MakeMyTrip Ltd (MMYT) 2015 Q1 法說會逐字稿

Welcome to MakeMyTrip's fiscal 2015 first-quarter earnings call. The Company wishes to remind you that certain statements made on this call are considered forward-looking statements within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information related to this call speaks only as of this date, and the Company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning 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 6, 2014. 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 of MakeMyTrip: Deep Kalra, Rajesh Magow, and Mohit Kabra. Please proceed.

Thank you, and welcome everyone to our fiscal 2015 fourth-quarter earnings call. Let me begin by sharing some of the positive developments within our industry that have started providing tailwinds for our business.

During the quarter, we witnessed year-on-year growth in the domestic air industry as discounted fares offered by domestic carriers helped stimulate air travel in India. In June, Air Asia India launched its operations, which we believe will help and fuel this positive growth trend.

This last week, the DGCA also cleared away the license issuance objections of other airlines, a joint venture between the Tata Group and Singapore Airlines, and announced that it will grant additional licenses to other new air operators within India.

We welcome such moves to further liberalize India's underserved civil aviation market. Furthermore, the new government is focused on driving inbound tourism growth in India and has committed to establishing electronic visa on arrival facilities across nine airports in the latest annual budget.

On top of the recent positive growth within travel, we're also seeing the mobile internet revenue should play out in India. Today, the country has approximately 180 million Internet users out of an estimated 240 million total Internet users.

Going forward, marked for shipments are expected to rapidly grow by over 40% annually for the next five years. We believe there's tremendous headroom for mobile to drive the rapid growth of India's new Internet users. In fact, we have already seen mobile contributing meaningfully within our business, which I'll talk about in just a minute.

In the seasonally high travel quarter, MakeMyTrip affirmed its market leadership by achieving strong growth in all core business segments. We accelerated the growth in the strategically important hotel and holiday packages business by enhancing customers' end-to-end experience, deepening our domestic and international supplier relationships, and investing in targeted marketing. Concurrently, we made further progress on mobile adoption as we work to provide best-in-class app and mobile site experience.

As a result of these efforts, (inaudible) are currently downs our quarterly (inaudible) bookings increased by 36.7% year over year to record $432.2 million, while our net revenue, or revenue less service costs, rose 43.8% to more than $35.5 million in the quarter.

During this past peak travel season, where the mix of hotels and holiday bookings is typically higher compared to the lean quarters, we were successful in improving the mix of H&T segment to just over 50% of our total net revenue.

Now let me share the progress that we've made on the mobile front. To date, we have over 3.2 million mobile apps downloaded across the popular operating systems. More than 29% of our monthly unique visitors and 14% of all online transactions are now coming via mobile. For domestic flights, mobile bookings accounted for roughly 13% of total online transactions in the quarter.

Mobile users also contributed 25% of our total online domestic hotel transactions, and we continue to witness strong mobile transactions growth on a sequential quarter basis.

To accelerate this important growth channel, mobile will remain an important strategic priority for our business, and therefore we are allocating more efforts and resources towards enhancing mobile user experience to improve mobile adoption.

During the past quarter, our team continued to introduce native responses and adaptive designs into our mobile channel. Our development team launched an improved mobile payment experience, and these enhancements had a positive impact on conversions.

That said, we continue to further improve the speed of our mobile platforms. Additionally, we are also refining our analytics capabilities to provide a more personalized experience to our mobile bookers all while optimizing our costs.

Now I'd like to request Rajesh to share the highlights of the past quarter.

Thanks, Deep, and hello, everyone. I am glad to share that the team at MakeMyTrip delivered strong operating and financial results in line with our plan in the fiscal first quarter. We achieved this growth as the macro environment and domestic air industry showed signs of improvement during the quarter.

During the peak holiday season quarter, hotels and packages transactions grew by over 106% year on year in Q1, and we achieved 71% growth in revenue less service costs on a constant currency basis. This high growth was followed by domestic and outbound hotels and holidays as well as international hotels bookings growth, which were partly aided by the consolidation of our EasyToBook [third-com] acquisition.

