MakeMyTrip Ltd (MMYT) 2012 Q4 法說會逐字稿

Welcome to MakeMyTrip's fiscal 2012 fourth-quarter and full-year earnings call. The Company wishes to remind you that certain statements made on this call are considered 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 future performance and by their nature are subject to inherent uncertainties, and full results may differ materially.

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

Additional information concerning these statements is contained in the risk factors and forward-looking statement section of this Company's annual report on Form 20-F filed on the SEC on September 2, 2011. Copies of this filing are available from the SEC or from the Company's Investor Relations department.

The Company will be recording today's call which will be made available for a two-week replay. Later we will be conducting a question-and-answer session and instructions will be given at that time.

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

Good morning and welcome MakeMyTrip's fiscal 2012 fourth-quarter and full-year earnings call. Today we will be using certain non-IFRS metrics which are reconciled with IFRS metrics in our press release tables, as we believe that our profitability and performance will be better demonstrated using these metrics.

Joining the call today is Deep Kalra, CEO and Founder of MakeMyTrip, who will summarize our latest achievements and provide an update on key Company initiatives currently under development. Additionally Rajesh Magow, our CFO and Co-Founder will elaborate on our financial performance. Also joining us today is Keyur Joshi, our COO and Co-Founder, who will be available to answer any questions that listeners may have today.

Now let me hand the call over to Deep. Deep, go ahead.

Thanks, Jon. Hello everyone and thank you for joining the call.

In the fiscal fourth quarter we saw the continuation of a turbulent aviation industry in India and a weakening rupee-to-dollar exchange rate. To help offset the impact of these events that were beyond my control, we remained sharply focused on a mission of enhancing our customers' experience. As a result, we delivered annual revenue, less service costs, of $88.2 million, which exceeded the top end of our guidance and represented a growth of 51.7% on a constant currency basis. During the same period we more than doubled our adjusted operating profit to $10.9 million.

In the quarter some of the domestic air carriers reduced capacity in order to rightsize their business and optimize their cost structure. Overall domestic seat capacity was reduced by nearly 10% in March year-over-year and resulted in roughly 20% increase in domestic airfares, thus impacting demand and our ability to drive higher transactions growth.

Despite these challenging times in the air industry, we maintained 11% marketshare in March and grew transactions by 31.5% for the full fiscal year. At the same time we increased quarterly air net revenue by 43% year-on-year and full-year's net revenue by nearly 47% when adjusted for currency.

We achieved this by leveraging our base of customers to improve airlines' load factors and being rewarded for the value we added to their respective businesses. During Q4 we enhanced our users' overall experience on our website, which we believe will lead more customers to visit MakeMyTrip.com directly. For example, we launched Inspire, a mass centric tool to search for international flights based on budget. We also expanded our partial payments module to more carriers in order to make it easier to pay for high-value transactions.

Additionally, we integrated flydubai, a regional low-cost carrier onto our booking platform and added the functionality to search for premium economy seats, thereby offering more travel options.

As the Company continues to navigate through the challenging domestic aviation environment, we are placing even greater efforts to grow our Hotels and Packages business. Our long-term objective is to position MakeMyTrip as a leader and brand of choice for online hotels and holiday bookings for the Indian traveler. We believe our focus and efforts have paid off so far as full-year transactions grew over 95% and net revenue grew 74% on a constant currency basis.

During the seasonally slow fourth-quarter we offered attractively priced holiday packages to popular destinations, including Kashmir in Northern India, besides Thailand, Malaysia and Europe. Additionally, we partnered with several tourism boards in Southeast Asia, Europe and Australia to further drive awareness of these regions as desirable holiday destinations.

Throughout fiscal 2012 we added more [Delta flights], and enhanced the online booking experience for customers. On MakeMyTrip.com we now offer approximately 8,000 hotels and nearly 200 guest house properties in India via our integration with MyGuestHouse.net. In the coming months you can expect us to further add more ultra-budget accommodations onto our platform.

