MakeMyTrip Ltd (MMYT) 2014 Q4 法說會逐字稿

Welcome to MakeMyTrip's fiscal 2014 fourth-quarter and full-year earnings call.

The Company wishes to remind you that certain statements made on this call are considered forward-looking statements within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future performance and by their nature are subject to inherent uncertainties.

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 are contained in the risk factors and forward-looking statement section of the Company's annual reports 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 fourth-quarter and full-year earnings call.

I would like to start by thanking my colleagues at MakeMyTrip and our business partners for their contributions and support this past year.

During fiscal year 2014, we made significant progress on our key strategic objectives.

These include rapidly improving our revenue mix towards sales and holiday packages, accelerating our presence on mobile and integrating the recently acquired businesses to drive synergies within the group.

It is noteworthy that we did not waiver in our long-term strategic focus despite the challenges presented to us in a volatile airline industry and uncertain macro political environments.

As we enter fiscal 2015, we are confident that we nailed long-term growth prospects as the newly elected single-party majority government should bring about the much-needed close reforms through faster policymaking.

We also remain optimistic on domestic and outbound travel growth, the indivisible rise of Internet penetration and the resulting adoption of e- and m-commerce in the country.

We will therefore continue investing and executing on extending our market leadership in online travel in India over the long-term.

In fiscal 2014, we achieved $1.26 billion in total gross bookings and reported more than $106 million in net revenue, or revenues at service cost, which represented growth of nearly 32% year on year in constant currency terms.

Additionally, we improved our net revenue mix to 41.7% contribution from our non-air services, a material improvement from 35.6% mix in the last fiscal year.

In the fiscal fourth quarter, we also announced the acquisition of EasyToBook.com, based out of Amsterdam and Tel Aviv.

This acquisition was further broadened by inventory of hotels outside India, provides synergies and online hotel technology development, and fosters increase customer travel between India, Europe, and Southeast Asia by leveraging our HotelTravel.com asset.

Now let me share the progress we've made with our mobile strategy.

To date, we have seen more than 3 million downloads of MakeMyTrip apps, which have full booking capability of flights, hotels, and bus ticketing across all major platforms.

To date, mobile accounts for more than 19% of our monthly unique visitors and 15% of online transactions.

In domestic flights, mobile bookings account for 15% of total online transactions, while standard hotel bookings from mobile represents 27% of total online domestic hotel transactions.

The [latest postcards] by IEMAI makes the total Internet users in India at nearly $240 million, with mobile Internet users accounting for more than [three quarters] of that number.

We believe that the run rate for mobile growth is long, and we have consequently made mobile an important strategic priority the business.

We will continue dedicating more effort and resources towards enhancing our mobile users' experience.

As an example of our progress, we launched our first major app on the Android platform in mid-March, which was followed up by a IOS native app launched this past week.

These native apps provide a smoother user experience, increased personalization, and allow faster access to relevant information.

I would now like to share some positive [developments] in the air industry.

Two weeks ago, Air Asia India received the final approval required to launch an airline in India, i.e.

the air operator permit from the DGCA.

It also appears likely that the other new entrant start-up in the (inaudible) should receive its air operators permit shortly.

We believe the launch of two new domestic airlines will help bring down the country's expensive air fares and stimulate air travel demand within India.

At the same time, we are cognizant of the fact that it may take a few quarters before we see any material effects from these developments on our business.

In closing, I would like to share that within our most recent public equity and capital fundraising, our balance sheet is now stronger than ever.

These incremental resources will allow us to choose the right investment in the business for our customers and to pull further ahead from competition.

Now Rajesh will share some highlights from the past quarter and fiscal year.

Thanks, Deep, and hello, everyone.

As Deep has shared, our year in the fiscal fourth quarter and full year we delivered strong operating and financial results despite facing difficult and volatile operating conditions.

Our sharp customer focus and execution speed continues to help us stay ahead of the market and maintain our leadership position.

In the seasonally slow fourth quarter, we achieved year-on-year revenue in best service pass-through of 45.1% on constant-currency terms.

This performance helped us by (inaudible) full-year revenue less service costs (inaudible) $106.4 million, representing growth of 31.6% on constant-currency terms, which exceeded our guidance and internal plan.

