MakeMyTrip Ltd (MMYT) 2012 Q2 法說會逐字稿

Welcome to MakeMyTrip's fiscal 2013 second-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 this information to reflect changes in circumstances.

Additional information considering these statements is contained in the Risk Factors and Forward-Looking Statement section of the Company's Annual Report on Form 20-F filed with the SEC on June 25, 2012.

Copies of these filings are available from the SEC or from the Company's Investor Relations department.

The Company will be recording today's conference, 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 conference over to our host, Jonathan Huang.

Please go ahead.

Thank you and hello, everyone and welcome to our fiscal 2013 Q2 earnings call.

We will be using certain non-IFRS metrics, which are reconciled with IFRS metrics in our press release tables.

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.

We also have Rajesh Magow, our Co-founder and Chief Financial and Operating Officer, who will elaborate on our quarterly financial results.

Also, on the call with us is Keyur Joshi, our Co-Founder and Chief Commercial Officer, who will be on hand to answer any questions that listeners may have today.

Now let me hand the call over to Deep.

Hi, everyone and thanks for joining us today.

In fiscal Q2, the Indian domestic airline industry faced a difficult operating environment as air capacity remains constrained, which led to the continuation of the significantly higher airfares seen in Q1.

During the quarter, average airfares remained higher by more than 30% year-over-year, which adversely impacted the demand for air travel.

As a result, the industry witnessed a decline of over 10% year-over-year in total domestic passenger traffic per the DGCA's report.

This recent industry trend also impacted MakeMyTrip as we experienced a decline in air transactions for the first time since we began our Indian operations.

However, despite the tough domestic air environment, we were able to sustain our marketshare of 10.8% as per DGCA data.

On a more positive note, let me now provide an update for our Hotels & Packages business in the fiscal second quarter.

We achieved transactions growth of nearly 47% year-on-year despite the general slower growth environment in India, largely owing to the strong growth in standalone hotel bookings.

Our comprehensive strategy is to penetrate the predominantly offline hotel market in India for the last few quarters.

Including our new 3.0 hotel site expansion of hotel inventory and smart brand positioning has yielded encouraging results.

As a result, we recorded 60% plus growth year-over-year year in standalone hotel transactions.

Furthermore, we also experienced sequential growth in the number of hotel transactions from the seasonally strong fiscal first quarter into Q2, validating the momentum we have achieved in changing Indian travelers' habits to book hotels online.

To ensure our dominance over the long term in Hotels & Packages, we continue to make aggressive investments in growing that business.

The most recent evidence of that was when earlier today we announced our biggest acquisition to date of HotelTravel.com, a significant (inaudible) in the Southeast Asian market.

This move will accelerate our shift in revenue mix towards Hotel & Packages.

By integrating HotelTravel.com, we will further expand and strengthen MakeMyTrip's presence in Southeast Asia, which is a key overseas market for Indian travelers due to reasons of proximity, attractive airfares and hotel tariffs.

This region has become one of the fastest-growing online hotel markets in all of Asia-Pacific with its total hotel market size worth $15 billion in annual bookings.

By acquiring HotelTravel.com, we will have access to approximately 80,000 global hotels with a strong concentration of those properties located across Southeast Asia.

We will leverage the continued use of friendly scalable content-rich technology and multilingual platforms to further expand our hotel offerings for MakeMyTrip customers so that they can shop and complete international hotel and holiday bookings online.

In the quarter, our team introduced customer-friendly innovations like last-minute deals and opaque hotel offerings.

We also rolled out the (inaudible) hotel model to more hotel partners and upheld the money back guarantee promised to our customers.

Additionally, our contracting team further expanded our online domestic hotel offering to over 10,300 domestic hotels and guest house properties across all [star] categories.

Going forward, more budget properties will be added through our ongoing integration with MyGuestHouse.com.

In our holidays business, we continue to rely on consumer insights, focused targeting of customers and identifying the right destinations to drive business growth during the typically slow travel season.

We also made further progress to drive our holiday bookings towards the online channel by improving our inventory systems and further enhancing our customers' online shopping experience.

As an example, our website can now recommend alternative hotel packages to shoppers when their original packages searched are not available.

We also began displaying multiple deal options on the listing page of holiday packages, which has led to improved conversion.

As we continue to make these incremental and useful changes to our website, we believe conversion rates will improve and continue to migrate more customers online.