In addition to increasing supply, our team continues to make improvements to the Hotels 3.0 website. We believe making constant enhancements to the website based on user feedback will help us improve conversion rates and drive increased online hotel bookings.

Lastly, we introduced our What You See is What You Get promise for our customers. If our users are not happy with the hotel they have booked through us they will receive a full refund in the form of MakeMyTrip travel vouchers. We believe this should help further drive online hotel bookings.

At MakeMyTrip we also recognize that sometimes air travel can be very tedious and boring. So to make the journey more enjoyable we introduced an app called Tripalong, the world's first multi-airline social feeding app. By integrating social network accounts with Tripalong, air customers can easily share their travel plans and find out if their friends or other Tripalong users with common interests are on the same flight. Using this information travelers then can opt to catch up at the airport or get seats next to each other on the plane.

While this app is open to all air travelers, MakeMyTrip customers will be able to automatically synchronize their flight details with Tripalong. Our goal with this app is to use innovation to further enhance our customers' experience even beyond the booking process.

Moving forward with our mobile innovation strategy, I am also pleased to report that we have officially launched the MakeMyTrip application for Android-based devices. This app complements our existing mobile offerings, including our mobile website and the BlackBerry app. With this Android app users can compare fares, manage trip itineraries, check flight schedules, and even find interesting places to eat using location-based services.

Interestingly, the app lets you speak your destination, not just type it. In about five weeks since we launched it more than 40,000 users have downloaded the app and have rated us 4.5 out of 5 on Google Planes.

Besides this app we just launched a touch-enabled version of our mobile site for Android and iPhone users. With over 15 million 3G subscribers and the recent launch of 4G, the mobile Internet usage and smartphone penetration continues to grow rapidly in India. In the coming months we plan to launch our iOS app.

Lastly, we made good progress on our loyalty strategy. As of today MakeMyTrip Rewards now has over 86,000 members enrolled and has been contributing considerably towards revenue. We believe this and other customer-retention programs will help to lower our cost of customer acquisition costs (sic) going forward.

Now let me hand the call over to Rajesh, as we will share more details on our financial performance.

Thanks, Deep, and hello everyone. As you look to our latest results, please note that we continue to be impacted by a weakening rupee-to-dollar exchange rate, primarily from a reporting-translation standpoint. Therefore, we have provided a constant currency revenue gross table in our release today, to which I will refer during my discussion that clearly shows the central part underlying business performance.

In Q4 our total net revenue growth on a constant currency basis was up over 44% year-on-year. We also made $2.7 million in adjusted operating profit, representing margin of 12.4%. On a full-year basis we generated total net revenue of $88.2 million, which represented year-on-year growth of over 51.7% on a constant currency basis. We also reported adjusted operating margins of 12.4% and earned $0.24 per adjusted value per share.

In Q4 Internet revenue grew by nearly 43% year-on-year on a constant currency basis. This was driven by our ability to maintain higher-than-planned net revenue margin of 8.4% as we negotiated special rates and incentive fees from our suppliers.

For the full year we were able to generate nearly 46.5% in net revenue growth for our Air Ticketing business, when adjusted for currency and achieved net margins of 7.9%, which were higher than our forecast.

Now moving on to Hotels. Now moving on to Hotels and Packages business, net revenue growth continued to be robust despite a seasonally slow travel quarter. Year-on-year growth on a constant currency basis for this segment was almost 41%, while the net revenue margin was 9.6% in the fourth quarter. This margin decline was impacted by a mismatch in revenue and costs for our overseas holiday packages in the quarter, as our customers paid us in rupees, while our cost of procuring overseas travel inventory was paid for in non-rupee currencies.

On a full-year basis, our net revenue performance when adjusted for currency registered growth of 74%, while net margin was at 11.9%. The margin for the full year was an improvement from the 11.5% in the prior fiscal year, as we achieved greater contracting terms on the basis of expanding supplier relationships and from the acquisition of luxury tours and travel earlier in the year.

