MakeMyTrip Ltd (MMYT) 2012 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the MakeMyTrip Limited fiscal 2012 first quarter financial conference call.

My name is Mary, and I'll be the event manager for today.

Before I turn call over to the host, the Company has asked me to remind you that certain statements made on this call are forward-looking statements, within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent uncertainties.

Actual results may differ materially.

Any forward-looking information relayed on this call speaks only as of this date and the Company undertakes no obligation to update information to reflect changed circumstances.

Additional information concerning these statements is contained in the risk factors and forward-looking statements section of the Company's Form F-1 filed with the SEC on May 26, 2011.

Copies of this filing are available from the SEC or from the Company's Investor Relations department.

I would also like to remind you today's call is being recorded by the Company and will be made available for a one-week replay shortly following the conclusion of this call.

Later, we will conduct a question-and-answer session and instructions will be given at that time.

I would like to turn the call over to our host, Jonathan Huang, please go ahead.

Thank you and welcome to MakeMyTrip's fiscal 2012 first-quarter earnings call.

Today, we will be using certain non-IFRS metrics, which are reconciled with IFRS metrics and our press release tables.

We believe that our profitability and performance is best demonstrated using these non-IFRS metrics.

On the call today, we have Deep Kalra, CEO and Founder of MakeMyTrip, who will provide a business and strategy update and Rajesh Magow, our CFO and Co-Founder, who will go over our latest financial results.

Also joining us today is Keyur Joshi, COO and Co-Founder, who will be available for Q&A.

Now, let me turn the call over to Deep.

Thanks, Jonathan.

Greetings, everyone, and thank you for joining us today.

It gives me great pleasure to share our strong Q1 financial results as we kick off our fiscal 2012.

Given the difficult financial environment, I sincerely hope our results bring cheer to many of you on the call.

In the quarter we undertook several initiatives to grow our sales and packages business including ramping up on our planned marketing efforts to further establish MakeMyTrip as a holiday travel provider during the strong seasonal quarter.

We also partnered with the Tourism Boards of Thailand and Malaysia and jointly launched marketing campaigns to increase travel to the region.

As a result, we saw significant traffic growth to our website.

According to Comscore data, MakeMyTrip.com's total number of monthly unique visitors increased 53% year-over-year to 4 million and total visits grew 48% year-over-year to 7.9 million in June 2011.

This traffic growth continues to position MakeMyTrip.com as the most-visited online travel website in India.

On the supply side, we continue to increase the number of domestic hotel properties in order to offer more selection to our customers.

As of June 2011, MakeMyTrip customers had access to 4,700 properties across the country, and in the current quarter, we have initiated a strategy to actively grow the total count by more than 500 properties per month.

As a result of our effective destination-focused marketing campaign, over 35,000 of our customers travel to popular domestic places like Kashmir, Ladakh, and other holiday destinations in India and over 16,000 customers have stayed at popular international destinations during the peak holiday quarter.

Furthermore, our acquisition of Luxury Tours and Travel, or LTT has helped provide our Singapore and Malaysia-bound customers with more options like tours and sightseeing activities, while improving their complete end-to-end travel experience.

These initiatives resulted in year-over-year growth of 72.1% for our packages for H&P transactions and help expand net revenue margins from 11.9% to 13.1%.

Now let me move to our air business.

In this segment, we continued to see robust business growth as we remain the single largest seller for all carriers in India.

Transactions grew 53.1% year-over-year during the quarter, and as a result MakeMyTrip continued to lead in domestic air ticket sales.

According to the Director General of Civil Aviation, or DGCA, June traffic data, we believe that we continue to maintain our market share as MakeMyTrip customers represented over 11.5% of all domestic air passengers within India.

While we focus on driving transaction growth in the quarter, we also remain committed to enhancing our customers' experience.

For example, we introduced a view section to make product offers more attractive on specially-negotiated deals with our suppliers.

We added new payment options like easy pay where customers can use this online system to pay for offline bookings, cancellations, or even date changes fees while bypassing the call center.

The system also allows for partial payments and multiple payment instruments being used for the same booking.

Lastly, we introduced cash on delivery for hotels and international flights to provide further flexibility to our customers.

These payment innovations have helped increase the conversion rates across our business.

To further enhance customer service we expanded our online self-service module, which now allows for cancellations of international air and hotel bookings.

