MakeMyTrip Ltd (MMYT) 2013 Q1 法說會逐字稿

Welcome to the MakeMyTrip fiscal 2013 first-quarter 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.

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 the 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 annual report on Form 20F filed with the SEC on June 25, 2012. 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 hosts, Jonathan Huang. Please go ahead.

Hello, everyone, and welcome to our fiscal 2013 Q1 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 us today is Deep Kalra, Founder and CEO of MakeMyTrip, who will summarize our achievements in the past quarter; and Rajesh Magow, our Co-Founder and Chief Financial and Operating Officer, who will elaborate on our quarterly results. Also on the call is Keyur Joshi, our Co-Founder and Chief Commercial Officer, who will be available to answer any questions that listeners may have at the end of this call.

Now let me turn the call over to Deep.

Greetings, everyone, and thanks for joining our call today. During the past quarter we continued to face various headwinds that made our operating environment increasingly challenging. These headwinds included a slower-growing base of air passengers in India; a higher air ticket pricing environment, caused by constrained airline capacity; a general slowdown in the broader Indian economy; and a rupee exchange rate that continued to weaken during the quarter.

I'm delighted to share with you, however, today that despite these headwinds we managed to deliver year-on-year net revenue growth that was in line with our expectations and guidance. For the first quarter, our total net revenue grew by nearly 36% in constant currency terms. We believe our success is the result of continuously improving customer experience; adapting to the fast-changing industry and macroconditions; and remaining focused on growing the hotels and holidays business.

Let me now share with you the highlights of the quarter. I am happy to say that we continued to make good progress in expanding our stand-alone hotels business by offering more selection and addressing issues surrounding customer booking habits. Our comprehensive strategies to grow the hotel business resulted in 60% year-on-year growth in the online hotel and online packages business.

In the quarter we ran a TV campaign to drive increased awareness of our money-back guarantee program for hotel bookings, which resulted in an uplift in our website visitors and an improvement in our hotel conversion rate. At the same time, we continued to rule out the option for customers be at-hotel at select properties to further address concerns of advance payment with online bookings.

Today our customers have access to over 8,900 fully searchable and bookable domestic hotel and guest house properties in India, and over 183,000 international hotels. Going forward, we look to keep adding relevant supply, both in India and internationally. We believe our focus will help us maintain leadership in online hotel bookings in India and help grow our market share in this highly underpenetrated segment of the travel market.

In our holidays business we were successful in achieving healthy transaction growth during this peak travel quarter. We work diligently to create and market economical, domestic, and overseas packages, as our customers caught our value deals for their summer vacations. Our joint marketing campaigns with various tourism boards resonated well with our customers.

During the quarter we booked more than 20,000 trips for customers traveling to Thailand, Singapore, Malaysia, Europe, and other countries, which remained the top overseas destination for Indian travelers. In the future we will continue to create and offer great value holiday packages to new and desirable destinations as part of our ongoing efforts to grow this line of business.

We also witnessed strong traction in our online bus business during this quarter as the number of tickets sold grew in excess of 80% year on year. On top of this impressive growth, this line of business also delivered record online conversion rate.

Recognizing interstate bus travel as an exciting new growth opportunity for us, work has already begun to further enhance our existing bus ticketing platform and to drive awareness of MakeMyTrip's bus offerings. Due to the robust growth in bus ticketing, we will leverage our strong budget hotels and guest house partnerships to offer bus holiday packages, which can help increase hotel and packages transactions.

Now I would like to provide you an update on our mobile strategy. On July 10 we launched the MakeMyTrip application for iOS-based devices. The look and feel of the application is similar to our previously-launched Android application and also uses the ability to search and book flights, manage trip itineraries, check flight schedules, and find interesting places to eat using location-based services. Since its launch, the app has been downloaded over 32,000 times and was ranked the top app downloaded in the App Store for India.

In the future we will be looking to add the ability to search and book hotels and guest houses across all our mobile platforms, as we see gaining mobile gaining importance in the way Indians access the Internet.

Moving onto our air ticketing business, the domestic air industry continued to experience challenges, as seat capacity remains constrained going into the peak travel season. As a result, average ticket values increased by approximately 30% during the quarter. These high air fares partly contributed to the overall slowdown in passenger growth, as many price-sensitive customers opted not to fly this quarter.

