MakeMyTrip Ltd (MMYT) 2012 Q3 法說會逐字稿

Welcome to MakeMyTrip fiscal 2013 third-quarter earnings call.

The Company wishes to remind you that certain statements made on this call are considered forward-looking statements within the meanings 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 related 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 20-F 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 two-week replay.

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

I would now like to turn the call over to our host, Mr. Jonathan Huang.

Please go ahead, sir.

Hello, everyone, and welcome to our fiscal 2013 Q3 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.

Starting off the call today is Deep Kalra, Founder and CEO of MakeMyTrip, who will give us an update on the quarter.

Joining him is Rajesh Magow, or co-Founder and Chief Financial and Operating Officer, who will discuss our financial results.

Also with us 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 on the call over to Deep.

Greetings and thank you for joining at third quarter conference call today.

I'm happy to share that in the fiscal third quarter, MakeMyTrip.com continues to be the number one OTA the site in India, and as per December's comScore data.

Our total monthly unique visitors surpassed 8.5 million and we achieved more than 136 million page views on MakeMyTrip.com.

In the quarter we achieved revenue less service costs of $22.4 million, which was in line with our guidance and expectation.

However, we did incur a loss of $0.07 on an adjusted value to EPS basis as we continued to invest in changing our revenue mix towards more Hotel and Packages.

I would like to now give you color on each of our revenue lines, Hotel and Packages, Air and Emerging or Other segments, starting with Hotel and Packages.

As you can see, we had a very good quarter in our Hotel and Packages business, where we witnessed 68.2% growth in transactions over the same period last year.

In line with our strategy, we took it upon ourselves to drive more domestic hotel bookings online, which began with broadening our consumers' selection, improving their online shopping experience and ensuring customer delight.

We believe our comprehensive approach has continued to strengthen and increase loyalty towards the MakeMyTrip brand.

In Q3 we continued to broaden the selection for our customers and now offer over 10,700 domestic hotel and guesthouse properties.

During Q3, we also enhanced our consumer search and booking experience by launching the ability to book domestic hotels across our mobile platforms.

We are pleased to see high levels of engagement for hotels coming via our various mobile offerings.

To further their convenience, customers are now able to pay us upfront or at the hotel and are guaranteed a full refund if they see a mismatch in what was promised to them on our user-friendly website.

With some aggressive yet thoughtful strategic moves, we have strengthened our international offerings in Southeast Asia.

This is via our recent acquisitions of HotelTravel.com and ITC in November 2012.

I'm pleased to share that since the announcement we are well underway with the integration of over 12,000 of Hotel Travel's international properties, which can be booked online by our outbound international Indian customers.

At the same time, the integration of our domestic Indian hotels will offer hotel travel customers a comprehensive set of accommodations when they travel inbound into India.

With this focused drive, we grew the stand-alone hotel transactions by nearly 119% year on year during this past quarter, of which more than half the growth came from our organic domestic hotels business.

In the third quarter we launched the exclusive MakeMyTrip's Platinum Pick awards program for our partner hotels.

These are words recognized stellar performance by properties on the basis of our relationship and room bookings, in addition to great customer experience and feedback.

The awards for 2012 were well received and proudly displayed by many hotels.

We believe this recognition will help us drive deeper engagement with our hotel partners.

During this past holiday season quarter, more customers chose MakeMyTrip to book their holiday travel, which contributed to our strong H&P growth.

This was made possible partially because of our contracting team leveraging a strong relationship with our suppliers to create attractively priced domestic and international holiday packages.

Additionally, we improved and augmented the online content of our holiday packages, including inspiring destinations videos.

We harnessed the power of social networks to connect directly with our fans and made popular holiday packages bookable on MakeMyTrip.com.

As we lead the market in online holiday bookings, we will look to further improve the content shown on our site, standardize popular holiday packages and make more packages bookable real-time on the website.

Now let me move on to our Air Ticketing business.

The domestic airline industry continues to face capacity constraints due to one of the major airlines ceasing its operation, resulting in roughly 30% higher year-on-year fares and the overall market shrinking by nearly 9% in the third quarter.