As a result, the H&T contribution to the net revenue increased to an all-time high of 50% as against last fiscal year 41.7% during the peak season quarter, where the contribution of hotels and holidays bookings is typically higher in the overall mix.

Let me now be more specific about some of our growth initiatives starting with our continued progress in the domestic and international standalone hotels business. In the past couple of quarters, we have been working on our plans to tap the growth opportunity in the high category of hotels, which paid off in this reported quarter. We are also witnessing good growth in international hotels booked across our various lines, validating our royalty supply acquisition strategy.

For our customers, using mobile devices to accept our services, growth in standalone hotels mobile bookings was very robust as convergence continued to improve.

We also launched our new mobile website with a responsive interactive design and native apps on Android and iOS mobile platforms. This will help enhance the user experience on any device across multiple screen sizes and form factors, which will in turn help the conversion rates.

On the domestic supply side, we expanded our hotel base to over 30,000 domestic properties including hotels, guest houses, and vacation villas, up from 11,400 properties reported last quarter. Furthermore, we now offer plenty of hotel choices for our outbound customers, with more than 184,000 properties within our group network.

In our holiday packages business, we saw high transition growth during the quarter for domestic holiday travel in line with the seasonality trends in the business. We believe that our successful burst of growth as well as our ability to work with the buyers to design attractively priced packages to match demand with the availability during the peak season contributed to this healthy growth during Q1.

Our international outbound holidays also experienced healthy growth as travelers have become more comfortable with the stability of the rupee exchange rate. Additionally, we also offer competitively priced packages to gain market share in key outbound destinations in Southeast Asia and Europe as outbound travel remains a large long-term opportunity for us.

Moving to our air ticketing business, where we continue to hold the industry-leading domestic air market share of 12% as (inaudible) available DGCA results.

During the quarter, air net revenue increased by 23.9% year on year as we grew transactions by over 16% year on year. Overall air transaction growth was driven by international air, where we were able to drive share shift from off-line channels, the small growth in domestic air largely gained from special fare offers launched by the domestic carriers during the quarter.

In summary, our continued push to innovate and enhance our offerings on mobile platforms, combined with our very strong focus on customer experience, is helping to further strengthen our brand and sustain our market leadership.

We remain focused on short-term execution while keeping an eye on our long-term vision and remain well positioned to capitalize on the immense opportunities we see ahead for MakeMyTrip.

Now let me hand the call over to Mohit to share our quarter's financial results in greater detail.

Thanks, Rajesh. In Q1, we delivered net revenues of $35.5 million, representing a constant currency growth of 43.8% which was in line with our internal counts as part of the strategy where attributed growth in the orders and packages business during the peak holiday season quarter.

Overall, the disciplined expense growth partly (inaudible) expenses allowed us to invest aggressively in marketing to drive stronger top-line growth while delivering nominal assisted operating profit in this high season quarter.

Let me now elaborate on the financial performance of our key business segments. During the first fiscal quarter of 2015, net revenue from the air ticketing business grew 23.9% year on year in constant currency terms. As Rajesh did briefly mention, this growth was largely driven by very strong transaction growth in our international air ticketing business, which carried high value per transaction as we continue to benefit with largely off-line segment of these markets.

In addition, domestic air transactions also grew by over 12% year on year as customers took advantage of the seasonal fares, specialty fares offered by domestic carriers towards the end of the quarter.

In Q1, we achieved net revenue margin of 5.8%, which was in line with the margins earned in the same quarter a year ago.