We've also extended the order ticketing functionality for all our domestic and international flight offerings, as well as flight plus hotel products.

I'm also very excited to share that later this week we will be launching our own loyalty program called My Trip Rewards.

This program will provide our loyal customers with exclusive members-only service benefits and travel rewards with MakeMyTrip.

By virtue of this program being in partnership with the multi-category loyalty company Payback, our customers will also have the option to earn and redeem points in non-travel categories, making this program flexible and more useful for members.

We believe this program will increase customer retention and drive repeat business.

As reported in our earnings release earlier today, we signed a share purchase agreement to acquire a minority investment in Ixigo.com, India's leading meta search company.

With this strategic investment, we will have access to Ixigo's tech team and next generation technologies which we will leverage to further drive growth in our online businesses.

During the seasonally slow second quarter, we continue to develop and upgrade our technology infrastructure as previously announced.

Work continues on our next generation website and we are very close to launching it's first planned release with new visual design and search functionalities.

Progress has also been made in implementing a customized mid office system that will help manage growth in our business.

Once the system comes online, it will drive further operating efficiencies in the holidays business.

I'd now like to hand the call over to Rajesh, who will go over the quarter's financial results in greater detail.

Thanks, Deep and hello, everyone.

Let me now share with you our financial results for the first quarter.

Our total net revenue and bookings and fees rose 52.3% to $21.1 million, and by 51.2% to $264.1 million respectively.

Our combined net revenue margin was 7.7%.

In our air segment, net revenues increased by 44.2% year-over-year to $14.4 million.

As a result of (inaudible - heavy accent) bookings growth of 53.1% and 49.4% respectively.

The growth was driven by a robust increase in traffic and better conversion rate as we improved the overall user experience on our website and offline status.

Air net revenue margin was 6.6% in the quarter, 20 basis points less than the 6.8% in Q1 2011.

The slight year-over-year decline due to delayed finalization of performance incentives with some of our airline partners, which is typically the case in the first quarter of every year.

We expect to have these arrangements wound up soon which will be reflected in our net revenue margins in the subsequent quarters.

Now moving to our hotels and packages business.

We experienced a robust seasonal quarter as net revenues increased by 76.1% year-over-year to $5.9 million as [corrections and drop] bookings grew 72.1% and 60.8% respectively, helping us achieve net revenue margin up 13.1%.

Our transaction growth and margin expansion in H&P was led by strong demand and improved conversion of domestic quality packages, continued growth of standalone hotel bookings to our website, and from our ATP acquisition as we acquired more holiday customers across all products and channels and negotiated some supply.

Our revenue will still continue to grow as net revenue growth in this segment was up 52.8% driven by strong bus ticketing sales to our online booking engines and popularity of our (inaudible - heavy accent).

Now moving on to our key operating costs for the quarter.

Personnel expenses of $4.4 million, which excluded share-based compensation charges were up 33.6% year-over-year and up 21% quarter-to-quarter as we provided annual rate increases and grew headcount to grow the packages business and enhance our technology platform.

On a percentage of net revenue basis, personnel expenses represented 20.9%, which was an improvement from 23.8% of net revenue in the last year fiscal first quarter and an improvement from 21.4% in the prior quarter.

Total other operating expenses were $14.5 million, an increase of 66.5% year-over-year, and up 23% quarter to quarter, primarily as a result of an increase in advertising and business promotion expenses related to our planned marketing campaign.

The [MMDA] surcharges and outsource fees in line with the growth of our business.

As a percentage of net revenue, total operating expenses were 58.6% of net revenue, versus 62.7% in the prior year Q1 and 69.1% in the prior sequential quarter.

Given the success of our Memories Unlimited marketing campaign, we plan to utilize the savings of $350,000 from our planned $2 million marketing budget to drive H&P growth during our December ending quarter, which is the other seasonality on travel quarter in India.

Our operating profits were $1.6 million, resulting in operating margin of 7.8%.

Our existing net income was $1.5 million in the related quarter representing a margin of 7.2%.

This equates to $0.04 for each of the 36.9 million diluted shares outstanding.

As of June 30, our cash balance was $102.8 million, and cash and term deposits on our balance sheet which we will use for acquisitions of ownership, technology investment and general corporate offices to continue to grow our business and market share.

With this, let me hand it over back to Deep as he will provide you with an update on our outlook and guidance.

Thanks, Rajesh.

