MakeMyTrip Ltd (MMYT) 2014 Q3 法說會逐字稿

Welcome to MakeMyTrip's fiscal 2014 third-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 20-F filed with the SEC on June 13, 2013.

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

And now I would like to introduce the speakers from MakeMyTrip, Deep Kalra, Rajesh Magow, and Mohit Kabra.

Please go ahead.

Thank you, and welcome, everyone, to our fiscal 2014 third-quarter earnings call.

I'm pleased to share that MakeMyTrip continued its market share gains, as we lead in India's online hotel and holidays business during the reported high travel quarter.

I'm also happy to report a strong quarter performance despite difficult market conditions.

Our revenue, less service costs, grew to $28.5 million, representing a 42.1% year-on-year growth in constant currency terms.

As of December 31, over 36% of our total net revenue came from the H&P business segment on a nine-month year-to-date basis.

With rising Internet usage driven by rapidly growing smartphone and 3G penetration, we believe MakeMyTrip is well-poised to accelerate the growth in the H&P business.

Additionally, we maintained our market share in the domestic air ticketing business, which reached 12.4% in the month of December, despite higher fares during the peak travel season.

In Q3, MakeMyTrip continued to lead the online travel market with 9.4 million monthly unique visitors coming to our site, as measured by comScore, which was more than double that of our closest online competitors.

We are also excited to see the rapid shift towards mobile as one-in-five visitors access MakeMyTrip.com via our mobile platform.

In fact, our mobile app downloads have crossed 2.4 million thus far.

During the quarter, we saw Jet Airways and Etihad Airways close the equity partnership, while Air Asia India announced its intention to begin domestic flight operations by India's summer season.

The Singapore Air and Tata Group joint venture also announced it will begin domestic flight operations post the summer season.

Additionally, SpiceJet, a low-cost carrier in India, announced a partnership with Singapore's low-cost carrier, Tiger Air, to expand its reach into Southeast Asia.

More recently, promotional fares were also offered by the domestic carriers for advanced purchase during the ongoing seasonally-lean travel quarter, which we believe will help stimulate flying demand.

Similarly, we are excited about the prospect of more hotels coming to market, as domestic and international hotel chains confirm their plans to build more properties across India.

Marriott has started -- has stated that they plan on opening 100 new properties by 2017.

Likewise, IHG has partnered with a local developer to bring more Holiday Inns into the country over the next four to seven years.

A recent report from FDR Global has estimated roughly 360 new hotels in the pipeline for India.

In this report, they expect the upscale segment to have the most number of rooms in the pipeline, and also expect the mid-to-budget hotels to represent a significant share as well.

In addition, we continue to see strong growth potential for leisure travel to and from India, as regional air connectivity is expected to improve over time.

We also recognize the growth potential for leisure travel, not just to and from India in these ski upon destinations, but also travel within these regional destinations themselves.

As a result, we've been investing to strengthen our supply capabilities in Southeast Asian and Middle Eastern countries.

Our hoteltravel.com acquisition in Thailand is in line with our effort to address this growth potential.

Going forward, we'll continue to pursue organic and inorganic growth based around the fast-growing outbound business strategy.

The team at MakeMyTrip is highly encouraged by these long-term tailwinds that will provide growth opportunities for our business.

At the same time, we remain dedicated to improving our customers' delight, which we believe will allow us to sustainably maintain our leading market positioning.

I'd like to now hand the call over to Rajesh to give more color on our quarter's accomplishments.

Thanks, Deep.

And hello, everyone.

I would like to begin by highlighting our strong business performance during the high travel season quarter, even as we paid high domestic airfares and the impact of weak currency in certain segments of travel.

Our revenue less service costs grew 42.1% year-on-year on constant currency terms.

With our continued strategic focus, we are also pleased to report 50.6% growth in our H&P business, which has helped shift our net revenue mix to over 40% coming from non-air segments.

Our success is the result of continuous efforts to improve every part of the business, both operationally and from a personal focus standpoint.