Let me now share with you yet another innovative feature, which is the first of its kind in our market.

We are very excited to announce the launch of RoutePlanner earlier this week.

This new tool will enable customers to plan their trips anywhere in India by combining multiple modes of transportation across 4300 Indian cities and towns.

Domestic travelers today have more than 2000 flights, 65,000 bus routes and nearly one million trade routes to choose from and therefore, finding the best modes of travel is not always simple.

RoutePlanner will help travelers evaluate millions of combinations for any city (inaudible) and rank them on the basis of schedules, price, distance and convenience to finally recommend the best route options.

For example, let's say you want to go from Bangalore, which is the nearest technology hub, to Badrinath, a holy place in the Himalayas, our RoutePlanner will help you plan your journey with a combination of train, flight, bus and/or car schedules.

We believe this patent-pending technology will revolutionize how Indians can plan their travel utilizing multiple forms of transportation across billions of possible combinations all in real-time.

More broadly, we have also been investing aggressively in other areas of technology, in particular our mobile offering.

Recently, we added the ability for our customers to book domestic hotels and shop for holiday packages through our mobile site.

Since this new functionality launched in early October, our mobile customers have booked more than 800 hotel stays to date.

To further expand our mobile presence, we have also launched a holidays app for the Windows 8 operating system, which was showcased by Microsoft during their recent launch.

As an increasing number of Indians access the Internet through their mobile devices, we wanted to ensure MakeMyTrip and our suite of travel products is available across all mobile platforms.

We have been constantly upgrading our mobile website, IOS, Android and BlackBerry apps, by adding new capabilities to ensure all our mobile customers have a similar experience regardless of which mobile platform they choose.

As a result, we are very excited to see that today more than 10% of our total flights purchased take place through our various mobile channels.

Looking forward, we want to bring the capability to book bus tickets and last-minute hotel deals while continuing to increase the number of bookings for flights and hotels through the mobile channel.

Now, I would like to hand the call over to Rajesh as he will share more details of our financial performance in Q2.

Thanks, Deep and hello, everyone.

As highlighted by Deep in his speech, our results for this quarter were clearly impacted by the overall weak domestic air industry environment.

For the quarter, our air transactions were down 9.8% year-on-year as demand for domestic air travel weakened on the back of much higher year-on-year average airfares.

However, these high sales resulted in higher gross bookings growth of 25% in constant currency.

This high growth of advanced bookings was offset by the decline in our net revenue margin to 6.5%, down from 7.8% a year ago and the resulting net revenue growth was about 5% in constant currency year-over-year.

As mentioned earlier, our margins were lower during the quarter as we strategically utilized part of the net revenue margin to sustain our domestic air marketshare of roughly 11%.

As you may have also noted, in our release, our Hotels & Packages business continued to perform well with transaction growth nearly 47% led by the robust trends in our standalone hotel business and resulted in net revenue growth of 51% year-on-year on a constant currency basis.

We were also able to maintain healthy net revenue margins of 12.5%, which was an improvement from the same period last year as we continued to expand our business and relationships with our suppliers.

Lastly, our other revenue segment saw a decline in the sale of rail tickets due to the introduction of one-time password imposed by the supplier site, IRCTC, where the success rate was low.

From a profitability standpoint, we were able to manage our expenses well enough to record better than breakeven in adjusted operating profit despite a lower-than-expected Internet revenue.

During the lean travel quarter, we reduced our personnel expenses, excluding share-based compensation, by nearly 5% and marketing spend by over 20% sequentially from fiscal Q1.

We continue to explore and invest in automation to optimize our operating costs and at the same time continue to make the appropriate long-term investment to change the way our customers book hotel and holiday packages.

Now, before I hand the call over to Deep, I would like to share with you our updated guidance.

While we are encouraged by the government's recent positive announcements to boost growth and support the aviation sector, we believe it will take some time before the capacity and percentage of traffic growth comes back to the earlier levels.

Therefore, we are revising our constant currency net revenue growth guidance to 13% to 16% or $89 million to $91 million at an exchange rate of INR54 per $1.

Now let me turn the call back to Deep for his closing remarks.

Thanks, Rajesh.

We remain confident that the long-term outlook for aviation in India remains bright as the demand for air travel at the right price point certainly outpaces the capacity available today.

