MakeMyTrip Ltd (MMYT) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Q4 Full Fiscal Year 2017 MakeMyTrip Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Jonathan Huang of Investor Relations.

Sir, please begin.

Thank you, and welcome to MakeMyTrip's Fiscal 2017 Fourth Quarter and Full Year Earnings Call.

We wish to remind everyone that certain statements made on the call today are considered forward-looking statements within the meaning of the safe harbor provision of the U.S. 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.

The discussion of the company's fiscal 2017 fourth quarter and full year financial and operating results during this call only reflects the [inclusion] of the ibibo Group's results for the 2-month period beginning February 1, 2017.

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 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 report on Form 20-F filed with the SEC on June 14, 2016, and other filings made since June 14, 2016, including those made in connection with the company's acquisition of the ibibo Group.

Copies of these filings are available from the SEC or from the company's Investor Relations Department.

On today's call, Deep Kalra, our Founder, Chairman and group CEO of MakeMyTrip; Rajesh Magow, Co-founder and CEO, India; and Mohit Kabra, our group CFO.

We also have Ashish Kashyap, our Co-founder and President and Founder of the ibibo Group on hand to take any questions following our prepared remarks today.

And with that, I would like turn the call over to Deep to kick off today's discussion.

Thanks, Jon, and welcome, everyone, to our fiscal 2017 Fourth Quarter and Full Year Earnings Call.

I'd like to start by highlighting our key accomplishments for the past year.

As we entered fiscal 2017, the MakeMyTrip team was sharply focused on driving online buying behavior in the hotels market in India.

We stayed focused on our strategy of winning customers by delivering a wide range of selection, product innovations and a superior user experience at every touch point.

We strategically leveraged our mobile platform to attract new customers via various marketing and promotional initiatives.

Our comprehensive approach to the nascent but rapidly expanding online hotels market has yielded significant market share gains for MakeMyTrip.

During the year, we have also initiated a foray into the alternative accommodations of homestay segment, as we believe this would be an important stay consideration in the future.

During the back half of the fiscal year, we also successfully completed the merger transaction of MakeMyTrip and ibibo, both of which have been leading brands in the Indian travel market.

Our combined group with highly popular brands like MakeMyTrip, Goibibo and redBus has over 63 million monthly shopper visits, of which 75% are coming via our top-ranked mobile apps and web.

Our combined scale and reach positions us well to gain an increasing share of India's large and growing travel market which, excluding real tickets and cars, is expected to exceed an estimated $67 billion in bookings value by 2021.

Our reach can potentially span across all customer segments, including consumers who prefer luxury hotels to travelers who prefer a budget or homestay experience.

It can also span across metros to the interiors of India with different buying preferences, including buying over vernacular platforms.

While it's only been a few months since we officially closed our merger transaction, I'm pleased to share that we've made good progress on multiple fronts, and the entire management team is excited and fully engaged with all aspects of the integration.

We continue to operate all 3 brands, which has allowed us to extract invaluable customer data from each of the websites and apps and leverage these insights to attract and retain customers within the portfolio.

We gather based on the integration efforts, we've also moved both MakeMyTrip and Goibibo teams to the same location in Gurgaon, outside New Delhi, as well as our technology hub in Bangalore, so they can begin to collaborate and operate more efficiently.

On the supply side of the business, we've been able to identify and offer hotel properties that were unique to each of the brands.

We have also integrated the redBus inventory on to MakeMyTrip's bus booking engine, which has led to spots and daily bus bookings on brand MakeMyTrip.

Similarly, we recently integrated MakeMyTrip's international hotel supply with Goibibo so that customers now have access to much wider hotel choice and selection across all our brands.

With integration efforts well under way, we also plan on rolling out more innovations at an even faster pace than before to help make customers research, shopping and on trip experiences better.

We are aiming to deliver greater personalization, enhanced customization and continuously evolving user interfaces.

As you'll hear from Rajesh in a moment, we've already begun projects to leverage artificial intelligence to automate many common customer service queries to drive operating efficiencies.

AI will also help us in pursuing greater social interactions with our customers and suppliers to improve their experience.

Recently, we completed a $330 million equity capital raise, which underlines the conviction that both our existing, strategic and financial investors have in our team, our vision and also the long runway available in India's online travel market.

We believe the growth potential is supported by increasing Internet access and improving macro indicators as well as a buoyant business environment.

Looking ahead, I cannot be more excited for the tremendous growth opportunity in front of us and believe we are now even better positioned in the market post the merger transaction.

And now I'd like to ask Rajesh to share some more details on our accomplishments during the quarter.

Thanks, Deep, and hello, everyone.

As Deep just mentioned, we had a fairly busy and successful year.

And as we enter into the new fiscal year, we are excited to leverage the strengths of our 3 brands and strong balance sheet to take the company to greater heights.

As a result of this merger, we have a strong competitive positioning in the online domestic air, hotels and bus segments, and our platform provides us the ability to achieve sustainable high-growth rates going forward.