As we enter the seasonally-slow second quarter we are encouraged to see raw material impact from the high rate of inflation in the first quarter.

Our momentum reflects our continued success in attracting new customers from the underpenetrated Indian online travel market and their desires turn to MakeMyTrip for their travel needs.

We are committed both to strategically positioning ourselves with competitors and to continue to enhance our direct offerings and users experience.

Our long term outlook for the business remains optimistic; however while our first fiscal quarter results are better than expected, concerns about the uncertain global economic environment make us cautious about the near terms.

Therefore, we believe it is appropriate to maintain our full-year fiscal 2012 net revenue guidance in the range of $86 million to $89 million.

Thank you, and now I'd like to open up the call to Q & A.

(Operator Instructions) Your first question comes from the line of Jeetil Patel from Deutsche Bank.

Please ask your question.

Great, thanks.

A couple of questions.

One, can you I guess talk about the marketing campaign in more detail or the ad campaign in terms of are you seeing a new segment of customers come into the service or is it kind of reinforcing or reminding existing customers of the service and getting them to transact more frequently and then second, can you talk about the air margins over time?

Has your thinking changed in terms of where air margins kind of progress to as we look at over the next one to three years?

Yes, sure, Jeetil, thanks.

So I think the first question, this is Deep.

We've actually by virtue of the marketing campaign clearly reached out to a very large new segment.

There is some small overlap but as we've seen the number of visitors increase to our site, obviously we're seeing a lot more new visitors as mentioned in my call that we've actually touched in June more than 4 million visitors and about almost close to 8 million visits to the site, which is a sharp increase to what we had prior to the campaign.

We've also seen that people who have been buying holidays from us and matching them to our current database that a majority of the customers, a large majority are actually new customers and while we've been reaching out aggressively to our existing customer base, I think we were successful in reaching out to an audience which was not either online because a lot of large part of this campaign was actually done offline, particularly on television which is a medium that we haven't used in several years in India, and has really touched both in terms of reach and in terms of reinforcing the fact that MakeMyTrip is a great value place to get with the holiday packages because we had as part of the TVC, as part of the commercial multiple show why we actually showcase certain products both international and domestic, which kind of attracted a certain audience, and also the characters used in the TVC were, we were very particular about making sure that this is reaching out to the middle class audience like we wanted to.

I think the second part of the question, I'm going to give it to Rajesh.

Yes, sure.

Jeetil, on air margin, we had given our long term outlook, and which was in the next four to five years, we had said that we will be, the air margin would look like between 6% and 6.5% and we maintain the same as we in the short-term we had said that it will be small compression or a gradual compression will happen over time but we haven't really seen any trend at this point in time in this quarter for sure.

As explained earlier, during the trip reading that in this quarter this is a very difficult scenario that happened in the first quarter where we will have performance intended to be some of the air lines which will be in the pipeline and will take some time to kind of run that up, and we were actually quite hopeful that we would close all of those in the current quarter and this margin will bounce back.

Having said that, we maintain our long term outlook on the air margins which will be within 6% to 6.5% in the next four to five years is what we had said, one year has already gone by and the next four years we should take it as between 6% to 6.5%.

Last year we were down 7.4% and I guess we can kind of work backward from there and expect a small compression this year.

And I guess going back to the marketing campaign, but I guess what is your thoughts on kind of continuing it from an advertising standpoint and is it too early to tell if there's any repeat rates given I guess its only been three months.

Right.

I should have added earlier, so we've actually managed to extend this campaign as mentioned in my call.

We've partnered with two Tourism Boards already, both of the Thai Tourism Board as well as the Malaysian Tourism Board who actually partnered us as a joint Marketing effort for the campaign showcasing their particular packages to their countries and we plan to extend this out as well so this is giving us more leverage, more Bang for the buck.

Yes, it's too early to call because these are holiday transactions.

We are of course packing those and we'll be able to give a better sense of repeat from this campaign, at the end of almost a one year cycle which will be the fair time to give that we're tracking of course more regularly and we'll share that with you.

Your next question comes from the line of Manesh Hemrajani from Oppenheimer.

Please ask your question.

Hi, good morning.

Good quarter guys.

Can you talk about some of the synergies you have at Ixigo, and how this investment can help you grow, and also should we look at this stake purchase as a precursor to a larger stake in the Company down the road?

Yes, sure, Manesh.

So thanks once again, but so Manesh, Ixigo has been essentially a player both for air and for hotel.