Now turning to profitability, we achieved our adjusted operating margins of 12.4% in the fourth quarter. The leverage was derived primarily from SG&A, and advertising and business promotion expenses. On a full-year basis our adjusted operating margins also reached 12.4% while leveraging all of our expenses items as the business model continues to scale.

In summary, given the challenging operating conditions, we are pleased with our Q4 results. Now let me turn the call back to Deep, as he will share our fiscal 2013 net revenue guidance.

Thanks, Rajesh. MakeMyTrip is entering fiscal 2013 in an operating environment that has become increasingly volatile.

As you already know, the aviation industry in India is flying through some choppy weather. Some of the carriers are looking to raise fresh capital as a way to improve their own financial health. However, it is practically impossible for us to predict when that will happen and when capacity and demand will be back in balance.

Additionally, the rupee-to-dollar exchange rate, which started to weaken last October, continues to drop further even today. This rapid movement in the exchange rate has impacted our reported numbers throughout the back half of fiscal 2012. If the rupee remains weak for an extended period of time, we may also experience some impact to demand.

A weaker rupee will make traveling internationally more expensive for Indians and increase the rupee costs of airlines as jet oil is primarily imported in India and paid for in dollars.

As a result, we are providing our full fiscal 2013 net revenue growth guidance in the range of 30% to 32%. This growth guidance is based on average actual Indian rupee to US dollar exchange rate of INR48.23 for full fiscal 2012. At the prevailing Q1 2013 average exchange rate of the Indian rupees INR53 to a $1, this will result in net revenue guidance range of approximately $103 million to $106 million.

Thank you all for listening in today, and we will now begin the Q&A session. Operator.

(Operator Instructions). Lloyd Walmsley.

Great, thanks for taking the question; a couple here. But if you look at the different traffic stats from AAI or DGCA, there's a bit of a divergence, one showing growth, one showing declines. I am wondering where you guys think you are in terms of share gains or losses in the air industry. Are you continuing to gain share?

And then I guess switching over, how should we think about margins going forward for this fiscal year in terms of operating profit? Do you continue to expect to gain margins there?

I shall highlight; [Mike (sic)], this is Deep. You know, you are right on the DGCA numbers. They are slightly less, and they come to offer a little [period]. We have managed to maintain our marketshare about 11%, and we expect this to continue.

In terms of margins there is going to be compression on our margins as capacity itself is restricted, as well as the airlines themselves are looking to actually cut costs wherever possible, and we have factored in quite a decrease in margins going forward.

Lloyd, if I can, this is Rajesh, if I can just add to what Deep said. So back to our net revenue margin on Air, as far as operating margin is concerned -- adjusted operating margin is concerned, we had talked about our future outlook to be in the range of 25% to 30%, and that was from the (inaudible), you know, in the next four to five years. We would continue to maintain that.

We closed, as you know, our 12.4% this year. There is going to be a gradual ramp up, and more incremental ramp up as we go close to the fifth year. But - so we don't like to - and historically we have really not been giving any operating margin guidance for the next year. But this is how you should think of looking at the future outlook in the next four to five years, is what we had talked about, the range of 25% to 30%.

Great, thanks. And then just quickly on the Hotel side, should we expect continued pressure in terms of the impact from FX on the net revenue margins there that looked a little lighter in the quarter?

So the way to think about Hotel and Packages margin, Lloyd, is that we should look at the full-year margin, which was 11.9% -- you know, improved margin over 11.5% last year. And to think of marginal increase of improvement on that year-on-year going forward, on the back of increased volumes as we continue to focus to grow Hotels and Packages faster than Air. And that is how we should think about it.

We should think about small, incremental gains on H&P margin, but we should still look at the full-year number historicals when we think about that.

So the currency impact is not something that is going to put ongoing pressure on those margins?

We don't think so, because most of the cases we actually pass that on to customer. The currency impact can be more inflationary in nature, and it can impact demand to some extent, but we don't believe that it should impact our margins to that extent.

Okay, thank you guys.

Manish Hemrajani.