We also see headroom for further growth in the underpenetrated online segments like domestic and international hotels, alternative accommodations, international flights and intercity bus segments.

While the domestic air market is already a well-penetrated online segment, we believe this market should also keep expanding as new government initiatives on improving airport infrastructure and regional connectivity known as (inaudible) gets implemented.

As more of India moves online via mobile, our mobile platform will remain a key driver of deeper online penetration in Tier 3 and 4 cities.

We will therefore continue to make the mobile experience more personalized, highly relevant and, ultimately, an indispensable part of customers' search, shopping and travel support process.

During the quarter, for the combined brands, mobile bookings reached nearly 77% for standalone hotel transactions booked online, 57% for domestic flights booked online and nearly 50% for intercity bus transactions.

At the same time, the total cumulative apps downloaded to date is now over 71 million downloads across the 3 brands, with more than 11 million monthly average active mobile app users by the end of Q4.

On the supply side, I'm happy to share that our customers have access to more than 40,000 domestic hotel property and 240,000 hotels outside of India.

Furthermore, our alternative accommodation platform continues to offer the market more choices beyond traditional hotels with over 13,500 properties available to customers who may prefer alternative accommodation to stay.

We believe customers now have ample choice in finding an experience that fits their preferences, desired location and price point in the user portfolio of brands.

Furthermore, our consolidated supply operation is also allowing us to drive further penetration in smaller cities and towns across India.

We now have a larger footprint in the market to help us curate the best hotel supply in the market.

Similarly, in the fast-growing outbound market, we are developing direct relationships with popular hotels booked and searched by customers willing to travel outside of India and leveraging our relationships with various key strategic direct and indirect supply partners to enhance our distribution capabilities of international hotels.

During the quarter, based on consumer insights, we launched a new hotel initiative called MakeMyTrip Assured Hotels, which aims to eliminate any potential customer's resistance to booking hotels online.

With over 5,000 Assured properties, we are promising an amazing stay experience, with awesome rooms, great service and a 24x7 hotline that customers can call if they have problem after check-in, which our team will try to resolve within 60 minutes.

We also further supported the launch of this new customer-friendly hotel certification and promise with a nationwide media campaign.

In addition to product innovations, we also leverage technology and innovations to drive customers' experience to new heights.

The common focus was shared by the teams at MakeMyTrip and Goibibo prior to the merger, and is now further sharpened to ensure we continue to stay on proper changes in user trends while offering new and exciting ways for customers to engage with our brands.

During the past quarter, we added a one view, quick summary in the Goibibo app, which allows users to see all relevant information regarding their destination in a single view.

This new screen also aggregates real-time pricing and inventory from airlines, buses, cabs and shared cars to allow users to compare journey times, convenience and cost, thus reducing user friction.

Another great example of leveraging technology to ensure customers' journey with our brands keeps getting better with the use of artificial intelligence in both the MakeMyTrip and Goibibo apps to provide travelers with instant answers to common customer support queries, including flight delays and restaurant recommendations all on their handsets.

We have also tailored the app experiences for our customers with the rollout of matchmaker, which allows customers to see the best matches of hotels based on their selective preferences.

We are also leveraging crowdsourcing and big data to find and notifying the customers of great airfares, specific by date and route.

Additionally, we have made great headway in getting our customers involved to improve their own travel experiences in journey and the experience for other travelers in the future.

For example, we've been able to grow the monthly user-generated reviews by over 70% year-on-year to reach more than 158,000 reviews left by our combined customer base.

Furthermore, customers using the Goibibo app are able to leave real-time picture and reviews of the hotel they are staying in, right within the mobile app.

These reviews are automatically routed to the hotelier and gives them the opportunity to address any negative reviews or customer dissatisfaction before they receive a negative customer rating.

We believe this feedback loop embedded within the booking app benefits both customers and suppliers in real time and will certainly help improve traveler experiences over time.

Now let me share some highlights of the redBus business.

We believe we are well poised to drive rapid growth in the largely offline bus bookings market by our innovative and user-friendly booking flow experience and by bringing more supply online.

In the quarter, we launched features to personalized trip suggestions for frequent users of the app, which helped improve conversions.

In addition, the app now also incorporates a traveler-friendly wake up alarm feature, which uses location-based services on their mobile to alert overnight sleeper bus customers a few minutes before approaching their destination.

Lastly, we are also looking to drive greater cross-sell of hotels to bus customer via a seamless shopping experience within the app itself.

Now before I hand it to Mohit for a deep dive into our financial performance guidance, I would like to share an update of our holidays business during the fourth quarter.

During the typically slow holiday travel quarter, we continued our focus on improving productivity, efficiencies and improved customer experience by leveraging technology in this line of business, in addition to experimenting with the moving curated packages to be bookable online.

As a result, we saw a material improvement in our NPS score from this business.

Lastly, we believe the outbound travel market, which includes international flights and overseas hotel stays is still a large and fairly untapped opportunity for us, and we will continue to invest behind these businesses on both online and offline channels.