However, we still managed to increase our Air Ticketing net revenues by 31% year on year in constant currency terms, as we improved our year-on-year net revenue margins during this period of high ticket prices. We also managed to maintain our market share of roughly 11% of all domestic passengers flown in India during the month of June with our customer-focused approach and strong brand presence.

In the quarter we continued to enhance our customer's overall experience by introducing new online features like InstaBook and Fares Calendar and added more flight choices by integrating several new regional low-cost carriers' inventory onto our platform.

Furthermore, we are continuously driving efforts to reduce costs while driving customers and traffic to our site. One of the strategies is through the use of our loyalty program, My Trip Rewards. I'm happy to say that we now have over 105,000 loyal customers enrolled into this program, and we continue to see higher levels of shopping and buying activity from these customers.

During the quarter, we also partnered with American Express India to become the exclusive travel partner to help solve their customers' travel needs. We believe customer retention programs and other joint marketing initiatives, like our previously announced HSBC co-branded Visa card, will keep lowering our customer acquisition costs going forward and increase operating margins for business.

Now let me hand the call over to Rajesh, as he will share more details of our financial performance in the quarter.

Thanks, Deep, and hello, everyone. I'm pleased to share Q1 financial result achievements in line with our guidance.

Our total net revenue growth on a constant currency basis was up nearly 36% year on year. We also made $2.5 million in adjusted operating profit, representing adjusted operating margin of 10.6%, which was an improvement from 7.8% margin in the same period last year.

Our air net revenue grew by nearly 31% year on year on a constant currency basis, despite a very tough transaction growth environment, as our revenue increased substantially year on year due to supply and demand imbalance in the domestic air market during the peak season.

We also improved on our net revenue margins to 7.3%, up from 6.6% in the prior year's first quarter as we earned better performance, linked incentives, and convenience fees from our partners and customers, respectively.

As for our hotels and package business, net revenue and transaction growth continued to be robust. Year-on-year growth on a constant currency basis for this segment was nearly 41% for net revenue and 44% for transaction growth. Additionally, our net revenue margin in H&P was 12.5% for the quarter, which is in line with our expectations.

Moving on to the quarter expanding profitability, in Q1 we expanded our adjusted operating margin of 10.5% as against 7.8% same period last year on lower year-on-year net revenue growth rates. This expansion was the result of operating leverage in all of our cost lines except outsourcing costs under SG&A, as we ramped up our call center staffing levels in line with our growth plan for the year in the offline holiday business.

Now let me turn the call back to Deep, as he will share our updated fiscal 2013 net revenue guidance.

Thanks, Rajesh. As we progress further into fiscal 2013, our operating environment remains just as challenging as it was a quarter ago. The domestic airline industry continues to be pressured with slowing passenger growth and reduced seat capacity.

More recently, India's overall growth rate continues to be revised lower, while the rupee exchange rate remains volatile. Yet even in the face of these challenges, the team at the MakeMyTrip continues to execute and deliver on our promised target by adapting and innovating to deliver value to our customers.

We believe that our strong strategic and financial position in the industry will allow us to pull further ahead of our competitors and maintain market leadership, despite the various near-term challenges. Our strong balance sheet will also allow us to invest organically and inorganically to grow our business for the long term while we continue to invest in creating a true online travel company, as we believe in the scale and leveragability that our e-commerce businesses can offer.

Now I'm pleased to state that we are maintaining our full-year constant currency net revenue growth guidance of 30% to 32% year on year, despite the current challenging operating conditions. However, we will have to adjust the prior US dollar net revenue rate of $103 million to $106 million to $99 million to $102 million, solely to account for the further weakening of the rupee exchange rate, as it moved from our previously-assumed rate of 53 in quarter one to 55.

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

(Operator Instructions). Lloyd Walmsley, Deutsche Bank.

Wondering if you can comment on the hotel transaction growth? It looked like about 44%, which was a bit of a deceleration from the last few quarters. Wondering, in spite of the hotel 3.0 and website and the ad campaign, why you think it is decelerating? And I guess some of that might just be lapping the LTT acquisition, but where do you see that going forward?