A couple of questions from my end. Domestic passenger volume growth in the first quarter in India was 7% year-on-year. And your transactions volumes were -- in Air were just up 9%. If we look back historically you have significantly outpaced industry growth, given the continued shift from off-line to online. What other specific issues, other than the ones you mentioned in your prepared remarks, caused a drop in transaction volume?

So Manish, what's happening here, you're probably right. One [area] that I would like to mention that (inaudible) is revising their numbers as well, as we've seen many times. So we should probably wait for that correction, if at all that is going to come.

But more specifically, in our case I think it is (inaudible). So when you look at the marketshare, as Deep mentioned earlier on the call, we were able to in the month of March as we reported out as well, were able to maintain the marketshare at about 11%. But in the months of January and February there was a slight drop in the marketshare which was in the range of 10%, 10.5%.

So it's just kind of fluctuated a bit during the quarter. And the reason for that has been some [fare] movement, given the capacity has been coming down. And we are (inaudible) with this now -- the Indian market with the same trends in [related] markets, as you know, travel has been coming under pressure. And these are the two reasons now because of which our marketshare during the quarter has fluctuated a bit, but that was more in January and February. In the month of March we have actually bounced back, and we have clocked our marketshare at about 11%.

Manish, I - we'd just like to add, I guess, Rajesh was saying. So the high fares tend to impact leisure and visiting friends and relatives' segment the most, and that is the segment that we are the strongest in. So we have been hit a little more than companies -- off-line companies would be focused on corporate demand.

Okay, got that. And then if you look at your guidance of $103 million to $106 million, it translates to growth of approximately 17% to 20% year-on-year. You guys did 44% last year. How much of an impact are you factoring in for FX? And how much of a slowdown are you anticipating in passenger volume growth for Air from 2011's 17%?

So Manish, actually, if you look at the guidance, the note that we have given out (inaudible), the growth number -- and we have given the growth range over last year on a constant currency basis, and that is actually between 30% to 32%.

We have only translated the $103 million to $106 million figure based on the first-quarter average exchange rate of INR53. But if you ignore that exchange-rate impact, because last year the average exchange rate was INR48.23, and that has also been given as part of that norm.

So to answer your question, on a constant currency basis, the growth is actually between 30% to 32%. The exchange rate impact that we have considered of between INR48.23 to INR53 -- INR53 is the rate that we have used for calculating (inaudible).

Okay. And then how much of an impact are you factoring in in fiscal 2013 numbers from the inventory hold-back from Jet and IndiGo in April and May?

We are still calculating that number. We have factored in some, but we haven't really quantified the actual impact because it happened early part of the quarter; and we were hoping that we should be able to make some part of it, if not all, for the rest of the quarter.

So right now I am not in a position to actually quantify that impact for you. But as we go along and we have better sense of that -- a better sense of that impact, we will come back and share with you.

Okay, one last one for me. On Hotel net revenue margins, on a constant currency basis what would your net margins be in Hotels? And also can you tell us how much of the revenue is from overseas versus domestic?

So on a constant currency basis net margin on H&P would be about -- for the quarter about 9.9%, and for the year it will be about 12.2%, 12.3%.

And as for the mix of domestic and -- domestic and overseas is concerned -- so as you know, we have been reporting the total revenue of Hotels and Packages, and that fare has gone for the -- gone up for the year to 25%, all of non-Air.

Okay, that is all I have. Thank you.

(Operator Instructions). There are no further questions in the queue at this time. We do have a question in the queue. It comes from the line of [Ras Shida].

I just wanted to know what is the figure for profit-after-tax for the entire year and the last quarter, and how has it grown?

So you know you should (inaudible) the 6-K and the release and profit -- and look at our profit number. We have [retired] the losses, and therefore we don't have any tax impact. And the net income number is worded as profit-after-tax number on this.

What is your outlook for the coming financial year given all of these things like the rupee depreciation, et cetera, et cetera, which have mired the economy right now?

So that is exactly what we said as part of our guidance as we read out. So we are looking to, on a constant currency basis next year, record a revenue growth of 30% to 32%. And this translates into -- or at the average rate -- exchange rate of INR53 for the first quarter, or an absolute range of $103 million to $106 million.