While our accomplishments reflected stronger-than-planned performance across our product portfolio, our results also reflected our acquisition of EasyToBook.com during the quarter.

In Q4, I am pleased to share that our strategically important hotels and packages business grew year on year by nearly 70% in [production] and by 54.6% in its revenue.

This strong performance resulted in full-year (inaudible) growth of over 50% in both transactions and constant-currency net revenue terms.

For the full fiscal year 2014, the contribution from H&P rose to nearly 37% of total net revenues and improvement from 31% contribution a year ago.

This continued improvement in the mix away from air ticketing will help insulate our business from the volatility in the air markets.

Let me now share the progress of our (inaudible) domestic and international standalone hotels business.

On domestic hotels business front, we continue to improve online content, enhanced the experience on the booking front end, analyzed and improved smooth experience on the mobile platform, all of which helped drive volumes within our domestic network of 11,400 hotels.

On the international hotel side, we further expanded our international hotels portfolio by our acquisition of EasyToBook.com, through which we now offer customers over 170,000 properties outside India.

We believe our customers across all of our portfolio brands will benefit from the increasing choice in hotels, which they book with us especially when it is for travel to and from Europe, India, and Southeast Asia.

In our holiday packages business, we continue to see high growth during the quarter for domestic holiday travels; then outbound holiday travels, which is in line with the seasonality trends in the holidays business.

The packages business remains a large part of our H&P business, and we continue to innovate to move holiday bookings online and offer customers new, desirable destinations on leisure travel.

Now let's move on to discuss our air ticketing business, where we continue to retain an industry-leading domestic air market share of (inaudible) at the end of our fiscal year.

During Q4, Internet revenue grew by 39.1% year on year as we improved the net margin (inaudible) even though year-on-year transaction growth was a challenge due to persistence, high domestic airfare, and [line-up].

However, special off-season low fares offered by domestic airlines during the quarter did help drive quarter-on-quarter transaction growth.

During the last fiscal year, while the domestic air market growth was in the low single digits, we continued to see good growth in the largely off-line and [passenger] air ticketing business.

We have driven this growth by investing behind creating a superior online shopping experience.

For example, we now provide (inaudible) on travel visa requirements as our most strategic (inaudible) of the international side booking (inaudible).

We also launched an online cancellation tool for international air tickets to address a long-standing customer need and believe we are the first Indian (inaudible) to offer such a feature.

In summary, we are happy with our achievement for the fiscal year.

We have set forth in our mission to transform may point this business toward a greater share of hotel and holidays and successfully delivered on this [goal] in 2014.

In fiscal 2015, we will be working relentlessly to leverage our mobile platform to drive the next phase of growth for the group and make more progress in changing our product mix in favor of hotel and holiday business.

Let me now hand the call over to Mohit to share our quarter results in detail.

Thank you, Rajesh, and hello, everyone.

In Q4, the MakeMyTrip team delivered net revenues of $28.5 million.

Our net revenue for the full fiscal year was better than internal plans at [more than $6.4 million], representing a constant-currency growth of 31.6%.

I'll now elaborate on the financial performance across our key business segments.

For the full fiscal year, net revenue from the air ticketing business grew by over 21.1% year on year in constant-currency terms, and this was largely driven by an expansion of 60 basis points in [net] margins from 6% of the last full fiscal year to 6.6% in the current reported fiscal year.

For the quarter, net revenues from the air ticketing business in Q4 grew by 39.1% year on year in constant-currency terms.

This growth was largely a result of the air margins improving from 5.3% in Q4 last year to 6.4% in Q4 this year.

However, this was a drop from the 10.3% air margins reported in Q3 of this fiscal year.

Now, I would like to present the financial highlights for our hotels and packages business, which continues to be the business of strategic focus how we make [magic trips].

Our revenue and service costs in the hotels and packages business stood at $40 million for the full year, which represents a [54.1%] growth year on year in constant currency terms, and this growth was largely driven by 53.1% growth in transactions.

The transactions growth was fueled by nearly 70% growth in the stand-alone hotels business.

In Q4, our revenue by service costs from the agency business grew to over $11 million, which was also a 54.6% year-on-year growth in constant-currency terms.