And then on the air side, it looks like transaction growth was down 9%, which seemed a little bit below the industry growth; wondering if there was any activity or changes in levels of activity on Jet and Indigo now that they're back on the site? And if you can just comment on what kind of market share the recent low-cost carrier additions bring to you guys? Thanks.

Okay, Lloyd, if I can take that -- Rajesh Magow. As far as H&P growth that you pointed out as 44%, you're absolutely right in pointing that number out. Actually, from our point of view, the growth was in line with their expectation. Sequentially, particularly from the last quarter, it looks lower. But clearly at a higher bid.

More importantly, as we mentioned in the script earlier on, what we are more excited about is the stand-alone online transaction growth for the hotel, which was in this quarter close to about 60%. So the traction we are seeing to your comment on 3.0 -- that is actually relevant more toward the online transactions -- online for their bookings, and there we've seen an invested growth of 60%.

And the questions -- can you just repeat the second part of your question?

Yes, sticking with the hotel side, do you expect transaction growth to continue in that range through the balance of the year? I think this quarter is the first quarter where you're fully lapping the acquisition of LTT. So is that range that you saw in terms of year-over-year growth where you expect it for the balance of the year?

So Lloyd, in all fairness, we will have to wait and see. This was a high season quarter as well. What we can say is that as far as online hotel booking market share is concerned, we have a lot of headroom there, and we have seen a lot of traction in terms of shift from the other players or the off-line players, more and more people coming and booking online. We see that trend to continue as we go along.

But difficult to make a comment on -- a forward-looking comment on the overall H&P transaction growth at this point in time.

And then the second part of the question on air was just talking about your transaction declines. Do you think that's in line with the industry? The data has been a little mix for Indian passenger traffic, but wondering if you think that -- it sounds like you think that's -- that your share is being held. And then what kind of market share by the new low-cost carrier additions bringing you that you mentioned earlier?

Yes, Lloyd; as we already pointed out, for the month of June, as we mentioned in our script as well, we have been able to sustain our market share on the domestic air market side, which was the case before the capacity reduction if you will, as well.

So in fact, we're pointing toward the rate situations that we are losing share, market share, on domestic air despite the tough environment. So we are confident that we should be able to sustain and maybe marginally improve as we go along as well. Remember, the overall macro situation on domestic air, especially with respect to the reduced capacity, is likely to stay for some time.

Okay. Can you comment on just what kind of market share some of these new additions are bringing? Is it meaningful?

These new additions -- you mean the low-cost carriers?

Yes.

Lloyd, this is Deep. So Lloyd, I think they are expanding. There's only been expansion from really one airline meaningful, which is Indigo. As I shared, they had added a couple of -- 4 small aircraft, and Go had added a couple. But really, the significant expect expansion is from Indigo.

Yes, this shift is stored low-cost carriers, but then all of the full-service carriers also all now have actually a secondary brand which is their low-cost brand. So overall market shift has definitely been over towards the low-cost side. It's probably now 70% -- of the total seats flown, 35% are probably under low-cost brands, even if they are part of Air India or Jet Airways, but they are under low-cost brands.

So there has been more shift there. However, though full promise of low-cost is yet to be borne out. Pretty clearly, over the last two, three quarters, where fares have been high due to factor cost increases more than the fuel side, as well as the rupee/dollar depreciation has really kept the pricing pretty high. And taxation is really one of the key causes why the airfares are what they are today.

So we haven't really been able to see a lot of new consumers come in and fly at these fare levels. In fact, it's fair to say that a lot of people, as mentioned in my script, have actually stayed away from flying, particularly in the leisure segment. So I think the full benefit of this is yet to be seen.

Thank you, guys.

Manish Hemrajani, Oppenheimer.

This is (inaudible) in for Manish Hemrajani. Thanks for taking my call. I was wondering if you could provide some color around the [conjina bokin] behavior. Maybe it's changed because of the macroeconomic situation. I'm wondering if you're experiencing more of domestic [caverns and] shortcuts that you can sport some gains for us?

I caught the first part of your question. I will take that, and then ask you to clarify what you meant by this second.

I think presumably, as you would imagine, if I break it up between air -- or rather between transportation and accommodations. Soon the transportation side, people are obviously looking for more and more budget options, as just mentioned before. A lot of the leisure-only travel, as well as some degree of these small business travel, is actually saying away or trying to cut back on travel, given the current airfares, which have gone up, like we said, almost 30% on a year-on-year basis. So they are definitely keeping the discretionary travel and impacting that negatively.