Despite this, we have stay focused on enhancing customers' experience on our website and grew our Air transactions by 16% year on year.

For example, we launched a feature on the site that offers tips on the best day to book for the lowest prices.

Additionally, we improved the user experience for our international flight page to allow cleaner and easier display of information, such as baggage allowance and flight amenities, besides the ability to select different airlines for departure and return flight options.

Furthermore, I am delighted to share with you that we have reviewed our partnership with Air Asia, one of Southeast Asia's leading low-cost carriers.

This partnership will offer our customers another great option for their international flights in the region.

During the quarter, we increased our alliances with multiple non-travel partners to acquire new customers for MakeMyTrip and maintained our strategy of proactively managing discretionary fees charged to our customers.

These tactical approaches worked quite well and provided substantial gains in market share in the domestic air market.

Our Air Ticketing customers represented nearly 13% of all domestic passengers flown in the month of December, up from the 10.8% share we had announced last quarter.

Going forward, we will continue to innovate and make necessary investments to keep delighting and attracting customers to MakeMyTrip.com while balancing the discretionary fees charged to increase our revenue growth.

Now I would like to share the progress we have made on our intercity bus ticketing business, which registered very strong year-on-year transaction growth.

We believe that MakeMyTrip offers one of the most comprehensive coverage of bus routes in India, which was accomplished by partnering with many of the key bus operators in the country and making them all bookable through our desktop and mobile websites.

Going forward, this line of business will help grow our Other revenue line and provide us more cross-selling opportunity as we strive to be the complete travel solutions website for the Indian consumer.

Now, before I hand the call over to Rajesh, I would like to share some updates on our mobile offering.

Our mobile apps have been downloaded over 700,000 times to date.

We recognize the importance that mobile bookings will have in our business as more Indians are now accessing the Internet via mobile and the desktop.

In the past quarter we continue to invest in making sure our mobile offerings are the best in the market.

Our iOS app has been ranked the number one travel amp and the number two app overall in the Indian app store.

MakeMyTrip also won the EyeforTravel award for best mobile solution and best mobile strategy.

During the third quarter, we launched domestic hotel bookings on our Android and IOS apps, and we also upgraded our BlackBerry app.

Additionally, we launched the ability to book bus tickets through our mobile website and our apps.

In the coming months, you can expect us to roll out additional mobile features that will cater to the increasingly mobile Indian traveler.

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

Thanks, Deep, and hello, everyone.

The highlight of the quarter was our robust performance in Hotels and Packages.

During this peak travel quarter, we recorded over 68% year-on-year growth in transactions, which was supported by the strong growth in online hotel bookings and the consolidation of HotelTravel.com hotel transactions during the back half of the quarter.

As a result, on constant currency terms, our net revenues and gross bookings grew by over 52% and 67%, respectively.

Given the success of our previous efforts to drive more off-line customers to use MakeMyTrip.com, we saw a slight decline in our net margins to 11.1%.

As for our Air Ticketing business, as I am sure you all know, the Indian airline industry's challenges continued into Q3 and contributed to the dilution of our Air net revenue margins.

We focused on gaining share in the domestic air market and grew transactions by nearly 16% year on year while the overall percentage of markets shrunk by 9% in the last quarter.

However, our net revenue margin reflected lower commissions and incentives from our partners as domestic low-cost carriers contributed more towards our Air Ticketing business during the quarter.

Additionally, we continued to manage booking fees to grow market share, and that strategy also contributed to the dilution of net revenue margins, down to 5.3% from 6.5% in the previous quarter.

As Deep highlighted earlier, we will look to balance the fees charged in order to increase net revenues while possibly moderating our total domestic air market share.

Now, let's discuss our profitability.

Our bottom-line performance reflects the contracting air percentage of market, which continued to make transactions growth difficult.

During the quarter, our lower Air net margin directly impacted net revenue, which ultimately affected operating profits as certain semi-variable operating expenses could not be scaled down in the same proportion.