At the same time, our vision at MakeMyTrip remains on track as we strive to earn cash on the huge opportunity in the domestic and regional hotel and holidays market that still primarily books offline.

We believe that unwavering focus and our ability to make strategic investments that our competitors cannot match will further widen our lead in the marketplace, provide us with sustainable success and create long-term value for our stakeholders.

Thank you for listening in today and we would now like to begin the Q&A session.

Operator?

(Operator Instructions).

Lloyd Walmsley, Deutsche Bank.

Thanks.

I was wondering if you guys can talk a little bit about where you sacrificed margin for marketshare.

Was that kind of passing along lower fees to consumers or taking lower fees from airlines?

And then how should we be thinking about air net margins in the second half of the fiscal year?

And then as you look out longer term, what gives you comfort that capacity is going to be coming back or that airlines are going to continue to be comfortable operating at losses or do you think there is just some structural shift whereby they are going to generally be more profit-focused going forward?

Okay, I will take that, Lloyd.

So Lloyd, I think -- so we didn't take any cuts in what we got from the airlines.

We took what we could get and negotiated hard being the market leader with almost 11% marketshare and with some of these airlines even higher.

We did, however, pass on some part of that tactically and otherwise to the consumers when we did notice that there were competitors who were heavily discounting.

We still managed to command a small premium on price and managed to, like I mentioned in my speech, that we did manage to maintain and slightly improve our marketshare at 10.8%.

So that is effectively how we did pass on some part of the total take rate, the gross take rate to our customers.

In terms of the operating environment in capacity, there have been distinct signs that the government has opened up the aviation sector for foreign direct investment.

They actually declared that open, so we do expect to see some of the healthier airlines actually get much wanted capital.

Domestic capital was obviously not able to come into some of these airlines and in some cases, this would be strategic capital from other airlines.

That is a very typical model that the airlines all around the world and we understand that talks are underway with multiple airlines.

So we expect to see some of that (technical difficulty) that will help more capacity come in.

At the same point, a couple of airlines have been expanding, albeit slowly.

The market leaders, IndiGo, have been adding planes about one a month.

Some of the other airlines also did add a couple of planes in the last few quarters and continue to do so.

But we suspect that, given the mismatch between demand and supply, we will see more planes come in.

We will also see a rationalization of pricing when that happens.

Sometimes the data are already apparent with advanced purchase fares becoming pretty common in the industry and we think that is a good sign because leisure travelers typically plan their travel well in advance and they will be able to take advantage of these lower airfares.

So we think that is going to be a positive sign and I think, looking forward, it is hard to say when this will start, but if we were to take an outlook of the next three to four quarters, we are definitely going to see the air industry get back to much healthier rates, not only for the suppliers, but for all players in the ecosystem.

Thank you.

(Operator Instructions).

Manish Hemrajani, Oppenheimer.

Yes, hi, thanks for taking my call.

Given that you have cut your outlook to about $89 million to $91 million, what is the confidence level you now have to make that lower end of your guidance?

Hi, this is Deep.

Obviously, revising the guidance downward is not something that we were very happy to do, but it is really a reflection of what is happening in the marketplace.

I think some of the industry headwinds, particularly on the air side, have hit us hard and air still being 70% of our product mix, of our revenue mix, that has had an overall adverse effect on overall growth.

That being said, and just for a minute, the overall growth is a reflection that the rest of the segment, which is really the key Hotel & Packages segment, is actually growing and growing very well, so we are happy with that.

And keeping that growth momentum in mind and factoring in fairly temperate growth on the air side (technical difficulty) confident on the guidance that we have given and we should be able to meet that and that is how that has been baked in actually.

Okay.

And then can you talk about the acquisition?

First off, can you explain the rationale behind this purchase and how much of an overlap is there between your Web properties and hotel travel?

So the (inaudible) or rather the rationale is the following.

We see very strong growth, as you are aware, of Indians traveling overseas and within the overseas market, it is Southeast Asia, which is extremely attractive because of proximity, because of low airfares.

A lot of low-cost carriers now are flying between city fares between India and various parts of Southeast Asia, whether it is Bangkok or Singapore or Kuala Lumpur and also because of the a lot more hotel capacity in these parts of the world, particularly Thailand and Malaysia, we see fantastic hotel deals also being available.

So this is really taking a lot of the Indian customers to Southeast Asia.

Air travel has got a fantastic footprint in terms of Southeast Asian properties.