And so a bit of that is moving towards rail, but as you know, in the holiday season, rail tends to be -- have a supply shortage, so there is a supply constraint out there.

I think in the industry, buses are actually picking a pretty smartly, and are picking up a lot of the travel which can't afford that rail side. So particularly in southern India and western India, we are seeing a good uptick coming from interstate bus travel. And what is working well for us is that a lot of that is actually moving online. I think we reflected that in our growth numbers on the bus side, operating percent year-on-year basis. And we think this is just the beginning of this interesting line of business.

On the accommodation side, again, people are looking for budget options. Guest house property is definitely doing very well. Other non-chain and three star and below property is doing very well, which is the sweet spot for us. And a lot of our growth -- as we dissect it, we look where it's coming from; it is indeed coming from the budget properties. And we think that's, again, going to be a trend we're going to see a lot of going forward.

I guess the budget properties, a lot of customers are actually touching more of them online. Most of the online customers tend to be value customers. And so it is a sweet spot to have budget properties as well as guest house properties on our side, budget customers looking for value deals.

Which you repeat the second part, please, of your question?

How much -- what is the mix between the budget hotels and the larger chains?

Overall in the landscape, I mean, for the industry, and we can comment on that, we're really not really reporting out our split the business, but if you look at the landscape, largely about 18%, 20% would be the independent to chain hotels by rooms and by properties that would actually be even more accentuated the difference. But there are the new properties going in now -- part of the Indian chains and some of the international chains. But it is heavily skewed in favor of independents, a lot of them being budget.

So budget is a nebulous definition; it depends on where you want to cut that. But let's say you want to cut that about at about $50 a night and below, the split would still be about maybe 70%/30% in terms of property.

Okay. And you said the bus ticketing would be a new transaction. How much of would that be as a percentage of your net revenue?

As a percentage of net revenue, it is very small at this point in time, just low single digits. But what we were trying to highlight was that you're getting transformation in terms of our transition growth, which was over 80% in the last quarter. So going forward, we expect it to become an important item on the overall revenue line.

Okay. And the last one from me. How much was the impact of the (inaudible) ranking holding back on your (inaudible). So how much of an impact on the numbers in the quarter?

So you don't really get anything of the blackout, which was thus far on line which was just for a week, and the other one was for two weeks. It was not really material from the overall quarter when it comes to overall net revenue on transactions. It did impact a bit, which is I guess, in part reflected in the overall net transaction growth. But as we mentioned earlier, in the month of June we saw that steady state coming back, and volume onto our overall market share close to about 11%.

Okay. That's it for me. Thank you.

Chad Bartley, Pacific Crest.

Thank you. I wanted to ask a couple questions around operating margin. I think it was about 10.5% in the quarter, down year over year from 12%; I want to make sure I'm looking at that correctly. And then how are you going to manage expenses and margins this year in this difficult environment? Is it still possible to expand margin, or should we be more conservative? Thanks.

I'm not sure you are looking at the right numbers. It's actually not down year on year. Year on year, same quarter, it was actually up. It was 7.8% last year, same quarter. And it is now 10.5%, as you rightly pointed that out.

I don't know if you are looking at the last quarter numbers. Last quarter we reported 12.4%, and from there it is down to 10.5%. But year on year, it is actually up. And that's the right way to look at it, just to cover the seasonality aspect of it.

And we do expect -- when you would look at the expense analysis, you would see the leverage last year come from year on year, pretty much every expense head, except the outsourcing costs as part of the G&A, as I mentioned earlier. Where we have (inaudible) for the future quarters, because you ramp up, typically, (inaudible).

In Q1 given it was the peak season and that peak -- the peak of that peak, which evened out in the subsequent quarters. So we do expect the leverage to continue. And report better margin, marginally better margin as we go along, and some improvement year on year as well.

Okay, thank you.

There are no further questions.

If there are no more questions at this time, I'd like to thank everybody for joining our call today. We'd love to see and hear from you next quarter as we announce our Q2 results. Thank you again for listening to our Q1 earnings call. Bye bye.

This concludes today's conference You may now disconnect.