Now I would like to present the financial highlights from our hotels and packages business, the segment of strategic focus for MakeMyTrip. Our revenue less service costs in H&P came in at nearly $17.9 million for the first fiscal quarter, which represents a 70.9% growth year on year in constant currency terms. And this growth was largely driven by 106.5% growth in transactions. The transaction growth was largely propelled by robust growth in standalone hotels transactions, and this was the result of a strong uptake in domestic hotel bookings, particularly from our ever-improving mobile platforms as well as strong growth in international hotel bookings, which has been benefiting from the consolidation of our EasyToBook acquisition since third 2014.

Furthermore, we also witnessed robust quarter-on-quarter growth in the domestic and outbound holidays business during this peak holiday travel quarter, which helped the business for the first time in its history to have a larger non-air mix.

Our net margin in the H&P business was 11.9% for the first quarter, which is almost in line with the net margin of 12.1% in the previous quarter. While focusing on transaction and revenue growth during the peak holiday quarter, we also delivered adjusted operating profit of $267,000. This modest profit was in line with our plans as we continue to invest behind building robust mobile platforms and also invest behind strategic marketing to drive online transactions both in domestic hotels as well as in international hotels powered by our recently acquired pure-play hotel brands.

We are glad to report that the business also generated cash during the quarter beyond the capital expenditures and investment needs of the business to add to the cash on the balance sheet. We will continue to leverage the strength of our balance sheet and invest in these areas of strategic interest.

Let me now talk about the growth guidance for the full fiscal year. In line with our plans for the current fiscal, in Q1 we were encouraged by the growth momentum achieved in our hotels and packages business and by the rapid adoption of our mobile offerings across various key business segments. However, we continue to remain cautiously optimistic of the revenue growth in the domestic air business.

Therefore, we would like to net over fiscal 2015 annual constant currency growth guidance to 25% to 20%, resulting in revenue less service costs guidance of $133 million to $136 million.

We would now like to open the call for Q&A. Operator, please?

(Operator Instructions) Lloyd Walmsley, Deutsche Bank.

Wondering if you could just elaborate a bit more on the strength in the H&P segment. How much of that was contribution from EasyToBook? And then what are some of the other core factors driving the bookings growth there? It sounded like I think you said something to the effect of some better competitive pricing on outbound. If you could kind of explain if that may have been part of the take rate moving slightly down, but I guess incorporating that into perhaps the booking strength.

Sure, Lloyd. This is Rajesh here. Let me take this. So the first question was how much is it coming from EasyToBook and how much is the growth from existing business. So the simple answer is, as you know, that we've been reporting consolidated financials. But the growth -- the large part of the growth actually came from India business, and the EasyToBook number, although it is (inaudible) part of the consolidated financials, it wasn't a material number.

And in the India business, all key segments and a lot of the hotel holidays, even air business and specifically as highlighted in the script earlier, international Air India where there has always been a lot more headroom. All of the segments grew, and also some part of the growth trend came back on domestic air as well.

As far as on the outbound side -- I guess can you just repeat your second part of your question?

Yes. It looked like the take rate in the H&P business declined slightly. Was that in part due to some discounting or aggressive pricing on outbound? I think you all had mentioned in the script.

It's a great observation, but it's just a very small, small number. And, you know, as you would go back in history and analyze, typically in the high-season quarters, there would always be a little bit of a trade-off with the transaction growth that you would -- one would do it technically. But in terms of just from a trend perspective, more on a full-year basis, we -- whatever we've been talking about historically, just to incrementally improve the overall S&P margin on a full-year basis, we think we are on track to do that. So I don't think there's anything to get concerned about that at all.

Also just to add to what Rajesh has mentioned, typically in the high-season travel quarter (inaudible) season quarter and because of the increased mix of packages which is typically adding a lower margin on account of transport (inaudible), the overall H&P margin tends to be slightly softer than the off-season quarters.

Yes, it looked like last year it was your strongest quarter, but that (multiple speakers) --

Yes, Lloyd, so I would like to just clarify on that. You're right. Last year, it was like 12.9% same quarter. But last year, if you would remember, it was also a bit of a slowdown. And so during the slowdown period, it kind of changes. And typically you will have high margin and less transaction growth. And also the mix was strongly in favor of more hotels because the leisure business is what it kind of take the bigger hit relatively speaking.