However, the high airfares combined with our focus to gain market share did result in higher year-on-year growth in gross bookings and transactions.

We want to emphasize that even as the industry remains turbulent, we are, as we have said all along, focused on building our business for the enormous opportunity that the Indian travel market presents.

Although we don't expect an immediate return to profitability, we are very optimistic about the future and believe you will see tangible results from our ongoing cost rationalization in the next fiscal year.

Lastly, we are maintaining our fiscal 2013 revenue less service cost guidance at $89 million to $91 million, at an average exchange rate of INR54 per dollar for the fourth quarter.

This reflects our assumptions of 13% to 16% net revenue growth on a constant currency basis.

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

Thanks, Rajesh.

As we enter the final quarter of the fiscal year, we believe the recent government announcement on aligned foreign direct investment by foreign airlines is a step in the right direction.

However, it is likely to take a few quarters before it helps resolve the air domestic industry issues.

We remain confident and excited about the vision we have for our Hotels and Packages business for the coming fiscal.

With the acquisition of HotelTravel.com, we are flying fast ahead of competition by offering Indian travelers increasingly more choice when they travel overseas and arming them with user-friendly tools, whether via desktop or via mobile.

We believe that the recent overseas investments we have made will accelerate our overall business mix more towards Hotel and Packages revenues, improve net margins and operating leverage.

We also believe that there will be better times ahead for the domestic airline industry as carriers gradually increase capacity, strengthen their balance sheets and innovate on pricing strategies to spur passengers to fly more in India.

Now, I would like to open up the call for questions.

(Operator instructions) Lloyd Walmsley, Deutsche Bank.

It looked like you had some strong gross bookings, particularly on the H&P side.

I was wondering if you guys can quantify how much of that came from acquisitions.

I think you gave us a transaction growth on an organic basis, approximately.

But in terms of gross bookings, can you quantify that?

And then, are the economics of those acquisitions any different, such that they may have been part of what impacted the H&P take rate in the quarter, such that it may be structurally a bit lower going forward?

Or, is that something specific elsewhere in the business?

So, just to answer your first question, bulk of our growth in this quarter actually has come from organic business in MakeMyTrip, and not a lot that has come from inorganic because we had only two months of numbers that got added from HotelTravel acquisition.

So we are not disclosing this figure, but I can tell you the majority of the growth came in from the organic business.

To answer your second question, the dilution in Hotel and Packages margins, I think, very briefly, we touched upon in the script as well.

What we tried to do was, as we were focusing on transactions growth, we did go out and give selective offers in the marketplace.

So there was no real dilution of margin that happened on the supply side.

So from the supplies, whatever we were getting was intact.

We just, in light of our focus to grow our -- grow transactions growth from an off-line market to online, we gave some selective offers in the marketplace.

And that kind of diluted a little bit of our margin this quarter.

Having said that, if you look at nine months ended margin, it is still in the range of 12% -- 11.9%, to be precise.

So you don't see anything -- you don't see it under pressure going forward, really; it's more discretionary?

No, not really.

As we have been growing our volumes, the growth of this kind of volumes, we don't see it getting affected from the supply side.

However, on the market side, on the demand side, we will have to, like I said, just to incentivize booking online as we see very strong trends emerging from the consumer side, the shift happening from off-line to online that we will continue on a selective basis.

But, we don't see any impact happening from the supply side.

Great.

And then on the Air side, just curious if you think Air take rates, or net revenue margins, stabilize around where they are now, or potentially even come up if you pass along more fees to consumers.

How should we think about those, looking out?

Well, that's a good question as well.

So this quarter, as you have noticed, we are at about 5.3%.

And it's a function of capacity constraint, higher fares, all the airlines particularly thinking too much on the focus on the bottom lines.

In terms of whether we will see going forward any upside on this margin, I would refrain from being very optimistic around it.

There could be a small upside here and there, but largely it is going to be around this kind of range, so 5.3%, 5.5% kind of range.

Great, thanks, guys.

Manish Hemrajani.

