied. But I think some of these inherent advantages that we have and the fact that At the core of our sort of belief and very core part of our strategy to continuously keep enhancing the experience and keep it cutting edge almost always all the time. Would always be some competitive advantage for us, I would have thought.

Speaker 7

Perfect. Thank you, and all the best.

Speaker 1

Thank you.

Operator

Thank you, Gaurav. As we are out of time already, we'll not be able to take any more questions. So anyone whose questions are unanswered, We can take them offline. That will bring us to the end of the call. Over to you, Rajesh, for your closing remarks.

Speaker 1

Yes. Thank you, Vipul, and thank you, everyone. Thank you, everyone, for your patience. Thank you, everyone, for your time and look forward to seeing you next quarter. Thank

Speaker 2

you. Thank you.

Operator

Thank you, Rajesh. You may please disconnect. Thank you.

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Earnings Conference Call
MakeMyTrip Q3 2024
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