Now let me hand it over to Mohit, who will discuss our financial results.

Thanks, Rajesh, and hello, everyone.

Before we begin, I'd like to just remind everyone that all the numbers discussed today include 2 months of ibibo financials consolidated within our reported results.

For the fiscal fourth quarter, MakeMyTrip delivered net revenues of $85.1 million, which represents a constant currency year-on-year growth of 64.5%.

The resulting full year net revenue stands at $273.7 million, which is a growth of 65.4% year-on-year in constant currency terms.

Our hotels and packages business in Q4 recorded nearly $44 million in net revenue, which was an increase of over 57% year-on-year in constant currency terms.

For the full fiscal year, the revenue less service costs in the segment reached $140.3 million, a 65.5% year-on-year growth in constant currency terms.

Helping to drive this performance is the high growth of 95.4% during Q4 and 164.7% for the full year in India's online standalone hotel transactions, which was a result of our high-growth and high-decibel marketing and sales promotional strategies, aided with the consolidation of the ibibo Group in Q4.

I am glad to share that the share of hotels and packages in the overall revenue for the quarter stands at 51.6% and 51.3% for the full fiscal year.

This is in line with our longer term strategy of taking the non-air mix to over 70% in the next few years.

During Q4, with the consolidation of the ibibo Group, we have also seen an improvement in overall mix of standalone hotels within our hotels and packages segment, which has also resulted in year-on-year improvement in net revenue margins for this segment.

Fiscal 2017, overall, has seen us gain significantly on margins from our hotel suppliers through performance-linked incentives, as we were also helping them drive higher occupancy rates with our high-decibel marketing and sales promotion campaigns.

I would now like to share some details on the air ticketing business.

In Q4, net revenue increased by 47.2% year-on-year on constant currency terms, predominantly driven by 42.4% increase in transactions.

Net margin in the air ticketing business improved slightly from 7% to 7.2% on a year-on-year basis.

During the reported fiscal year, we have seen robust transaction growth on the back of strong domestic market, coupled with our ability to gain share in the air ticketing market.

In Q4, our other business segments reported net revenues of $8.3 million.

This performance included the consolidation of the redBus business for the 2 months of February and March 2017.

The full year net revenue from this segment stands at about $15 million.

For the fiscal fourth quarter, we reported adjusted operating losses of $35.8 million, which was a result of our continued high spend on marketing and sales promotions to acquire new hotel customers on the both MakeMyTrip and ibibo brand.

Accordingly, the full year adjusted operating losses stood at $83.7 million.

While we had cash and cash equivalents to the tune of $197.4 million as of 31st March, 2017, it would be important for me to call out that we added gross proceeds to the tune of $330 million to the recently completed equity fund raise.

We are, therefore, well-capitalized with over $0.5 billion of cash arsenal on our balance sheet.

I would like to reiterate our continued belief in the high-growth opportunity that lies ahead of us.

India is expected to have the world's fastest GDP growth in the next decade, surpassing the growth rates of other larger and more mature economies.

The recent IMF report states that India's medium-term growth is expected to rise to about 8% due to the implementation of key reforms and appropriate physical and monetary policies.

Furthermore, according to a recent NASSCOM report, India will remain the world's fastest-growing Internet market as the base of net users will reach 713 million by 2020, up from roughly 392 million at the end of 2016.

And this is primarily being driven by rapid mobile adoption in the rural parts of the country.

Additionally, India's overall travel market, which has been growing about 10% to 12% per annum, is expected to reach over $67 billion in bookings by 2021, and this is without including the rail and cabs market.

Past [trends in focus] suggest that the online travel market is likely to grow roughly twice as fast to reach about $23 billion in total online bookings by 2021.

In this backdrop and the ability of the company to invest behind growth, our focus will be to drive significant market share gains, particularly in the domestic hotels market.

Additionally, we want to focus on addressing all the travel needs of the Indian traveler, whether traveling in India or abroad.

We will therefore continue to invest behind high-decibel marketing and sales promotion campaigns to attract as well as retain the growing online customer base in India.

This would be supported by appropriate investments in technology.

As we get into the next fiscal, with the ability to leverage multiple brands post the ibibo merger, we believe we can make Indians travel like never before.

And with that, I'd like to open up the call for Q&A.

Operator, please?

(Operator Instructions) Our first question is from Sachin Salgaonkar from Bank of America Merrill Lynch.

I have 3 questions.

Firstly, Mohit, if you could help us understand any one-offs in this result, that would be helpful.

Sachin, yes, actually no real one-offs in this quarter.

You would recollect there was a one-off on air in the previous quarter, but nothing as such to call out in this particular quarter.

Okay, got it.

Because I did see some M&A related expense of $4.1 million and I think there was some impairment of intangibles of $15 million.

I just wanted to check what (inaudible)?

Yes.

From the -- on account of the ibibo merger, clearly the transaction produced accounting that has happened.

And therefore, there is goodwill or intangible assets created on the books.

And also there are certain intangibles which are kind of written off during the quarter.