We enhanced our contracting processes to obtain better deals that allowed us to deliver better value to customers across multiple channels, including last-minute options on mobile and slight lesser beds.

We also instituted our multimedia demand and supply forecasting tools, which allowed us to contract backups with air and ground supplies in order to more precisely meet customer's needs.

Apart from the 11,000-plus Indian hotel properties that we already offer on MakeMyTrip.com, with our hoteltravel.com asset, we've been able to expand our online bookable supply by over 144,000 international hotel properties in outbound leisure destinations, particularly in Southeast Asia.

During the peak holiday forecast, we leveraged our 500-plus home-based field agents known as MakeMyTrip holiday experts to cost-effectively expand our reach and drive holidays growth for those customers who still prefer to book off-line.

As part of our enhancing our customer reach, we have also started regionally customizing our ads, brochures and itinerary to better align with local and vernacular provinces.

During the peak travel quarter, our holidays seem delighted some of our customers by surprising them with birthday cakes, unexpected anniversary celebrations, Diwali gifts, and group or family photos.

In addition, our continuous focus on improving customer experience has resulted into net promoter score improvements.

However, despite all our successes during the quarter, we have witnessed the effects of a weaker impact on our outgoing holidays business, which usually carries a much higher foundation value and is therefore more price-sensitive.

Let me now move on to discuss our air business.

Whereas Deep mentioned, we maintained an industry-leading domestic air market share of 12.4% in the month of December.

In Q3, we logged very strong net revenue growth of 38.3% year-on-year, despite a very high air fare environment, which lowered the overall growth for discretionary domestic air travel.

Given the demand situation, we technically focus on optimizing margins during a period of higher average foundation value, and driving growth in the international flights business, a segment that is still primarily booked off-line in India.

In the quarter, we also integrated several new airlines onto our booking platforms to broaden customers' personal choice, including domestic regional carriers Air Costa, Malaysia's Malindo Air, and Singapore's Tiger Airways.

We also improved the content on our website to further drive online adoption of international air bookings.

For example, we now provide information on cancellation policies, baggage rules, and visa requirements to help alleviate customer concerns of overseas travels.

Now let me share the progress we are making on our mobile strategy.

Whereas already mentioned, we have achieved more than 2.4 million app downloads across all major mobile operating platforms.

Recently, we added international sites on our apps.

With this latest rollout, our customers are now able to book domestic and international flights, domestic and international hotels, and domestic bus tickets through our apps.

We are witnessing the rapid adoption of mobile usage, as approximately one-quarter of our domestic flights and hotel shoppers are accessing MakeMyTrip via mobile.

We also note that about 10% of our online domestic price, and nearly 20% of our online domestic hotel sales were booked via mobile.

We are pleased with our mobile results so far, and our team continues to innovate, to deliver users an even more engaging and more personalized experience, with relevant content delivered seamlessly across multiple devices.

Now, let me hand the call over to Mohit to share our quarter results in detail.

Thank you, Rajesh.

During the peak travel quarter of Q3, the MakeMyTrip team delivered a robust 42% year-on-year growth in the service costs in constant currency results which also helped the business return to profitability at an existing operating profit level.

Despite operating in a slow-growing economy and in an unpredictable air market, our financial performance in the fiscal third quarter was bigger than we had a anticipated, as we reported revenue and net service costs up $28.5 million.

Let me now elaborate on the financial performance in our various business segments.

Revenue and service costs from our agent ticketing businesses grew by [38.3%] year-on-year on year in constant currency terms.

This growth was delayed by our focus on driving the international ticketing business to move online while managing our overall air business for revenue growth.

As a result of this focus, as well as prevailing high airfares in the inner city market, the average transaction value in the air dividend business was higher by about 15% year-on-year in constant currency terms.

Of our air net revenue margins, also improved marginally from seven-point -- to 7.3% from 7% in the biggest quarter of the current fiscal year.