Thanks for taking the call, good performance on the Hotel side of the business.

Coming back to the question that Lloyd had on contributions from hotel travel, since you had only about two months of contribution there, how is the growth there compared to the overall growth in H&P for the Company?

So growth in hotel travel in this quarter was modest, but we do see a lot of potential because there's a lot of investment that we are making, integrating the two companies, exposing our hotel inventory on the HotelTravel site and vice versa.

So we are quite optimistic of the growth going forward on hotel travel.

But in this quarter, specifically to answer your question, it was modest growth.

If I can just add to that (multiple speakers) just to add to that, we, as I mentioned that we have seen the first kind of integration already, where a lot of those HotelTravel properties are now available for Indian customers.

We have also seen some of the other things when we had looked at the company, that there is a good possibility to exchange best practices and to cross-pollinate.

So I think some of the stuff that we have been doing has a very analytical approach on the supply side of hotels, us building direct connects and then working on the market management at a very detailed level.

We think that that is one of the areas where we will be able to see some of the upside coming in a few quarters ahead of us from HotelTravel.

Got it.

And are the margins there comparable to what you have on the MakeMyTrip site?

Yes, most of that (multiple speakers) same range.

And then switching to Air, what is your outlook for Air in the current quarter, given the price discounting we have seen in India of late?

Do you see a sustainable rise in demand in the past quarter, and do you think we could turn positive on passenger volumes overall for the industry this quarter?

So, Manish, I think on the macro situation, 2012 numbers came out.

Overall the year was significantly lower, one of the first years (inaudible) years where demand was lower than the last year.

The quarter, as I mentioned, was actually (technical difficulty) [9]% less than the same quarter last year.

We don't see the situation remedying itself immediately because capacity is not imminent except a few planes being added by some carriers.

The [FDI] comment made, as you might know as well, a lot of coverage in the Indian press.

It will probably take another few weeks, if not a month or two, to get -- I guess to finally see investment coming in.

And then we will see an enhanced capacity.

So I think we are going to have to wait a while.

In terms of MakeMyTrip growth, we have managed to grow transactions against the grain.

The growth in transactions of 16% was in the same light where, actually, the industry was 9% down.

We have been gaining share.

But, as mentioned by Rajesh, I think we are going to tactically be playing with convenience fee and the discretionary fees charged to increase revenue, which might have some impact on the share but should have only a positive impact on the revenue.

Got it.

So, talking about share, can you cite some of the factors that helped you gain market share here?

And should we expect to see further gains?

And where do you think your share could get over the next 2 or 3 years?

Yes; I think it's fair to say it was a combination of factors which have helped us gain share in this industry.

Obviously, overall, the move from off-line to online is helping all the online players, including supply direct, but I think some of the stuff we have done in terms of detailed features, functionalities which are helping the consumer, both habitual consumer.

Stuff like one-click checkout and InstaBook, as we call it, has been helping.

It has been a feature we released in the last quarter and we have seen a lot of traction out there.

Some of the features released this quarter have also helped a fair deal.

I think the [TIPS] program is actually seeing a lot of traction and consumers are obviously liking that, where they are being helped towards looking for a best fare or the product purchases.

Overall, a lot of hygiene factors on usability, I think, has helped.

So usability has definitely been the single most important piece, which has helped us in otherwise a pretty difficult climb as you are seeing a lot of suppliers going direct as well.

I would definitely owe it to that.

I think also our contracting team has done a good job when airlines have launched new routes.

We have definitely been very proactive about that.

There has also been a good increase we've seen coming from our mobile offering.

So I think mobile growth has been strong and is definitely helping in the overall pie, as well as flightless hotels is also picking up nicely.

And lastly, I think we are seeing fairly good repeat rates and loyalty in this segment, which sees fairly frequent purchases, at least by certain segments of travelers, particularly business and small and medium enterprise travelers.

We are seeing strong loyalty kicking in.

So I think, overall, these have really been the big reasons for the increase in share from 10.8% in the last quarter of the last fiscal to 13%, as mentioned in December.