But as we've been talking about in the past as well, when it comes to analyzing the overall margin, I think we should perhaps see more full-year picture rather than just a quarter-on-quarter picture because there would be technical moves within a particular quarter. So and one reason or the other, which we have done it historically. We would continue to do it because that's important. Again, more like technical moves. But as we are growing our Web -- we continue to grow our volume. As you can see on the H&P segment, we definitely think that we will continue to keep improving our margin on an overall basis for the full year.

Yes, okay. And then another if I may. Granted, it's early in your fiscal year, but the first quarter is really strong and the guidance implies slower growth in the remainder of the year. Is there anything in particular that you see that could slow things down, or is it just a general conservativism in wanting to really not get ahead of yourself?

Yes, I think it's more the latter, Lloyd. There has been, of course, a big turnaround on the political side. We have government with a single large majority. So there are signals all around. I think on the air side, as we know, it takes a little longer and it takes some time for them to play out. We have finally seen the launch of Air Asia, something we've been hearing and talking about for a long time. Tata-Singapore Airlines on the annual, but it takes time. At the same point of time, some of the incumbent airlines are still under duress; not in the best of financial health.

So I think it takes a little -- it will take a little bit more time there. I think what we are very bullish about and what we are actually confident in seeing month-to-month more growth is actually new users coming to mobile, and that's a positive growth trend.

In fact to the earlier point also, there's a good deal of, as you noticed, standalone hotel transactions through mobile, which has crossed 25%. And there are some amount of incentives being given through that channel to get some of the new users out there. So I think on H&P there are very positive signs on the air situation. I think it's getting better, but I won't say that the air industry or the air ecosystem is completely out of the woods yet.

Okay. Thank you. Great quarter, guys.

Manish Hemrajani, Oppenheimer.

Thanks for taking my call. Excellent results, guys. Strong hotel numbers. I know this has been talked about a lot, but can you touch upon the number-one factor that's driving transaction growth in hotels? And what's the median ticket price for hotels currently?

This is Rajesh here. So there are actually a combination of factors, quite frankly. Fundamentally, as you know, that the standalone hotels market has been fairly underpenetrated. And therefore, from a push perspective we have been trying to actually cover this space 360 degree from supply to user interface to just improving the content, and also a lot more actually pushes coming for mobile as well. As you can notice, if there is any -- between air and hotel actually, a lot more transactions are coming in on the mobile platform from a percentage of total business perspective to mobile platform as well. So that's kind of contributing as well.

So a bunch of factors. But if you look at overall hotel and packages together, the season was a good season quarter for even the domestic holiday (inaudible) quarters as well as outbound holidays as well.

You know, if you compare it with the last year, same quarter, there has been a lot more concern about the currency moment, and therefore long-haul booking has been a (inaudible) impact as well as becoming a lot more expensive. And there has not been that much penetration on the currency outlay, so that kind of helps as well.

So I won't say that there is one single factor that drove this. These are some of the factors that helped the growth overall.

Manish, just (inaudible) on the [investor group site]. The investor group site is on the hotel's site. It has been increasing both quarter on quarter as well as year on year. So that we are seeing and improving trend as far as average ticket price is concerned. And mostly because of the improving mix of international hotels in the overall hotel bookings.

Okay. You mentioned that you had 184,000 total properties, right, in your network. How many were domestic?

No, no. So the domestic number is actually 30,000, Manish, up from --

13,000, right? (multiple speakers) 13,000 -- 13.

Correct. Up from 11,400. 184,000 is an international hotel number.

Right. So in terms of bookings, what would your mix have been at international and domestic for hotels for H&P?