Moreover, transactions were lower on a year-on-year basis during the reported quarter due to higher airfare.

We were able to sustain our market share in the domestic air market.

We are also encouraged by the surge in transactions seen during the recently announced summer sale period last week, which we importantly now believe that there is good demand for domestic air travel and fares are affordable.

Now, I'd like to present financial highlights from our Hotels and Packages business, which continues to be a deemed family strategy focus.

Our revenue and services costs in the Hotels and Packages business grew to $11 million, which was [50.6%] of year-on-year revenue growth in constant currency, likely driven by overall year-on-year transition growth of 35% and 156 basis points implemented in net revenue margin from the same period in the previous fiscal year.

Our margin in the activity business improved from about 11.1% to about 12.6% on a year-round basis, and was largely in line with the margins as seen in the preceding quarter of this fiscal year.

The strong growth in domestic holiday packages let us continue the growth in our hotels business aided by increased bookings of international hotels, as well as served the softer growth in our outbound holiday packages, which was negatively impacted by the sharp application during this fiscal year.

With net revenues of about $1 million, our other businesses grew by [25.7%] in constant currency terms, driven by growth of travel insurance and bus ticketing.

For the fiscal third quarter, we are pleased to answer the Board registered operating profit of nearly $1.4 million.

We achieved this profit level where there is a strong revenue growth oppose the benefits from our costs translation sets.

As we had stated in the last quarter, we continued to invest behind our strategic initiatives by leveraging of a strong balance sheet and leading competitive positioning within the domestic hotel market.

These were largely additive toward the strengthening of the mobile offerings, strategic marketing, and technologies across our businesses.

Moving on to the outlook for the current fiscal year, from a (inaudible), we remain watchful of the persistent volatility in the rupee to dollar exchange rate, and the often changing domestic airfare environment.

Of all the achieved results indicated, fourth quarter of 2014, we were confident to improve our annual constant currency growth guidance to 24% to 25% of revenue less service costs at $99 million to $100 million for the current full fiscal year at an estimated exchange rate of INR60.39 for $1.00.

With that, we would like to open the call for Q&A.

Operator, please?

(Operator Instructions) Lloyd Walmsley.

A couple of questions.

First, just on the H&P segment, it looked like transaction growth decelerated a bunch.

And I think that's probably just lapping -- the first quarter lapping the ravel and ITC acquisitions.

And then, on the flip side, bookings per transaction, ex-FX, looked like a nice gain.

And then take rates kind of climbed up nicely.

Can you talk about those dynamics in the quarter?

And then how you see those going forward?

That's the first question.

And then, secondly, more kind of thematically -- wondering if you guys see mobile as kind of a leapfrogging opportunity where Indian Internet penetration can effectively accelerate via mobile, and help you guys on the booking front?

It sounds like you're getting nice bookings from mobile already.

But wondering at your thoughts there.

Yes, sure, Lloyd.

Let me take the first one and let Deep take the second one.

So your observation is right for the quarter.

Our H&P transactions grew to (inaudible) than expected.

So like I mentioned in the script, one of the travel segments got kind of -- got impacted from my perspective was our long travels.

Due to the rupee [position], especially long-haul and that had some impact on the overall translation growth for the H&P.

However, you know, that segment actually continued to grow, especially domestic hotels, and as well as domestic holidays, if you will.

So, there is -- if there was any less than expected kind of growth on transaction was only from the outbound travel segment.

As far as margin is concerned, so we've heard numbers of run on margins, S&P margins year-on-year has improved significantly.

It is in the resurgence they've been talking about.

So we've done quite well on that on the margin.

And we continue to probably do even better as we go along and as we grow our volumes.

So we are not necessarily overtly concerned about this little lower than expected translation growth on the H&P side.

As the overall macro condition improves a little bit as we go along, we will see translation growth coming back.

We've seen that kind of trend even on the air side, although the reason on the air side is more on the higher fares as well.

So, what tends to happen is when there are higher fares on the domestic side, the leisure segment does tend to get a bit more than the business segment.