Going forward 2 to 3 years, it is pretty hard to comment on shares.

But I feel confident we will hold on and increase our share over that time frame.

In this increasingly competitive market, not just by other OTAs, but also by suppliers with their direct offerings, we are fairly confident that we will continue to hold on, again, if not grow our market share.

Got it.

So most of the share shift has been from off-line to online.

Are you seeing some share shift from other OTAs as well?

Yes.

So I think that is probably not what I was intending to say.

I said, while the industry does move, so we've definitely gained.

Overall, the online industry has gained some.

But we have gotten more than our fair share, so it's hard to quantify.

We have definitely gained ahead of other OTAs on the basis of market reports and other inputs that we do get.

And if you look at traffic being a surrogate, and the traffic has definitely moved, our gains have been higher than competition.

Got it.

Last one from me -- you did do some buybacks last quarter, but I would have expected you to be a little bit more aggressive on that front.

given where your share price is.

What is the rationale there to hold back on getting more aggressive on the buyback front?

It's essentially a program which is -- we have put in place a program and we have got the threshold levels.

So, once the program is actually part of an automated process and it's also a balancing that we do internally between cash, which is critical as the industry goes through a tough time.

And again, we believe that fundamentally the share price is going to move up with performance, and the buyback is but a temporary pop-up in difficult times.

So, fundamentally, I think we are going to use that instrument with discretion.

If I could just add to that, Manish, we also have given our trading volumes.

We actually have an actual type of -- as part of this program that's how much maximum can you buy on a date.

So we have been constantly -- keep looking at what our volumes are, how the average is moving and all that.

And we keep moving at the right and appropriate time, wherever we think that we've got to intervene and do more buybacks.

And we will -- as we go along, we will continue to do that as well.

Got it.

Thanks, that's all I have.

Molly Branch, Pacific Crest.

Hi, this is Chad.

I wanted to ask a couple questions.

Can you talk a little bit more about your efforts to reduce cost and how soon that could help maybe improve profitability?

And then, as we think about fiscal 2014, should we think about margin more in line with fiscal 2012 levels, or is that essentially too aggressive at this point?

On the cost rationalization side, a couple of areas that we are looking at very closely, and pretty much an ongoing effort.

So we, across the board, keep looking at, as we have been highlighting in the past as well, opportunity for automation wherever possible just to make sure that on the fulfillment side especially that we keep moving.

Customers are online increasingly.

We started with domestic air and we have been moving from segment to segment, to international air, to hotels in terms of just taking care of their requests.

So whether they are refunds or cancellations or any kind of general queries, etc., addressed online so that you don't have to really hire people in those areas as we grow our business.

So that has been a continuation and contributed -- that has been an ongoing effort which has been there for the last couple of years.

And we have been also aggressively looking at those opportunities.

And besides that, we have also looked at, given our B-to-C market share on the domestic air side grew fairly robustly.

You know, overall market shares are touching at 13%.

And the fact that the margin overall on the air side has diluted, we have revisited our B-to-B air strategy and ramped that down, which had a certain number of people supporting that business, that channel, because we don't now believe that reaching out to those customers or expanding or growing a truly B-to-B channel would be important going forward, as we see that the B-to-C growth has been fairly robust.

So we have looked at that specific area besides the ongoing, like I said, automation initiatives.

So effectively, in the cost line items of looking at people cost and looking at SG&A specifically, and within SG&A outsource cost specifically as well.

In terms of operating profit margin, for the next year, as you know that we have not really been guiding the market on the operating profit side.

So I would refrain from giving any kind of a general guidance on that.

We will keep it limited to the revenue guidance, and that is what we believe at this point in time that we would like to share.

And I guess you will have to watch out for another quarter and see the trend, how are we doing on profits, and then estimate the operating margin going forward.

Okay, thank you, guys.

I would now like to turn the call over to management for closing remarks.

Thank you for joining our fiscal third-quarter earnings call today.

We look forward to speaking with you on the next quarterly call in May.

Thank you, everyone.

Thank you, all.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and have a good day.