The write-offs on intangibles is largely towards acquired businesses of HotelTravel and Easytobook.

As we've been calling (inaudible) over the last year or so, the focus is increasingly towards growing the domestic market or catering to the domestic customer, whether traveling in India or abroad, and not really focused on customers traveling from anywhere in the world to anywhere.

So with that focus in mind, and particularly now strengthened with the ibibo merger and incremental brands that we have, (inaudible) in the domestic market, we're kind of reducing our focus on the international businesses.

Okay, that's clear.

My second question is, wanted to know a little bit more on your thought process on the recent private placement where, frankly, I was a bit surprised, because I thought you guys were well positioned from a cash perspective.

So any thoughts on that direction?

And intentions of proceeds of that cash would be helpful.

Sachin, this is Deep.

I'd like to take that.

So yes, Sachin, I think it's fair to say the balance was -- bank balance was quite healthy at that point of time.

But I think at the same point, if we just take a look at the environment, it's also quite clear that things will stay a little choppy before they'll become more predictable.

And we did think it wise to raise -- do a pipe deal to fund both organic needs as well as have the wherewithal to look at M&A opportunities that would come up.

There are a lot of interesting young companies in this sector and in allied sectors to do with travel, which we've been looking at, so that was definitely playing on our mind.

But we didn't want to be in a situation where we were going full throttle in opening up the hotel market, which is taking up investments as you can see, and will continue to do so, actually, probably for the next year or 2 which is, again, quite, quite clear.

And so therefore, we wanted to have the necessary firepower to keep going full throttle and not really be in a position where we'll need to kind of look at raising or not be able to do something which is right for the business.

So classic case of shoring up the balance sheet at the right time.

And therefore, we thought that's something we should do.

Okay.

Got it.

And my last question, again to Mohit is, when I look at your take rates at hotels, I think they've improved from 19.4 to 20.5.

And again, and I thought that the ibibo take rate was a bit lower than MakeMyTrip, so with the combination or a combined entity I thought the take rate [range] down a bit.

So again, I wanted to understand what really happened and why do you think [so]?

Yes, sure, Sachin.

Actually, 2 things over there.

One, the ibibo take rate is known kind of unlikely to be on the lower end because, actually, if you look at it from a mix point of view, we generally have a higher mix of the budget segment under the ibibo brand and the budget segment, as we've always been calling out, has better margins to offer to the intermediaries like us.

So clearly, that's not the case.

Secondly, the other reason for the increase in the take rate overall for the segment is also the fact that ibibo doesn't really have a packages business, and therefore, the entire addition is on the hotel side.

And therefore, with an increasing mix of hotels in this entire segment, that's helping grow the overall take rate.

Okay.

So does that mean, Mohit, that the take rate may continue to inch up because, going forward, again, the same thing is going to happen which is the contribution of standalone hotels is going to increase a bit more?

Yes.

The kind of -- practically, the segment broadly kind of comprises effectively over 90 [crores] and in terms of transactions of hotels.

And therefore, I'm not very sure whether it's going to continue to make a significant difference in the coming years.

But clearly, in the shorter term, as we kind of keep ramping up on the budget segment, there is an opportunity.

But we are also kind of remaining focused on the fact that we don't want to become an expensive channel for the partners.

So therefore, we'll keep calibrating it.

Right now, we are clearly able to provide a lot of improvement in the occupancy rates to the partners, so it's clearly working and it's a win-win situation.

So we'll kind of keep a tight look on this and keep balancing it with overall occupancy rates and the ability of the partners in terms of what they can share.

And also kind of linked to our ability to [hike] marketing and promotional campaigns.

Our next question is from Gaurav Malhotra of Citigroup.

Just 2, 3 questions from my side.

First of all, on the number of transactions, if I look at the hotels and packages segment together, we see that on a y-on-y basis it's grown by almost 78%, 79%, which is roughly similar to the third quarter.

But the fourth quarter includes 2 months of ibibo.

So just wanted to get a sense of why -- shouldn't the growth had been bumped up because of ibibo?

That's the first question, please.

Yes.

So 2 things over there.

You would kind of also -- just 2 things to keep in mind over there.

One, seasonally a weaker quarter compared to Q3, which is clearly a high-travel season quarter and therefore a ramp-up that it sees, both in terms of hotel bookings and packages as well.

And the other fact that, if you would recollect, in the previous year, we had clearly ramped up on growth in the last 2 quarters of the year and more so in the last exit quarter.

So some amount of lapping effect over there as well.

And kind of largely getting offset with the consolidation of the ibibo results for the last 2 months.

Okay.

If -- and can you just try and break it up as to in the hotel business on the net revenue, out of the $44 million, how much would be the 2 months of ibibo and MakeMyTrip standalone?

So Gaurav, as we've kind of called out, we clearly want to continue operating through a buffet of brands.

And a lot of these calls, in terms of the pickup revenues or transactions and how do we kind of operate across the previous segments of the market would largely be kind of, at times, tactical keeping in line with what's kind of prevailing in the market.