And I guess that was the overall reason for the quarter, in the quarter, for the little lower-than-expected transaction growth on H&P.

And then just (multiple speakers) --

I'll take part two.

Sorry.

Oh, I'm sorry.

Just sticking on that subject, I guess, if you could just comment on -- it looked like ex-FX bookings per transaction actually increased.

What was behind that?

And I guess just thinking forward, how should we think about these different drivers going forward, in terms of transaction growth versus bookings per transaction growth?

You mean the booking value?

Yes.

Yes, so when you look at year-on-year, so this is definitely a high season quarter and a high transaction value quarter because of the seasonality, Lloyd.

But if you look at year-on-year growth, there is -- if you compare it to now last year same quarter, it was [380] versus [373] right now overall.

So, there is no real increase.

The quarter-on-quarter of course is increased -- that is increase in that because of the seasonality, and longer duration of the holidays in the travel season quarter.

And that's the reason behind that.

But we haven't really seen any other different or significant trend change on the transaction value.

But like I said earlier, on the overall transaction growth, I think we should see that coming back in the coming quarters.

With the mobile growth, I think -- and Deep will say more details about that -- we have seen new bookings fastening coming through the mobile channels, about 25% to 30% on these hotel bookings that are happening on mobile platform coming in from actually new customers who have never transacted online.

So that's a very encouraging sign.

So we definitely see that market opening up, especially the last minute hotel deals, which we are pushing through the mobile channel and we are very encouraged to see that trend happening.

And as far as the overall long-term holidays, as concerned the long-haul sectors are concerned, we will have to, I guess, see a little rupee -- a little more stability on the rupee side.

And in terms of overall market growing, historically, the trend has been fairly overt.

But as we see a little bit more stability on the exchange rate now we will see transaction growth coming back on H&P.

Hi, Lloyd, coming to the mobile question, and just in the hotel side, I think your comment on the lapping effect also has some impact, for sure, as you, like, rightfully pointed out the first quarter where we've actually seen that.

On mobile, I think you're right in saying that this is an interesting leapfrog opportunity for us.

Because if you look at the overall market, currently about the estimate by IMRB, which is a daily thing now, research form says about 205 million people are online are on the Internet.

And interestingly, about 100 million of them are actually mobile-only.

So this has definitely moved much faster.

And we were speaking to Google, which combines 97% share of the search market, and they were sharing with us that what they are seeing is that that stuff is not really growing, and all the new growth is actually coming from mobile.

As Rajesh pointed out, what's very interesting is that here we are seeing the strain, and then a lot of these users are not necessarily existing desktop users or erstwhile desktop users and new users, new customers altogether.

So we think this opened up a whole new market.

A lot of folks getting into their first jobs and paying for their first travel on their own are perhaps not going to the desktop at all.

Either they don't have a desktop at home, at office, they may or may not be able to use it for personal needs, but they all have smartphones.

So the growth in smartphone and 3G in the country is really the big driver, and then 4G going forward.

But currently, it's been driven by smartphone shipments, which are actually increasing every month, and this is a distinct opportunity for India to actually catch up on what has been a very slow broadband growth, as you know.

On our platforms, just to share, like I mentioned in the call, about 20% of our traffic is now coming through mobile.

And interestingly, some of the business segments have already seen a very high percentage of transactions coming to mobile.

So, domestic hotels, for example, is in the high teens already in terms of transactions.

Air is around the low-teens.

So, there is -- some of the lines of business are moving very fast from a transaction point of view.

Despite these obvious difficulties that one would face in terms of the smaller form factor, in terms of payments being a little more clunky, et cetera, but I think people are willing to overcome that just given the convenience and the anywhere/anytime kind of proposition in the mobile business.

Thanks, guys.

Thank you, Lloyd.

Manish Hemrajani.

Thanks for taking the call.

Good quarter, guys.

Air was strong again this quarter, better than what we had expected.