So as far as (inaudible) bookings are concerned, both domestic as well as international bookings kind of now contribute almost equally, particularly in a [mind] in the peak-season quarter. So it's kind of directionally moving away on those lines. And particularly as Rajesh was mentioning during the call, the large part of the growth is kind of coming in from the international segment (inaudible) year and international year, which is kind of I think growing the fastest. And similarly, international hotel bookings is the other segment which is kind of growing the fastest as well.

Okay. And then on your conversion rates, how do your conversion rates on the mobile platform compare with the desktop?

So fairly comparable, actually, Manish, when it comes to hotel bookings specifically. And we have some ground to cover when it comes to the air bookings, and we are kind of working on that. But on the hotel side, fairly comparable.

Got it. And on the mobile front, given where we are in the very early stages terms of penetration levels, what are the technological investments that you're making on the back end to stay ahead of the game?

Maybe I can just take that. Manish, in India, as you know, they're a very large proportion of independent. Most of these hotels are not actually using sophisticated systems, as one would imagine. So a lot of investment has gone in and actually getting the hotels to work either directly through our extranet or for our extranet to actually talk to the channel managers, which have now become quite popular among the domestic hotels. So we have been working quite hard on that side.

So on the mobile point of view, also just averaging the whole mobile opportunity like you were saying, we now are working on solutions where the smaller hotels can actually work directly onto a mobile platform. We have seen a very typical use case of hotel owners, managers not really being on large phones and managing a lot of their inventory and kind of booking profile ahead through the phones, and that's where we have a third switcher going on. They are underway. And we think that that's going to help us significantly as well.

But I think in the next couple of quarters, we'll see a significant shift of people just working on the solution. They can't work on the solution through the mobile, but it's not really there for a mobile first solution as of now, but there's work going on there.

Got it. So one last one for me on the takeaway. Takeaway is down on air as well as hotels -- hotel is down to 11.9%; takeaways from air were 5.8%. Is there some user discounting that you guys are undertaking to drive volume growth here which has impacted takeaways?

Not particularly very high on the counting. But the difference is not yet year on year compared it -- when you compare it, it's a graph of probably a material graph. But I would rather compare this with quarter on quarter where it's almost flattish. And you know, except for mobile where for early adoption you would lose some technical discounting and stuff like that, this is all -- even during the high season when you have kind of moment-to-moment growth of all transactions, you would like to probably be a little bit more invested on pricing, very tactically and nothing beyond that.

So this has nothing to do in terms of reduction coming in from suppliers, if you well or from the contracting side. This is just in the high season quarter where the transaction growth was pretty high, you would just make some technical moves but I won't lean particularly too much into it.

This trend is going to continue. From a trend perspective on a full-year basis, I think we should be able to make the incremental improvement from last year.

So then how should we look at directionally for both air and hotels? Up from here? Is that what you're suggesting?

Yes, so Manish as we've been talking about within the parts of our air. From a long-term perspective, we've always been saying that it will settle at some point in time between 5% and 5.5%, and it's kind of going towards that.

And as far as H&P is concerned, last year we did about 12%, and we will see some improvement even as volumes are growing on a full-year basis. Like, incremental improvement maybe half a percentage point or something. So that's how we should think about that.

Okay, that's helpful. Thanks. That's all I had.

[Garuv Em], Citigroup.

Good set of numbers. Just had three key questions. Firstly, on air ticketing, now that is a trend obviously, as Rajesh said, with the net margins would be trending down. But are the margins falling faster than what the expectations have been in, let's say, last six, nine, 12 months? And that's one.

Secondly, on hotels and packages, this quarter, if I understood correctly, the proportion of packages was higher because of extra net margins went down by 20 bps quarter on quarter. Is that correct? And would we expect the margins to move back up, say, between 12% to 13% range in the next two or three quarters? That's the second question.

And the last question is just on share-based compensation. How should we look at it for the full FY2015? Thanks a lot.