And also from a longer-term strategic point of view, we would be cross-leveraging these brands and trying to cross-sell to the customer base that either brands have.

So keeping that in mind, we don't really feel the need for kind of splitting out revenues across brands.

Maybe I can just add, Gaurav.

Just for the benefit of, perhaps, everyone on the call as well.

So the way we've called that out from a consumer point of view, we are keeping 2 brands independent (inaudible) at the back end, as we have already rolled out unified supply side or the supply team or team that is going out in the market just kind of representing both the brands at the back-end on the supply side.

And there are a bunch of other areas that we would be synergizing between the brands, whether it is traffic acquisition, looking at collaborating well at the back end to see where the opportunities are in terms of just source of traffic and the -- in between different platforms, whether it is mobile app, mobile web or desktop, for that matter, and leveraging our different strengths between the 2 brands that we have.

It actually doesn't really make any sense; and internally, that's the way we are kind of looking at it.

So it could effectively be seeing one opportunity on a particular platform and then pushing (inaudible) upon that and then maybe a different kind of an opportunity on another platform and pushing (inaudible) upon that.

So therefore -- and we've been actually already doing that since the time that we've kind of closed the merger transaction.

So therefore, it doesn't actually makes sense to, from our point of view, because that's not the way we are looking at it anymore.

Okay.

On the second question, any guidance on the top line growth like you used to give it previously?

Yes.

Okay.

No, so maybe I can just give some color on that and then -- and Mohit can chime in.

As Mohit actually was trying to articulate that as part of his script, as we get into the merged combined entity scenario, we -- this is our first quarter with 2 months Goibibo results in, so we kind of -- as we have said that we are in a very good position just from a market leadership standpoint on various segments and we also have very clearly articulated where the growth opportunities are.

And we've also very clearly said that we would continue to ride the momentum of the growth that we have in the underpenetrated segments, just the shift that is happening from offline to online and we will continue to keep driving that.

So I guess from our point of view, just from macro perspective, we continue to be very optimistic about the overall continuous growth that will continue from not only in the travel market but also on the online penetration side, led by mobile penetration, even for the 2 Tier, 3 Tier, 4 cities.

So we decided it'd probably makes sense to just give directional guidance on the overall market growth as well as qualitative guidance from our point of view, calling out the segments that -- where we would be expecting the growth to continue.

We didn't want to confine ourselves given that there is robust growth, the environment overall is pretty good and our position is pretty strong post the merger as well.

We didn't want to confine ourselves to define any kind of a number or a range for that matter.

And that's the approach that we decided to take that probably makes sense for us.

And goes without saying that as we go along, we will continue to kind of keep evaluating it.

But for now, we thought it was actually best for us to not necessarily come out with any kind of a definitive range and stuff like that.

Just 2 quick questions from my side.

One is on the employee cost.

That has more than doubled quarter-on-quarter.

So that I'm presuming is essentially the -- and that includes only 2 months of ibibo merger.

So is it a [vastly] different employee cost structure between MakeMyTrip and ibibo?

No, Gaurav, I'll take that.

And I should have called out that, as I said, with respect to the merger-related accounting, there is a certain one-off that is kind of sitting out there particularly in the employee share-based compensation cost.

There's close to about $9 million of one-off, which has been charged out in the current quarter.

And this is largely coming in from what the liability would have been [computed] versus the prevailing stock price as on the date of the announcement compared to the date of -- compared to the price which was prevailing on the date of closing, because the entire transaction accounting kind of happens on the closing date.

So there's close to $9 million one-time expense sitting out over there.

So this is essentially the (inaudible) of ibibo converting to MakeMyTrip, is that what it is?

Absolutely, absolutely, absolutely.

Okay, okay.

Just last question, while things are obviously pretty good, but you've seen that there are at least some, I won't call it immediate threats, but OYO seems to be in the market for fundraising; you've seen that Paytm has raised quite substantial amount of sum, he seems to be quite fairly aggressive on the bus ticketing and the air ticketing side.

So just wanted to get your sense on how you perceive both these competitive threats or any other threats which may come on the horizon, because Paytm especially seems to be well funded right now?

Yes, it's a fair question, and I think it's pretty clear that the OTA segment, per se, is very attractive for not only the international players, the large MNCs who are also in the market and definitely getting more interested as the hotel market opens up or the overall market in general opens up, but also new models and new players here, I think, are clearly quite interested in the sector and everyone is pitching their hat in.

We do believe some part of this does help in expanding the market.

Paytm, as you've seen, has been playing a rather aggressive strategy on cash-back, playing to their strength on wallet and that definitely expands market, but also attracts a different segment of the market typically.

This is the bargain hunter.

This is a very price-sensitive customer, which is probably one of the ways the markets starts expanding at the bottom-end.

And we definitely track that, we are watching that.

And we are also finding the sensitivities that market and that segment has to discounts and the withdrawal of discounts, so that analysis is quite interesting and educative for us and we are tracking that all the time.