Again, the growth was largely driven by year-on-year transaction growth of 69%.

Our net margin in the agency business stood at 12.1% for the fourth quarter and at 12.6% for the full year, which is an improvement of 60 basis points over the last full fiscal year.

With net revenues of about $1.4 million during the quarter while our other businesses grew by 49.7% in constant-currency terms, driven by the growth of travel insurance business.

For the full year, other business grew nearly 26% year on year in constant-currency terms (inaudible) due to the growth in (inaudible) travel insurance products to our customers.

For this fiscal fourth quarter, we quoted an existing operating loss of about $1.3 million, in line with our internal plans.

For the full fiscal year, we managed to (inaudible) our existing operating loss of $3.5 million below the (inaudible) loss of $5.1 million reported in full fiscal year 2013.

In March, we also (inaudible) engaged over $23 million in net proceeds in a follow-on equity offering, which further strengthened our already-strong balance sheet to over $143 million in net cash and cash equivalents.

We will continue to deliver that strong balance sheet and leading positions within the (inaudible) booking industry, during which we had strategic marketing and technology spend particularly in the mobile space.

Finally, as we enter the 2015 fiscal year, we are optimistic of improving operating (inaudible) and new (inaudible) government but focused on economic growth and the potential of additional capacity coming into the domestic air market at a later point this year.

Furthermore, the positive growth momentum in our hotels and packages business will help us (inaudible) strong foundation of the company dominated by non-air businesses to drive sustainable high growth in the years to come.

On the air business, we are focused on retaining our leading market share even as we remain wary of the domestic air markets near-term growth challenges and technical (inaudible) future passenger growth to help drive accelerating growth in our hotels and packages business.

With that said, we would like to begin our fiscal 2015 full-year revenue (inaudible) service call guidance with $132 million to $136 million, with a (inaudible) a constant-currency growth of 24% to 20%.

We would now like to open the call for Q&A.

Operator, please?

(Operator Instructions) Lloyd Walmsley, Deutsche Bank.

This is actually Kevin LaBuz on behalf of Lloyd Walmsley.

My first question deals with the growth on the hotel side.

Just wondering what drove the acceleration in bookings there.

Was that stand-alone or packages?

And do you think that the growth there is sustainable on the hotel side?

And then I have a follow-up.

Thank you.

Thanks, Kevin.

If I can take that, this is Rajesh here.

In general, just like we mentioned in our call part of this -- small part of this actually growth had coming from the acquisition that we made, but it's not a very significant part.

And given their past strategic focus is hotel and packages, it's growth that part of the business and given the fact that we also have (inaudible) rooms still in the domestic hotels.

Also there is a lot of focus on the international hotels, and outbound market from India is actually the fastest-growing market as well.

So all of these factors are put together.

We do anticipate that we will continue to have very local growth in the hotel and packages business.

Thank you.

And then just my follow-up is on the cost side.

What drove the other expense line higher this quarter?

I'll take that; it's Mohit here.

In terms of hotel expenses, this year -- this quarter, after the [product] and consolidation of EasyToBook and (inaudible) saw some expense coming in in terms of service and marketing particularly in the international hotels business.

All right.

Thank you.

(technical difficulty) was in line with last quarter as well.

All right.

Thank you very much for that.

Manish Hemrajani, Oppenheimer.

Good quarter, guys.

Air was strong at the end of this quarter, better than what I and the Street had anticipated.

How much of that strength do you pertain to the discounting we saw from airlines and India domestically?

I think there were about [five] rounds in all of last quarter.

Yes, Manish, thanks for the compliment.

Yes, there was definitely some impact because of the (inaudible) sales techniques that we saw in this quarter.

Just to give you a quick data point.

So the sales were on an overall basis for the quarter were down by about 5% year on year for this quarter, and that led to a growth of about 16% -- 16.8% to be precise, quarter on quarter.

So that will give you some indication of the growth that happened because of the (inaudible) facts like four or five events that happened.

And if you put that in perspective to the overall full year, air [transactions] growth including the price of their increase that we saw year on year -- fair increase year on year for the full year despite this good quarter on fares was actually about 17%.

So fares were up 17% year on year on a full-year basis.