Hi, Garev. I'll take that. On the air margins, if you look at it air margins are kind of comparable in-line, which is (inaudible) based. So year on year, they're kind of comparable (technical difficulty) the quarter reported in the third quarter of last year. And that particularly tends to happen because in peak season, the air fares continually remain high. And because of this (inaudible) half of the air margins, they tend to kind of be on the lower side during peak travel quarter and high season quarters.

Moving onto your next one, which is in terms of the H&P margin. Year on year, (inaudible) margins are (technical difficulty). And I just announced that earlier also. There is no -- again, in the pre-season quarter there tends to be a higher mix of packages within the overall H&P segment. And therefore, you see a little bit of softness in the overall H&P margins. And this could kind of very in-between season (inaudible) lean and peak season quarters.

And as Rajesh was pointing out, overall for the full year it would be kind of -- we still believe that will be able to see small improvements in the overall take rate for the H&P business over last full fiscal and the full fiscal.

As far as your third one on the employee share-based compensation costs, we have kind of not guided at about the share-based compensation cost remaining around the range of about 2% of our outstanding shares. And even in the current quarter, the share-based compensation cost is close to about $2.6 million. And that is what could be taken as a fair number close to that $2.5 million to $3 million, is what we should have in the coming quarters as well.

Okay. Just one follow-up question on air ticketing. If you could just explain as to why in the peak season there is a softness. That's one.

And secondly, have you seen that in the next couple of quarters we would see the margins sort of going up to an extent?

See what I mean in terms of a slight compression in the margin percentage in peak season is because the overall air fare tends to kind of be higher during high season quarter. And when it comes to margin, there is a certain amount of (inaudible) within the overall margin, which are more like value-based number and not really a percentage basis. So if you will a flat fee typically in the case of service fee or consumer convenience fee, that tends to show a slight downward trend when the layers are high.

We've yet to see how does air fare trends will vary with power. We believe there could be a similar amount of softness at least in the -- into the in-season quarters during the year, in which case we might have seen small improvements coming through in the air markets as well. But slightly early to call it out. But as we've been saying, we believe during this year the airliners will be more around the 6% mark, and it would kind of vary by about a quarter to half a percentage point we'd see quarter on quarter.

Thank you so much.

[Pincu Bapan], Nomura.

This is Ashwin instead of Pinku. I had one question in terms of our personnel costs. We'd saw almost a 20% sequential jump in this quarter, ex softer severance costs as well. So where exactly are the investments being made, and how do you look at this cost item going forward?

And secondly, I wanted to get a sense in terms of what our overall headcount was.

Strictly, sequential costs (inaudible) quarter on quarter are more up in the range of about 12% excluding (inaudible). And of the 12-odd percent, large part of it comes in largely on account of the annual rate increase that gets rolled out in April. So it's largely on account that.

And what was our headcount as of this quarter?

Headcount movement hasn't been very different. Overall, we stay larger on the same headcount number as in the last quarter [1300]; close to about [1300] persons.

Okay. Thank you.

Chad Bartley, Pacific Crest.

Your revenue guidance is helpful, and I was hoping you could provide some comments on how you're managing profitability this year, even with the higher investments in mobile, which makes sense. For example, can you still achieve positive adjusted operating income, or should we expect losses this fiscal year? Thanks.

(inaudible) you know, my reasons kind of mentioning currently in line with what was a chain focus largely depends on driving growth both in transactions as well as revenues. At least from a -- there's a good possibility of us being able to get closer to breakeven. For the full fiscal, particularly having seen profitability returns in the high season Q1.

So depending upon how the air transportation in the forthcoming lean quarter and in the next quarter or two as we will have greater clarity on that. But it looks like we're kind of getting better, clearly, year on year and quarter on quarter when it comes to getting the business back on profitability.

Great. Thank you.

At this time, we have no further questions. (Operator Instructions) At this time, we have no questions.

Thank you, everyone, for joining our first fiscal 2015 first-quarter earnings call. We look forward to speaking with you next quarter.

Okay. Thanks.

Thanks everyone.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.