We participated with others on the hotel side.

What we really like about Ixigo is their team, very excited to work with both I think the entrepreneurs as well as really entrepreneurs is very deep domain experience both in travel and technology and we actually want to leverage those assets now to see how we can actually build a product which would be more engaging for our customers on the online site, help them in their entire trip planning process, and leverage essentially for our agency businesses, so you're going to see a lot of development on that product.

We'll probably not stay just like it is right now.

We have a lot of thoughts and ideas.

To the second part of the question, yes over time, we will be looking at seeing how we will be increasing our stake in the Company and again, over a period of time we will be looking at that.

Yes, we've kept our options open at the current point in time.

Okay.

On the air gross margins, I mean, gave us some color on that but how should we look at for the remainder of fiscal 2012, given where air margins were this quarter and also, can we expect to see some margin lift in the September quarter based on some of the incentives that you will probably be getting this quarter?

Yes, Manesh, you know like I said earlier, on the air margin this is a typical first quarter thing that you will have lower margin, if you look at the last year with a 6.8% in the first quarter of last year, we definitely expect because we know for sure that we have the incentives that are in the pipeline, we are already in talks on including them and yes, this margin should look better as we go along in the subsequent quarters.

Like I said, there is going to be a gradual compression is what we hope.

Looking backward from our long term outlook on that within 6% to 6.5% so last year we clocked around 7.4%.

As you know we haven't really been giving specific guidance on the net revenue margin on our segment but our segment will be improvement in subsequent quarters and there will be very small compression in the overall margin for a year-over-year.

Okay, got it.

On the hotel side, your quarter-over-quarter ASP mix was up nicely.

Was that all attributed to holiday seasonality and also what was the standard hotel room booking mix?

Yes, so the first part of your question, yes, it was largely on account of seasonality.

It was the quarterly high season.

We were able to expect, we were able to get better margin and obviously the marketing campaign on the holiday side kind of helped us on high growth and therefore, we were, the deals because of the volumes that we were able to do with the suppliers, so that kind of helped us have better markup.

On H&P, I would again and as you would have seen in the historical quarters as well because of the seasonality, when the focus is more on growing the transaction on a low season quarter and that quarter you would typically have a less margin and because the focus would be to grow the transactions there and therefore, we feel that same trend would continue.

High season we will have relatively high margin.

Low season we will have a lower margin and then the overall, we believe in H&P segment year-on-year we will see an improvement as we related earlier.

Again going back to our long term outlook on our H& P margin which we had said this is going to be around 15% in the next four to five years.

Again, into the next four years because one year is already passed, we maintain that as well.

We did see a little unexpected gain on the H&P this quarter but we should just wait for a few more quarters to kind of see the overall margin and H& P would be very optimistic on H&P margin and we maintain the same outlook that we had shared earlier.

Sorry, on the second part of your question, on the online transactions, the online hotels, the standalone ala carte hotels, so we had shared last time, there was robust growth that happened on ala carte hotels and that kind of continues but in terms of contribution, the contribution of online hotels in terms of net revenue coming in from H&P segment is still on this, it's high single digit.

It's not like more than double digit at this point in time and the reason for that is in high season quarters you have typically long duration holidays, we will sell more packages and less ala carte hotels so even if there is growth that has continued on the ala carte hotels you would typically have more revenue coming in from the packages than the hotels in the high season quarter.

Okay, got it.

Thanks.

Your next question comes from the line of Vipin Khare from Morgan Stanley.

Please ask your question.

We've done two acquisitions over the last two quarters.

Just wanted to understand broadly what's the acquisition strategy and some of the parameters you might be looking at when you evaluate these in terms of segments, financials, geographies.

Sure, sure.

So we've been, we continue to look at our acquisitions in three buckets or categories.

I think we kind of have been maintaining that since I guess the first quarter.

The first one really being around getting us closer to our customer which could typically be niche travel companies in India focusing on certain areas which we are not either dig in, or would take us a long time to build ourselves, the (inaudible) travel or adventure travel or the like.

One of those buckets again could be pretty interesting areas which people are now exploring as part of the research and the planning process as well and it is partially out there.

The second category is really getting us closer to our suppliers or has been the disintermediate and luxury tourism and travel towards that bucket which helps us not only disintermediate and go direct closer to our hotel partners as well as the operating or the ground handlers in those markets.