OYO is somewhat, I guess, in a space which is not directly competitive.

They're still seem to be more on the supply side, building out a low-touch chain of branded hotels, again in a low-touch manner.

There is a change in model out there.

So again, it's something we are watching.

As you know, they used to be offered on our platforms, in fact both Goibibo and MakeMyTrip platforms and are not, since a while now.

And there are other entrants too in that segment, but we have found is even these entrants on the newer chains, as we call them, is actually helping grow the market, standardize the market from a supply point of view and eventually helps grow that.

So when we do what Rajesh spoke about, MMT Assured, it's actually responding to the market need.

The market need is, in the budget segment, "give me quality and give me standardization," which was not very predictable when you looked at many independents.

So I think there'll be various companies which will come forward to provide that.

If you look at China, it kind of developed in a very similar manner.

You had Ctrip, eLong, Chinar, et cetera, as classic OTAs, but then you also had companies like Hanting and China Lodging, Home Inn, et cetera, which were developed as budget plays and which have actually become interesting elements of the supply ecosystem.

So I think there is a way to kind of figure out which of these brands we will be working with, which we are doing selectively as well as growing our own in-house offerings in the same way, whether it's MakeMyTrip Assured; earlier, it was GoStays, which actually continues to be a fairly large offering as well as we had MVP, which was My Value Plus, et cetera.

So I think, yes, it's a space which is attractive, it's a model which is proven globally.

The OTA model has been proven to be very lucrative in the long run and therefore you'll always find entrants coming in.

And there's churn again, so a lot of the local incumbents over there erstwhile are not so strong any longer, so I think that constant churn will happen as people clamor to be in the top 2 or 3 players in the market.

Also Gaurav, just to add at least from our experience over the last 2 years, incremental additional spends coming in from various market participants only kind of help to open up the market and to take it online even faster, which always has a positive implication or impact on the market leader.

And even now that the bouquet of brands behind us, our leverage, overall industry spend is like higher than ever before.

So I guess it only kind of works additionally in our favor if there is more market participation coming in.

The next question is from Lloyd Walmsley of Deutsche Bank.

A couple.

First one, can you kind of give us an update on how the integration is going broadly with Goibibo?

You talked about some of the product cross-pollination, but what have been the biggest surprises so far as you start down the integration path?

Sure, Lloyd.

This is Deep, and I'd like to answer that.

So I think most of the work that we had planned out and we kind of splitted out into immediate, or quick-win kind of targets and something for the midterm and then eventually the long term.

I think the quick wins, and I'd like to give the correct time frame, is really 1st February onwards; we got our approval from the Competition Commission of India on 17th of Jan, really started working together around the 1st of February.

So in these last few months, what we had put out as quick wins on cross-pollinating, quick integration, some of them which I called out, for example, international hotel supply, which MakeMyTrip had built out, is now doing very well on the Goibibo deck.

And similarly, redBus entire bus supply is doing very well for MakeMyTrip as well.

We've also done work on the payments as a common service, and that is actually -- some of the integration already done and yielding good results, but a lot planned on that side.

I'd also touched upon the rich data that is now available to us from the different brands and what we're watching out is what consumers are doing on one brand when they exit the brand, and if they go to the other brand, and whether they transact there or they leave there, I think that's leading us to some fascinating learnings, which we are applying back as we do new product innovation and tweaks to what we've got.

So I think most of these have actually been very positive for us.

A lot of it has reinforced the value of and the import of the merger and how it can play out.

I think if there were to be some surprises, I would like to call out that some of the stuff does take longer than expected.

And so maybe a little bit more time to be budgeted, particularly in the tech innovations.

These are harder.

As you know, platforms are obviously different and these things tend to go on for quite long.

So we've kind of set ourselves more realistic targets, we've tweaked some of them.

Where we are going to integrate, like on the supply platform, clearly there is work underway and very soon we will have a common way -- common supply platform that our hotel partners can access.

On the people side, too, I think the integration is going quite well.

But again, no merger is easy or a bed of roses.

It has its shares of ups and downs and I think we are taking some of them as they come and we are being quite realistic about the expectations, especially when it's same model, same business model to same business model, I think there's bound to be some amount of duplicacy, et cetera, and we are aware of that and we are being kind of budgeting that going forward.

And another one, if I can.

If I look at the -- for example, marketing as a percent of gross bookings, it's continuing to grow on a year-over-year basis, albeit slowing, the growth.

How should we think about that trend over this fiscal year and the next few years?

And any update on how you kind of see the path back to operating profitability over the next few years?

Yes, I'll take that, Mohit here.

If you would have seen, through the year, we did kind of demonstrate that we can kind of can build efficiencies on the marketing spend.

And we kind of keep doing it tactically, depending upon how the quarter is.

So if you really look at it, compared to the earlier quarters, Q3, which was a seasonally high [traffic] quarter for us, we had kind of built in much stronger efficiencies on the marketing and sales promotion expenses.

And it was kind of down to close to about 8% of overall -- 8 percentage points on gross bookings.