And therefore, if you look at the overall air traffic growth on a full-year basis, you would see that (inaudible) single-digit growth, which was in line with the overall market growth as well.

It's better than overall market growth given that from a market share perspective we been able to exit the same 12% market share for the whole year as we exit the year as well.

So to answer your question, we did definitely see some impacts.

As we have been always saying that we felt it was going to be -- going to come down to the right price point, it does tend to stimulate the demand.

Got it.

And then in longer-term, can you give us more color on the air market for FY 2015, especially in light of your solid (inaudible).

How do you see the market playing out?

What are the catalysts other than the launch of airlines, Air Asia and [IndiGo] airlines?

And how do you see that impacting passenger growth?

Yes, sure, Manish, this is Deep.

Manish, I think these two factors.

like you said --rightfully pointed out.

the launch of these two airlines will and the timing of the launch and also the kind of size with which both the airlines are going to come in.

And it's going to be a very big factor, actually, in the year going forward.

If we remove that for a minute, I think we will expect very, very little growth, if it all.

It's really probably two airlines which are expanding as we slowly -- Etihad-Jet Airways is still expanding rather slowly.

And the goal is also to be expanding; the other airlines, as you are aware, are not doing that well as of now.

So the situation, the synergy calls for the expansion in capacity, rationalization of airfares and thereby getting more stimulus for people who travel, particularly leisure travel.

So we think a couple of quarters down the line is when you start seeing the impact.

For the latter half of the year, we should see impact of increased capacity.

The first two quarters, there will be some impact buoyed up with the summer travel demand, so we will get an (inaudible) the natural, seasonal increase.

But again, the next quarter will be seasonally low.

And finally, we think of the latter part of the year, we'll see an increase in capacity.

Okay, got it.

And then you've been very active on the acquisition front with LTT, [to go], HotelTravel, and now ATB.

As we close out fiscal 2014, can you talk about lessons learned there; integration timelines for recent acquisitions?

And will you continue to be in acquisitive mode in 2015, with the focus continuing to be on overseas?

Sure, Manish.

So I think it helps to definitely group some of these acquisitions.

So we should look at three different buckets.

I'd look at LTT and ITC, both as fulfillment terms towards outbound holidays business, both in Southeast Asia -- one in Singapore; the other is largely in Thailand, which are both the most popular places for our fun holidays.

These have definitely helped us in better fulfillment and better customer experience and really given us more control over the customer into an experience on the holiday side.

So these integrations entity was completed actually some time back, that -- or this acquisition post-IPO and ITC is also fully kind of integrated.

I think these have been largely off-line too.

If we look at (inaudible) again and investment really different from the acquisition (inaudible) minority investments here, and it's independently run.

It's run by the founder promoters of the Company.

And it's really a business -- forward-looking in the trip planning (inaudible).

That's clearly in the investment development stage right now.

A lot of interesting developments both have come out on the mobile side as well as on the Web side.

And we're making good progress, but these businesses do take time and take in a lot of capital.

There hasn't been any integration; like I said, that is an independent business.

Coming to the most interesting of the (inaudible) buckets, when we look at hotel travel and now EasyToBook.

So HotelTravel and EasyToBook are pure-play online hotel companies; hotel travel based in Thailand with a footprint in South East Asia.

Exceedingly important to us from a supply point of view all (inaudible) online hotels.

It did take a while to integrate.

I think it's fair to say that it probably took us over a year to really fully integrate.

We have now cross-pollinated a lot of best practices.

Key managers have actually been moved from MakeMyTrip India to HotelTravel, and now we are beginning to see some of the benefits there of the move.

EasyToBook is very new.

Just as we report, this really [balanced] (inaudible) this year.

So very early days.

They have a really good team both in Amsterdam as well as some very, very good tech chops setting out of Tel Aviv in Israel.

And actually we see a lot of cross-pollination opportunities out here, particularly on front-end technologies, as well as we actually now pool our resources and our inventory supply across the three brands.

And we see an interesting network play.

So I'd say EasyToBook is definitely a work in progress from an integration point of view.

And, again, definitely (inaudible) from HotelTravel will be -- it's going to take a little bit of time.