Our (inaudible) properties off the 80,000 properties where they have inventory out in Southeast Asia and in fact, they have content on 150,000 properties, so we think that is going to be a perfect fit for a lot of our customers.

We also think that our Indian properties, 10,000 plus, will be a good fit for some of their customers.

Also, in addition to that, I think it is important to bear in mind that the APAC -- within the APAC region, which is the fastest growing region for hotel growth, it is actually Southeast Asia, which is outstripping the rest of APAC and is now set to emerge as the third-largest market, hotel market, online hotel market in APAC after Japan and China.

So I am going ahead of Australia and New Zealand.

So that is one of the reasons why we are very excited about this market.

Not only its inherent growth offset market, but the fact that a lot of Indians are choosing to go there for their holiday, as well as for business needs and we think we can leverage that.

In terms of (inaudible), frankly, it is only for a small section of the Indian hotels.

They have Indian content, but it is only for the perhaps maybe a couple thousand hotels, 2000 to 3000 hotels.

The rest of it are all unique properties, so really 95%, 97% of the combined properties are entirely unique.

So we see this as very complementary to our strategy to grow the hotel market in the region.

Got it.

And I apologize if this has already been asked, or you already explained this, what is the current net revenue run rate and what kind of revenue contribution one would expect from them for '13 and '14?

We are not actually disclosing that at this stage.

Them being a private company, we are not disclosing that right now.

Can you throw some color around their metrics in terms of RevPAR and margins?

So if I can take that, so like Deep mentioned, at this stage, we are not -- in this quarter, we are not.

It is actually not that material when it comes to the revenue contribution to the overall number.

Hence, we are not going to be disclosing some of the revenue or other metrics at this point in time.

As we go along here and it becomes material, we would be coming out and disclosing that.

Got it.

And then one technical question.

You are using cash plus shares.

Is that based on yesterday's closing price?

No, it's not yesterday's closing price; it is actually 30 days average, the last 30 days average.

We thought we should (inaudible) average here.

So as of yesterday, the last 30 days average?

Yes.

Got it.

Thanks.

Chad Bartley, Pacific Crest.

Hi, thanks very much.

I wanted to ask about the financials of HotelTravel.com, but I understand you don't want to disclose that now.

So maybe can you talk about just hotels in general and the competitive landscape and if there has been any change in kind of the players you are seeing out there or your marketshare within the Hotel segment or how you guys feel about that going forward?

Yes, sure, Chad.

So Chad, a very broad understanding, it is very hard to get specific data on the hotel market out here, but we have triangulated various data points (inaudible) hotels.

There were some third-party reports which covered a fairly good-sized sample of the hotel bookings.

We believe that about 5% of all the hotel bookings in India moved online now, including (inaudible) and Supply Direct and we think Supply Direct is probably about a little less than a couple of percent (inaudible) OTA.

And within the OTA market, we believe that we have got about a two-thirds share.

So we think we broadly have about 2 percentage points, another percentage point with the other OTAs in the market and then a couple of percentage for Supply Direct.

So really the key point here is just tons of headroom which exist in this market and the fact that it is now beginning to move online pretty well.

We are seeing traction both in terms of transaction, as well as take rates and a lot of small hotels -- now actually the push factor has changed to a pull factor, so we see a very healthy kind of response to our market-making efforts with the hotel suppliers.

Okay, thank you.

And a quick follow-up, as far as multinational OTAs, companies like Expedia, for example, coming into India, are they focused more on air or hotel or both and are they part of the competitive landscape that you are thinking about?

Yes, there are a couple of multinational companies like Expedia is here.

Their focus has been more on the hotel side of the market, although they do have an air offering, but it is also most of their customers and the transactions that they are doing are still for the international customers coming into India, so the inbound market.

The domestic market for them we understand is still smaller and this is based on what we hear back from the hotels.

Both Booking.com and Agoda also have hotels in India contracted and again, it is likely serving their markets, the European and Southeast Asian respectively.

Travelocity does have a small presence in the market and they are the only ones who have been looking at the air market as well.

But we see less and less of them and more of Expedia and the others in the market.

All right, thank you so much.

At this time, we have no further questions.

I would like to turn the call back to Mr. Jonathan Huang for closing remarks.

Thank you, everybody, for joining our call today.

We look forward to speaking with you next quarter on our fiscal Q3 earnings call.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a wonderful day.