It's kind of again gone up closer to 11.5% to 12% in the current reported fiscal.

And then again, this is also because of multiple things.

One, we clearly have now multiple brands that we are investing behind and trying to promote and significantly drive cross-sell as well.

So we do believe, at least in the initial phases as we kind of get into building cross-sell synergies and opportunities across the brand, there is going to be incrementality that would come in terms of promotional spend.

Secondly, the market also has kind of, of late, started seeing some more competitive aggression coming in from some of the other market players.

So that's been another factor.

I think as we get into the seasonally high quarter in April, May, June, we will again try and see if we can build in some synergies or efficiencies on these expense.

But overall, I think the focus clearly, at least in the next year to 2, remains in terms of in favor of growth versus trying to cut down significantly on the promotional spend.

So that the growth run or the significant run on market share gains continues to be robust.

We have also kind of -- from a slightly longer-term planning point of view, have been calling out that going out -- and we do believe this whole promotional expense will kind of start tapering down over a 3- to 4-year period.

So I think going down in the next, maybe, 8 to 12 quarters, we do believe we should be in a position to kind of bring the expense down significantly from where they are currently.

And we kind of gradually look at aiming towards a breakeven over the next few years.

And I guess, last one, if I can, just on the M&A front with all the new capital you've raised.

How should we think about what you'd be looking most closely at?

Is it consolidation in core markets?

Is it expanding product?

Is it geographic focus?

Where --what can you share on your M&A philosophy as it stands today?

Yes, Lloyd, I think we can just talk about it at a high level and philosophically, the way we look at it.

I think we'll be looking for interesting product in tech place in the travel space which can give us speed to market.

It's stuff we obviously don't have or will take pretty long to build.

So I think that's something which we are keenly looking out.

As you're aware, we have a tech Innovation Fund for travel, which we've made a few investments, we've seen them, some of them are actually growing quite well.

But there are very interesting models that are coming up now powered by some of the new technologies available.

For example, AI was just talked about and now is being used and people are doing some keen innovative stuff, which can, in some sort of way, be bolted on.

So we are looking at that more keenly.

We would, I guess, probably similar model is not really where it would be a quick fit.

I'd mentioned about on the hotel side, I think some of the way people are expanding on the hotel side through low-touch but a smarter way to grow, that could be interesting for us as well.

So I guess within these spaces, we'll keep looking.

And again, anything new.

So it's -- we are open to see stuff, which can help us accelerate growth effectively and typically in the hotel market.

So I think we definitely will have a bias on the accommodation side out there.

As you know, in aviation, on the air side we have a really strong position and a large market share in domestic air.

And there, it's a question of really growing organically and improving the operational efficiencies there as well as customer service.

On the international air side, I think we know what to do and we have been now training eyes out there so you will see strong results come organically.

But on accommodations both, which can help us penetrate further into the domestic market.

And also I think the near international market or the short-haul international market, where Indians tend to travel a lot, and that growth has been actually quite fast.

I think those are also areas where we will look how we can kind of get more sticky customer base and a better -- provide a better experience for our customers.

So these are the broad areas.

The next question is from Kevin Kopelman of Cowen Group.

Sorry if I missed it, but could you give us growth in revenue less service cost in F Q4 on a pro forma basis for the combined company?

And then I have a follow-up after that.

Kevin, we still do not have the pro forma financials.

As I called out, these are consolidated financials over the last 2 months, but we haven't kind of really been able to put our pro forma financials per se, except for putting out historical financials of ibibo as of 31st March 2016 with corresponding numbers of 31st March 2015.

But going forward, hopefully in the next couple of months, we should be coming out with additional historical financials for the ibibo Group as well as pro forma financials shortly.

Okay, that's great.

And then, I guess, just a follow-up.

I know you're not giving guidance and I understand completely, can you give us any color just what you've seen so far in the June quarter, just any additional color, especially now that you started kind of putting some of your integration work in place, and I know it's early?

No, we would appreciate -- Difficult for us to kind of share any color on the current ongoing quarter.

I did kind of try and cover how overall the market growth is looking like and how the overall macros are looking like.

Overall business sentiment also seems to be good.

But for us, from -- in our business, considering there is kind of seasonality involved, it's always kind of good to look at, at least 3 to 4 quarter span rather than look at 1 quarter in particular so we'd want to kind of avoid making a comment on a quarter in particular.

Our next question is from Shaleen Kumar of UBS.

Just a couple of question from my side.

One on the hotel side, right?

So we know that we have 40,000 hotels on MakeMyTrip, but I would like to know how much -- how many hotels do we have in total like ibibo plus MakeMyTrip, if we exclude the common hotels, so now what's the bouquet we have in hotel?

So this is -- the number that we reported already is actually the total number.

Total number of 40,000.

And then this is basically after doing the exercise of just common hotels.

If you remember, MakeMyTrip had reported about 30,000 hotels in the past.