Can you dig a little bit deeper into the air market for the rest of 2014 and beyond?

And how do you see passenger volume growth panning out, and supply-side dynamics shifting in the air markets?

And if you could add some timelines around those airlines events expected to occur in 2014, that will be helpful as well.

Yes, sure, Manish.

So, yes, so we clearly had a great quarter on the air business, as you would have at least noticed as well as revenue growth is concerned.

You know, in terms of volumes on the transaction growth, the segment that has been growing where there was a lot more headroom and continues to be there, and in the coming quarters, we see growth particularly on that segment is actually India international air.

Because last quarter, international air is still booked off-line.

So maybe online penetration of the international air bookings is much lower than what it is for the domestic air.

And that segment is handsomely growing from -- and the driver is more not necessarily the overall market growing, as I mentioned earlier, because of the -- you know like how it's on holidays, these kinds of drop in the overall holidays business.

It is more from a transition some off-line contradictions that relate into online, because of the convenience and choice and transparency that we offer on the Internet.

So that piece is growing very well.

Domestic market, however, hasn't really been growing.

It's just been up and down; you know, small.

In some months you will see there is single-digit -- lower single-digit kind of growth on an overall industrial basis.

So there's some positive signs of growth kind of coming back, but other times I'm not sure it's kind of some kind of a sustained trend that is emerging out there.

And that is directly linked to the high fare situation.

I mean, for example, in this quarter, that we reported out, the fares were an all-time high once again, like [up 30%, 35%] year-on-year.

And that definitely has some impact on the leisure travel.

And therefore, it kind of impacts the overall domestic air transaction growth as well.

And the -- and what we don't see -- fortunately, did not see in this quarter getting impacted was our domestic holidays.

So, it seems like people have kind of been going with the automotive choices of transport if the airfares are very high.

So, that as far as this quarter goes, it's been the -- I guess some insight into that.

But going forward, in terms of positive news that is coming out from the sector, is about Air Asia.

We are all kind of waiting for their launch.

What we are seeing right now is industry discount, as we hear from the airlines and not necessarily from our timeline, because it's also a function of the final approval that they're waiting for, that they probably will start their operations in the coming summer, maybe around April, May.

But we would know only definitely when they have actually filed the (inaudible), which is [45 or 50] days before the launch.

So we don't really have any more visibility beyond that.

And, so as Singapore operations, it's been done.

The team has been operational again I think that it is a better kind of putting together all the team and the general operations, and the largest stake is all work in progress.

Not -- do not really have any clear visibility on when would they actually go live.

I think the first one to go out probably would be Russia and followed by Tata.

So that's where I guess is the estimate at this point in time.

So a couple of quarters down the line when they actually launch.

And that is going to improve the capacity, and that will have definitely some impact on the fares, as we are all hoping.

And that will definitely have a direct impact on the demand.

So, I guess we'll have to wait and watch in terms of some kind of a sustained trend emerging, as far as demand on air traffic is concerned.

You know, we did see -- like just to kind of further back, the comment that I just made on the high fares, when we see the fence sale that was led by prices and then everybody else then kind of followed and nibbled, and bought it, and even Jet Airways and Air India.

We did see transactions kind of coming back with handsome growth.

And that is clearly the testimony of the fact that there is demand at the right price.

And this time around they did it more than to believe the source.

This time around it was more 30 days, 60 days out advanced sales that were discounted, and that's the way to do an efficient revenue management.

So, if they continue to keep doing these kind of moves, and the -- when the capacity comes back, with the initial launch, and then followed by Tata, I think that is when we would be in a position to say with a lot of certainty that there will be a robust trend of demand coming back.

Okay, got it.

You also bought some inventory there this quarter higher than typical levels.

What kind of gross margin do you see on the pre-booked inventory?

And is this something that you intend to do going forward, especially in peak travel seasons?

So, Manish -- Mohit here.

And in terms of the -- I think what you see on the -- during the quarter, we typically tend to do a little bit of pre-buying or our inventory.