But definitely I think more oversight and more exchange of personnel itself definitely has some (inaudible) additions.

So one of our senior members of the leadership team (inaudible), who is actually spending a lot of time overseeing both businesses and making sure that they are tightly integrated to the mother ship.

And then the second part of the question was should we expect you to be acquisitive in 2015 as well?

Is there a pipeline you looked at for acquisitions?

Manish, it's a fair question, especially in the light of recently concluded FCO.

We definitely are on the lookout, and we are seeking interesting assets both in India and overseas which can help augment us either on the supply side -- so better inventory accommodations -- as we all know that -- most of accommodations itself has revolutionized quite a bit.

Different kind of accommodations coming onto the market, and we are constantly looking -- unlocking a lot of nonconventional hotel accommodations which have come on which opened up some opportunities.

And then on the customer side to -- we look at typically niche companies, smaller companies which have the ability or have already -- executing on a plan, which would take us much longer to do on our own and where the organic move can actually give us free to market.

So we have largely gone to the lengths to which we look at before getting into the financials of these companies.

We're also largely focused on the potential of the team.

The currency, we think, is very important there because that will still be a (inaudible) part going forward.

And I think that (inaudible) will be fairly busy on the lookout.

But the funnel there is pretty steep, so you have to [pay] a lot of companies to really get maybe one or maybe two companies which we think in a year could really fit in overall MakeMyTrip strategy.

One last one for me.

I don't know if I missed that.

What percent of transactions are now through mobile?

And how does the conversion rate on mobile compare with desktop?

So mobile overall is now giving us about 15% of transactions.

In fact, on the air side that is 15%.

What's interesting is stand-alone hotels is actually up to about 27%, and we think that is really encouraging for us going forward.

And what we are finding is that different platforms, of course, have different immersion rates.

But also as we are able to make the user experience in India and therefore this most recent release of (inaudible) apps both on Android and now on iOS, we see incremental increases in convergence.

And then it does take a little more time to kind of iron out some of those creases there as we kind of understand the [levers] of the funnel even better.

But definitely it's been steadily increasing quarter on quarter, actually month on month, and we really believe that this is still very early days for mobile.

A lot of the growth here, as I mentioned on the early part of the call, is actually now mobile focused.

And actually mobile-first, a lot of the growth [transacting] (inaudible) MakeMyTrip.

Thank you, and all the best.

(Operator Instructions) Hitesh Das, Barclays.

A couple of things.

So how much do you think fares -- air fares will decline due to the launch of Air Asia and Tata Air in FY 2015 going ahead?

So honestly, anybody's guess like I was saying earlier just responding to the earlier question -- a kind of similar question.

So if you see this year the fares went up on a full-year basis, approximately about 20%; actually 17%, 18% odd percent.

And if you just take away the effects of this quarter and the sales that were announced like four or five events (inaudible) airlines than it was actually even more than 20%.

So it's going to be a function of additional capacity coming in and additional capacity -- as we all know, it won't come in like all of it together.

So it will be a gradual build-out.

And then slowly and gradually, then there is more capacity than there is going to be some fare rationalization for sure because the focus is going to be more than on the (inaudible) just filling up with these [chains].

And so Air Asia is kind of has -- is just trying to highlight to share their own strategy for (inaudible) as well there saying they want to just bring the fares down to 30%, et cetera, as well.

But then there may be some other revenues that they would be looking to actually make it up in terms of ancillary -- sales ancillary items for them as well.

You know, we will have to wait and watch, honestly.

But if -- when all the capacity is in -- let's say [both the] airlines have launched, which probably would be two quarters down the line, at that stage one could perhaps estimate at least about 15% fares going down, if not more.

Okay.

And have you included both launches in your outlook for FY 2015?

Yes, (inaudible) estimate at this point in time.

We have baked in the fact that the material impact on both the airlines launched in terms of additional capacity coming in and getting rationalized so on.

And (inaudible) thereby as well some stimulation in demand.

Definitely not for the full year.

So at this point in time, our current estimate is maybe two quarters down the line there may be some impact beginning to happen, and that's the kind of scenario that we baked in.

And how we chose the impact of EasyToBook acquisition on net revenues in this quarter?