So you could, I guess, potentially see that there would be in the range of 8,000 to 10,000 hotels unique that we would have added post the merger, so this is the combined number, 40,000.

Yes, got it.

I just want to understand, like are all these hotel online?

Or are they integrated into our system or part of them are kind of offline and so what is that proportion?

This is Ashish here, I'll take this.

So these are active hotels.

They are pretty much hooked up to our live system or rather there is a system called In-Goibibo and there is a system called MakeMyTrip extranet and these hotels are pretty much hooked up to that system.

And as a result, these hotels also have an access to their performance, just like -- think of it just like a mini version of Google analytics for hotels.

Right, right.

So are you guys planning to have like one common system now replacing the 2 systems?

How is that going to happen?

Yes, we are working in that direction.

Right.

So should one conclude like, given that the take rates also are a bit driven by volume, were you able to get better margins from budget hotels?

Or do you see or are you in talks with budget hotel where you -- where both MakeMyTrip and ibibo have strong inflows in terms of the customers?

Are you seeing any kind of that signs?

Shaleen, we have been calling out our kind of overall philosophy is to be more in the 15% to 17% range on the hotel side in terms of margins.

We've actually been kind of -- been able to get much ahead of our targeted margin percentages, particularly in this business segment.

And this is done largely on account of the significant amount of promotional campaigns that we are running for the various hotels.

And they are therefore kind of willingly participating in terms of incremental margins through performance-linked incentives for us.

Slightly longer term, clearly while in the shorter term there is a potential to kind of slightly improve the margin rates or the take rates with more and more mix coming in from the budget segment where the ability to share higher margins is better.

But as I said, philosophically we would want to not really try and take the margins up, but keep it more tactical, depending upon what our overall marketing and sales promotion strategy is.

Directionally, longer term, we would actually want to kind of go back to a range of about 15% to 17% over a 4- to 5-year period.

Got you.

I know this point has already been discussed about the competition, but just want to understand from you about Booking, given that Booking is also your strategic partner, like how do you see it as a threat that -- because I was reading somewhere that they already have more than 22,000 hotels now in India.

So do you see that as a threat somewhere?

Yes, I think to put it in perspective, we do use booking.com's inventory internationally in some markets where we obviously have not done direct integration or direct supply, because these are long tail for us.

So for long tail, we are working with both booking.com as well as some other partners also -- large partners who can provide us the best inventory and best rates at that point of time.

However, in India, booking.com like you rightfully pointed out, is definitely looking at the market more carefully and growing in this market, which is, actually, I think testimony to the fact that it is a really attractive market, and it is finally opened up on the hotel side.

Till a few years ago, as you know, it was largely an air-driven market.

And so there is no strategic partnership with Booking, strategic investor is here is Ctrip and with whom we work closely.

But in this case, Booking, when it comes to the domestic market, we are definitely competing.

Also, Shaleen, just to add, while our inventory, the 40,000 active hotels, as Ashish was pointing out, are largely direct contracted hotels, a lot of the other global chains would typically think to kind of leverage inventory coming in from aggregators or channel managers so there could be differences in terms of the nature of contracting that plays out in this case.

Got you.

Mohit, I'm not sure whether -- just want -- in case you answered this question (inaudible) pointed out, so when there is a third party involved in between, can you provide a sense like what kind of [mall take rates -- what] level for an OTA when this kind of thing happen?

As I said, we don't really kind of take it through intermediaries and therefore it's slightly difficult for us to comment on that.

But philosophically, if you look at it, this would typically be split more in favor of the one who has direct inventory access versus the one who is kind of leveraging it.

Yes, just to add, if you have basically a platform which enables the hotels to get enabled, then they are also able to participate in delivering promotions, last minute deals, offers, et cetera, et cetera, which makes the platform more valuable.

Got you.

Just last, one question, like what were the outstanding number of shares after closing this capital raise fully diluted and right now?

The fully diluted capital base, you're asking, Shaleen?

Outstanding number of shares, yes, Mohit.

Yes, so the outstanding number of shares, it is...

(inaudible) 107.6 million shares, but for the next quarter (inaudible) looking for 96 million shares, only because of the timing of the closing of the [ibibo] transaction.

So that 96 million is what you can put in June EPS and after that...

107.6.

(inaudible)

Sorry, I couldn't hear that.

Can you please repeat the number?

Yes, so for June quarter, we are expecting about 96 million shares that you can use for your EPS calculation.

Okay.

And...

But on a fully diluted basis, since the equity financing, the share count is [about] 107 million, which also includes all [e-stocks] and, yes.

Just keep in mind, Shaleen, there's close to about 6.5 million, which is in terms of RSUs, which is not necessarily kind of out there as outstanding shares So therefore, arriving at the outstanding shares, please make sure that you're making that adjustment.

At this time, I see no other questions in queue.

I'll turn it back to management for closing remarks.

Thank you, everyone, for joining our earnings call today.

We certainly look forward to speaking with all you very soon.

Have a good evening.

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

This concludes the program.

You may now disconnect.

Everyone, have a great day.