Okay. With respect to an earlier question regarding the Jet and IndiGo, how much of it have you factored in these results?

So like I said earlier, it happened the early part of the quarter. And there will be some impact of it seen on an overall basis, given the overall macrocondition in the domestic air industry situation we have factored in.

We haven't really specifically quantified and factored the impact of IndiGo and Jet. And we were also hoping, because it happened early part of the quarter, and over the last part of the quarter was still left, and we wanted to watch, because if we were able to make some of the impact for the rest of the quarter from -- on the Air bookings or elsewhere in the business.

But we -- what we have factored in our guidance is the overall situation, not necessarily specifically quantifying IndiGo and Jet's impact.

Just one last question. Going forward is there any change in your functioning or your dealings with these airlines so such a situation doesn't arise again?

Let me take that. No, I think we have been able to discuss that with the airlines, and there were obviously some issues which I think was well played out in the press around opaque fares. And those are no longer available on our site. And we have an understanding that they will not be there until the airlines actually are flying with such innovation.

So we believe that going forward things should be fine, and we have new agreements that have been signed and put in place.

All right, thank you, Mr. Kalra.

Lloyd Walmsley.

I was just wondering if you guys with the Jet and IndiGo, are there any changes, aside from the opaque fares, in how your relationship is structured or take rates, et cetera, coming out of those renewed agreements that we should keep in mind?

And then just more broadly, wondering how we should be thinking about the impact to your business as inflation rises. Is wage inflation lag, but eventually catch up with the increases in oil prices such that there may eventually be a bounce back in terms of the impact on travel from the exchange rates and inflation? What have you guys seen in the past in more inflationary environments or FX-weakness environments?

You all maybe on mute; I can't hear you.

Did you get the last part of my answer?

Sorry, you guys were on mute.

Can you hear us?

We can hear you now, but we didn't get any of your answer.

Okay, let me just repeat that. So to Lloyd's question around commercial change, no, Lloyd, the commercial growth same, no material change at all. The changes are in the terms of opaque fares, et cetera, which we are obviously -- we have agreed not to grow or not to have any of those going forward. And essentially that is the [essence] of those -- of our revised agreements with the carrier.

And then any thoughts on how we should be thinking about the impact longer-term of an inflationary environment on your business and just travel in general in India?

So as covered in our call, I think we're going to see a sustained period of increased airfares largely due to factor costs going up for these carriers, jet fuel being the single largest one. Also, airport charges, et cetera, remain to be fairly high relative to what you're able to command as prices from the customer.

So I think we are -- the dollar/rupee exchange rate is obviously the single biggest reason for that, and also the fact that there is shrinkage on capacity so far. So we believe that for a quarter or two the next high season around the [O&D] quarter is perhaps the time when we will probably see capacity come back.

As we also mentioned, some of the carriers are looking for increased funding, both either through domestic channels or international, to beef up their own balance sheet. And that could be -- it is hard to predict when that will happen, but that could help put more capacity coming online, and thereby helping fares to come down.

Until such time we think fares are actually going to stay pretty -- domestic fares are going to stay pretty high.

And wages will just take time to catch up such that it will impact demand for at least a few quarters, I guess?

Demand is going to be subdued. We are not going to see a large increase in demand as we have seen in the previous years.

All right, thanks.

Vipin Khare.

Just a few questions on your guidance. You know you have shown good ramp up in both the Air and the Hotel segment this year. I just wanted to understand -- I know you don't give a breakout, but which segment would be more impacted by the currency moves in your guidance?

So what are you assuming? Does Air continue to lose share to Hotels or kind of does Air gain share in your revenue mix? How should we think about it? We don't actually need the exact numbers.

Clearly, you should -- the way to think about that is for more than one reason, not only currency, but also strategic, is to be -- we will continue to build our Hotels and Packages business more and more and put it on fast-track even more now. And that is how you should think about this split.

So we will definitely have Hotel and Packages business grow faster than Air. And therefore the overall mix going forward will continue to improve, as well as the Hotels and Packages contribution or mix to overall revenue is concerned.