Like I mentioned earlier, one, we actually do not split our results and disclose our results (inaudible) on a consolidated basis.

But it wasn't -- just given the fact that it was just like two months now of the quarter that we acquired EasyToBook, so it wasn't a material number.

Okay.

And another question -- so employee expenses have trended down a bit in the second half of the year.

Any specific reason behind that?

Or how will the trend be going ahead?

Any color on that?

(inaudible) So on a year-on-year basis, employee expenses have kind of largely remained flattish.

And they've been able to keep a tight leash on it, indeed because businesses -- despite the increase in the orders and packages business because packages are more off-line.

But -- and going forward, we do not anticipate any significant additions in terms of headcount.

Of course, there would be (inaudible) it's too [early] (inaudible).

But for the annual increments, we don't really expect any major changes in the employer, personnel costs.

Okay.

Thanks a lot.

And one last question, if I may.

So the growth in the agency segment has been very good.

And so in the medium-term, how do you see the proportion changing in favor of the hotels and packages segment?

So where will it finally settle down to?

Any color on that?

If you look at it kind of from the (inaudible) as well that we expect in a large part of the growth to come from hotels and packages.

The hotels and packages business saw growth upwards of 50% versus 53% last year.

We believe we'll continue to accelerate on this growth in the forthcoming year and hopefully (inaudible) higher growth than kind of in this fiscal (inaudible) that's already ended.

Okay, thank you.

Sam [Malone], QVT Financial.

Just a quick question on the hotel side.

Did you see a lot of unique customers getting in and booking hotels, or are you seeing a larger percentage of bookings coming from repeat customers?

Now, we definitely have -- hi, this is Rajesh.

We definitely see (inaudible) unique customers (inaudible) customers now coming in.

Clearly the big (inaudible) definitely continues to improve every quarter, every year.

But we continue to have more and more new customers coming in and (inaudible).

In fact on the mobile platform, what we noticed was about 25% to 30% actually of the total mobile bookings were coming in from (inaudible) customers who had actually never booked with us before as well.

So our assumption is perhaps they are the first-time bookers and maybe they don't even own a desktop.

So it's very exciting that a lot of the incremental demand that is coming or incremental growth that is coming in is coming in, actually, from the smart phone devices.

So it's fair to say that your activation costs for those customers is probably low because they're coming directly to your app?

Yes indeed.

Yes, indeed.

Although I would say that one has to keep in mind that the overall mobile platform and booking makes it more like 60/40.

60% is actually mobile website, and 40% -- it's a moving number, but just a kind of broad split.

So on mobile side, you will have the same kind of cost of acquisition; on the app side, you are absolutely right and below.

Right.

And then lastly on the breadth of hotels, you mentioned 11,700 hotels in India.

Are you seeing the breadth of bookings across that platform increase, or are you still seeing a large chunk of your bookings coming from maybe your top [3000] or 4000 hotels?

I'll take that, Sam; this is Deep.

So we have noticed that there has been a demand -- a kind of a modest increase [year on year] that saw very high concentration in the top 3000, and then the next breaks at 5000 hotels.

And we had actually raced ahead to acquire about 10,000 hotels and then -- in terms of the inventory of 10,000 hotels.

And then gone slow when we had actually seen that the concentration is still typically in about 5000 hotels.

That has been growing.

We are definitely getting and seeing more into some of the less popular hotels.

Also, that tends to happen in season.

So in season you see, because of obvious reasons, the capacity of hotels in India is not quite enough.

The popular hotels get sold out quickly, and then you see it spill over into all of these hotels.

But also over time people discover these hotels online because otherwise there is no way to find 101 property in a popular (inaudible) station in India or on the beach or some place.

And that is where we are able to promote these in interesting ways on the site.

Specifically using filters.

Also, we found some hotels being more active with us on special deals when it comes to last-minute kind of bookings.

And there we found some of the newer hotels that were erstwhile not so popular or who don't enjoy very high brand appeal on their own are able to really come forward and put across an attractive proposition.

So now the growth think -- we would have a better spread than we had a year ago.

Understood.

Thanks for the (inaudible).

Ladies and gentlemen, this concludes the question-and-answer session and this concludes the call for today.

Thank you for your participation.

Thank you very much.