We stake out during the peak travel quarter for the key destinations.

So this is more like you know seasonal.

It is done -- kind of done really largely during times of peak travel quarters for key destinations.

But otherwise we don't really trend.

And you know in terms of overall take rates margins, these are largely in line with the overall margins reported for the holidays business.

Not too different for the packages offered on these inventory ones.

Okay.

Coming to your guidance and despite strong results in the quarter, your guidance calls for much deeper than typical sequential decline in the March quarter, especially given strong demand domestically in India, driven by airfare discounting off-laid by the airlines.

Are you being conservative here?

Or is there something that you're seeing out there when you read March quarter, which causes your guidance to be where it is?

So, no, Manish.

I won't say that we are being conservative.

I think this is our best estimate.

That's how we should predict.

Given that the market, the air market especially, is very unpredictable.

And the sale period was just for three days.

I mean, you know, so, what I was mentioning was that those three days you will see sudden spike in the demand, but then that's obviously not enough for the rest of the quarter.

Because we kind of then get impacted because 30 days out and 60 days out, then you would have to see what would be the impact at that point in time, 30 days out.

Obviously, we are booking during those days, which has been already booked in advance.

So, we have factored in all of those aspects, and come up with our best estimate at this point in time.

Given the overall macro is not necessarily very upbeat at this point in time, we just wanted to make sure that we factored all of that into before we go out and -- of our guidance.

Also Q4 tends to be generally a low travel quarter, and therefore you know that's kind of interfering in this business.

Okay, thanks.

That's all I have.

Thank you.

Chad Bartley.

Two questions from me.

First on air and ticket pricing, it seems that the gross booking per air transaction should fall slightly fiscal year 2014.

I know visibility is maybe difficult.

But I mean should we expect to see a steeper decline in air ticket pricing in fiscal 2015?

And then I'll hold my question on hotels.

Thanks.

Yes.

So it's kind of linked with, Chad, Air Asia launch, I would of thought, because more capacity coming in, as I was mentioning earlier -- more capacity coming in, more competition coming in the market, and their model is low-cost model.

And we will have to see their pricing strategy.

But we do think that when they come in and there is going to be definitely some rationalization on FAS, and that's what we are all hoping for.

Because that definitely kind of spikes the demand and it's good for the industry.

But from a timing point of view, our best estimate at this point in time is this is what we are hearing from the airlines is that they probably would be in a position to launch only in April or May.

I guess we will have to wait and watch.

But I would not expect any serious discounting happening before that.

Except you know if there is like a three-day sale that happened just a few days ago.

and that we don't know because that's normally decided like absolutely at the 11th hour.

So we would not know about that.

But typically we haven't really seen these kind of events happening more than once in a quarter.

Okay, great.

And then you talked about this a little bit, but I just wanted to be clear on your expectations.

So you talked about H&P being poised for acceleration going forward.

Is that transaction growth?

Is that H&P net revenue growth?

And what's that kind of timeline?

When would we see that?

So, we were never talking about it earlier.

I was referring to more transaction growth.

So the overall margin has been -- the story will continue.

I mean, we continue to see that we will improve our margin year-on-year on a full-year basis [some 0.5%] to 0.7% kind of a range.

Within the quarters, within the year, there could be different movements, but that's how -- and that could be because of various things, sometimes seasonality, sometimes special deals in a particular quarter, sometimes tactical moves, et cetera.

But you know, we definitely do see, even now which is in line with what we've been talking about in the past, on a full-year basis, we do see H&P margin improving.

It may be half a percentage point.

And still we probably hit 15%.

So that would be kind of our outlook on margin on H&P.

But we do hope that transaction growth to some extent should come back as well.

Okay, thanks very much.

Thank you.

There are no further questions at this time, but ladies and gentlemen, if you do wish to ask a question, (Operator Instructions).

Thank you, ladies and gentlemen.

That does conclude your conference call for today.

You may now disconnect and have a great day.

Thank you.