Sure. And just as you have shared your margin expectations over the long term, four or five years, would it be possible to highlight what you are expecting the Hotel share to be in overall revenues when you're talking of those margin expectations? And the same thing too for (multiple speakers).

Sure, sure, sure. So we are looking at about roughly about 50-50 by that time. 50% coming in from non-Air side of our business and 50% coming in from the Air business.

Sure. Thanks, that is very helpful. Also, while your Air transaction value over the years has been very stable and predictable, the Hotel value per transaction as we calculate it seems to be volatile. Is there some number we should work around where you would expect it to stabilize, or that is more a function of the mix of business that you keep getting and that people book?

So is it going to be in a decline more offset by volumes for some time or is there some base number to that value, after which volumes should disproportionately benefit you?

Sure. So the way to think about this one is now after having seen like four quarters with the high and low seasonality of this fiscal, where we were seeing -- you know, a la carte hotels, standalone hotels growing faster than the H&P in terms of number of transactions, because that is what kind of skewed the transaction value in the other direction.

I think the way we should look at it -- if you look at the full-year 2012 number, the transaction value is about $448. If you look at for the quarter transaction value for H&P it is about $391. So I would think that roughly we should think, keeping seasonality in mind, the full-year number in the range of $400 to $450 per transaction.

Thanks. Just two more questions if I may. Now you have indicated 50-50 as the broad revenue mix in your expectations. Let's say for example, for some reason if that goes to 60/40 or 40/60 or goes in either direction, does it have any margin implications?

Now let's say for example you saw 50-50 -- Air is 60% and Hotel is 40%. Would that mean your Air margins would be a shade lower than what you are expecting or that is independent of the margins?

No, that can certainly impact clearly, because as you see -- as you know, net revenue margin for Hotel and Packages is relatively higher than Air, so any change in the mix can impact the bottom line as well.

And I guess it would be -- it would be a matter of time. We will have to kind of see. I'm not in a position to give you an estimate of how much would it impact, because one will have to see the expense movements accordingly when the mix changes.

But on a very high-level basis, let's say if it goes in favor of H&P it will (inaudible), but if I let's say we are not able to get H&P to 50%, it might be a question of the long-term outlook range that we have talked about getting pushed by another year or so.

Sure. And, finally, we are kind of picking up news bites around Google trying to get into the hotel booking segment. Any views you might have on what impact it can have on your India and international business? Thank you. That is my last question.

This is Deep. So as we know that Google has indeed got -- you know, with the acquisition of ITA Software they have actually got pretty deep into the Air side of the business in the US as of now. And the kind of results that you get on the Air side of the business are much deeper and linked and that go directly to a lot of suppliers, deep-linking to that particular site that you picked up.

They are also obviously looking at other segments, and they have made it pretty open on the travel side. They see the scope to disintermediate further. They don't expect to be sellers on their own, but to go to suppliers.

We believe that one of the fundamental advantages of the way the hotel industry is structured in India is the fact that we have got 75% to 80% independents, which means a really, really long tail of independents, even more than what you have in Europe where bookings are common, so it is not such a formidable business.

So we think that gives a lot of raison d'etre for an OTA like us to build up a defensible business, and that is why we have actually been very aggressive in our buildout of hotel inventory - currently at about 8,000 hotels in India covering most of them. And as I mentioned, we have now got a fair number of hotel budget properties also on.

So we think that is where we build up the defense. So even as Google gets into perhaps giving direct leads to suppliers, we expect that to be with the larger chain hotels and not -- perhaps that strategy not to be one that you go without OTAs, because it is only the OTAs who really have deep content to offer around the long-tail for the hotel industry, very different from the airline industry.

There are no further questions in the queue at this time.

Operator, I think we will conclude the call for now. Thank you everyone for joining our fourth-quarter and full-year earnings call. We look forward to speaking with you next quarter. Thank you.

Thank you, ladies and gentlemen. This will conclude today's conference call. You may disconnect at this time. Presenters please hold.