It also provides us the ability to give a much higher and better level of service to our customers and that's exactly what we have done with the LTT acquisition and the third category as you said would be again niche travel technology players or pure travel technology companies and it's part there and part getting us closer to the customer and the way we are really looking at core IP which companies can add a lot of value to our proposition and in this case, Ixigo, we will take a minority stake there and we intend to play in this space where people are looking to do much more of the research work online as they try to plan their holidays and we hope the leverage asset for that.

Okay, and would it be possible to share anything around financials, either quantitively or directionally on Ixigo?

Would it at least be accretive to EBITDA?

Not really with Ixigo, it's a small -

Ladies and gentlemen, your speaker is currently experiencing some technical difficulties with their line.

Please stand by while we address the situation.

Your lines will be placed on music hold until the conference resumes.

Thank you for your patience.

Please resume the conference.

Hi, this is Jon, I apologize for getting cut on the line, however we're now returning back to the Q & A session.

If there are anymore questions, please bring them forward now.

Deep, this is Vipin here.

Sorry about that.

We are not quite sure what happened.

We had a second line.

So, Ixigo, does it help EPS or does it drag profits?

It's a minority investment at 19.9% so we actually don't consolidate at all so as of now, there's no impact on the financials.

Okay, and for this quarter, you have some inventory on the balance sheet.

Can you discuss how it works in case it will affect the whole operating quarter or does that result in a hit or can you roll it over?

So hi, this is Rajesh.

No, we can roll this over, if we are not able, there is no inventory on this inventory and there are actually coupons that you get from some of the airlines to basically at very attractive prices and if you haven't really consumed as of that date, you have to reflect that as inventory but there are no time restrictions on these coupons that if you aren't able to sell that in that time frame we will have to take a hit on the P&L.

Okay, and finally, one question.

You had a very good revenue growth.

They've come up very nicely, net revenues over the last year, you've gone from $14 million-odd to $21 million which is being very nice, but not a lot of it has reflected on the side so long term investments are understandable.

How should we be thinking about it and what does Management think about that?

Thank you.

Yes, I can take that as well.

So as we have shared and I would again go back to our long term operating leverage of guidance that we had given on operating margin, we would like to maintain that again.

We definitely believe there are incremental improvements happening, this time around because of the planned incremental plan and additional marketing spend as we had highlighted and in our previous call as well has kind of impacted the percentage margin from a year on year perspective but if you kind of take that impact out, and the position would be really different, so I'm not suggesting that we should just simply add that back and then calculate the operating margin but what I'm trying to say is that was planned incremental spend, that happened and but we do see operating leverage, incremental benefits coming in every quarter and we do believe that our long term outlook which we had shared earlier of reaching the next four to five years between 25% to 30%, we are quite confident about that and we would like to maintain that and you will definitely see year on year improvement on the operating margin side every year from this year and then all subsequent years.

Okay, and so but for the remaining quarters of this year, should we expect further improvement from these levels or will it follow slightly in Q2 and then back from Q3?

So again, I think we should look at it, there is a seasonality aspect to this as well even in the operating margin because in line with the net revenue margin that happened so I think we should just look at the historical trend and I believe that the trend would be similar between the quarters but if you compare the overall years operating margin that will be an improvement year-over-year.

Thank you.

(Operator Instructions).

Your next question comes from the line of [Kressa Vial] from Morgan Stanley.

Please ask your question.

So could you please break down the other operating expense in terms of like marketing, and also operating?

Your question is in the trend or are you looking for the split?

Just this quarter.

I'm sorry?

The breakup of the operating expense.

Yes, could you please break down the other operating expenses this quarter?

The other operating expense.

Yes, so the other operating costs that we have, we have three main costs out there.

We have the payment gateway and marketing cost and SG&A cost.

Right, could you break down for me?

The way we have been sharing in the past, we actually we don't actually give the break down.

We have been publishing only the consolidated amount and let me just give you a sense the way we analyze these expenses.

These expenses typically we analyze as a percentage of net revenue and payment gateway cost is approximately about 15% of net revenue this quarter and marketing cost is about 24% and SG&A cost is about 28%.

Got it.

(Operator Instructions).

There are no further questions at this time, sir.

I would now like to hand the conference back to today's presenters.

Thank you everybody for joining us on our first fiscal 2012 earnings call.

We look forward to speaking with you next quarter.

Thank you so much, bye-bye.

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.