MakeMyTrip Ltd (MMYT) 2023 Q1 法說會逐字稿

Hello, everyone. I'm Vipul Garg, Vice President - Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal Year 2023 First Year -- First Quarter Earnings Webinar. Today's event will be hosted by Deep Kalra, our company's Group Chairman and Chief Mentor. Joining him is Rajesh Magow, our Co-Founder and Group Chief Executive Officer; and Mohit Kabra, our Group Chief Financial Officer.

As a reminder, this live event is being recorded by the company and will be made available for replay on our IR website shortly after conclusion of today's event. At the end of these prepared remarks, we will also be hosting a Q&A session. Furthermore, certain statements made during today's event may be considered forward-looking statements within the meaning of safe harbor provision of U.S. Private Securities Litigation Reform Act of 1995. These statements are not guarantee of future performance, are subject to inherent uncertainties, and actual results may differ materially. Any forward-looking information relayed during this event 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 Statements section of the company's Annual Report on Form 20-F filed with the SEC on 12th July 2022. Copies of these filings are available from the SEC or from company's Investor Relations department.

I would like to now turn over the call to Rajesh. Over to you, Rajesh.

Thank you, Vipul. Welcome, everyone, to our first quarter earnings call of fiscal 2023. We are glad to report a robust quarter-on-quarter growth of 63.3% in gross bookings on constant currency basis, signaling strong recovery in travel sentiment and demand post the third wave of COVID-19 infections in India. As shared earlier, we have built significant operating leverage in our business over the last 2 years, which has helped us deliver our highest quarterly adjusted operating profit of over $16.5 million compared to about $12 million in the last reported quarter.

It is heartening that after 2 years of being under the impact of COVID-19 pandemic, this new fiscal year has started on a strong note with public behavior and sentiment back to pre-pandemic normal, given the comfort of strong vaccination coverage in India and the latest variant of COVID-19 reporting milder infection with minimal hospitalization and fatality rate. Accordingly, we have seen strong recovery in leisure travel in domestic destinations as well as improving demand in short-haul international destinations in Southeast Asia, UAE, and Nepal, et cetera.

Globally and in India, governments and central banks have increased the efforts recently to tame inflationary pressures that had built up over the last few quarters. As the effect of these measures become more visible in the coming quarters, there is likelihood that airfares, which have been higher than normal during Q1 due to higher oil prices, will become more attractive, leading to improved domestic and international travel demand, further considering the consumer sentiment for travel is still very positive.

With work patterns gradually getting back to pre-pandemic normal, while we have seen increased demand for office commute during the quarter. We also expect corporate travel demand momentum to further pick up in the coming quarters, aiding overall demand recovery for the travel industry. Overall, our current estimate is that travel, both domestic and international, should recover fully to pre-pandemic levels by the end of this year.

Apart from the short-term positive outlook on demand recovery, we believe there are significant tailwinds supporting robust growth in travel industry over the medium term of next 3 to 5 years. Firstly, due to the pandemic, the travel industry saw a significant temporary decline, and hence, the pent-up demand is likely to drive accelerated growth with the return of normalcy. Secondly, post the pandemic, there is a permanent shift in how people perceive travel with propensity to travel being much higher and experiences becoming even more important.

Thirdly, there is also a secular uptick in the online buying behavior, which bodes very well for us as most segments of the Indian travel industries have traditionally had low online penetration. Lastly, and most importantly, India is still an underpenetrated travel market with a huge scope of growth. Some of the factors favoring these growth trends are expansion of infrastructure, increasing per capita income, increasing disposable incomes, and higher willingness to travel and book online among the young working population.

As per the Ministry of Civil Aviation estimates, Indian aviation will become world's third largest aviation market by 2024. Development of new airports, highways, and addition of hotels will help grow domestic tourism manyfold in coming years. Almost all the airlines have placed orders for new planes over the years. On the other hand, few hospitality chains have also announced their expansion plans, which should add to capacity and fuel domestic travel growth. As a comprehensive travel service provider, we hope to leverage these macro growth trends.

Let me now talk about the performance in the key travel segments, and I would then share the prospects on some of the future growth areas, both on the supply side and demand side. Coming to business segments. In our air business, we continue to maintain our leadership position and market share. We are recovering faster than the market. During the quarter, we witnessed over 90% recovery as compared to pre-pandemic levels. This is majorly on account of travel demand opening and more people traveling during the summer holiday season.

I talked about high airfares earlier. This has affected recovery momentum to some extent. Leisure destinations like Srinagar, Dehradun, Leh have shown more than 100% recovery, while business in metro destinations like Delhi, Mumbai, Bangalore, et cetera, have lagged a bit due to high fares and corporate demand still short of full recovery. On international travel, short-haul destinations like Southeast Asia, Maldives, UAE, and Nepal witnessed strong recovery. In the next few months, as the visa backlog gets cleared and new visa issuances for European and American destinations is streamlined, we expect to see stronger demand recovery in these long-haul destinations as well.

Coming to our hotels, packages, and alternative accommodation business. We witnessed a strong recovery driven by leisure travel. Supply-side services have now stabilized. In the top selling hotels, 90% of the rooms are open and almost all chain hotels are now fully functioning. In many of the leisure destinations, we are now seeing growth over pre-pandemic levels, which has helped taking the overall volumes recovery in this segment to around 87% of the pre-pandemic volumes.

With accommodations, our focus on building homestay supply has helped us improve supply in leisure cities such as Rishikesh, Srinagar, Shimla, Manali, Mussoorie, McLeodganj and Leh, which has helped us get past pre-pandemic volumes in this category. We also launched Homestay Awards, which are one of its kind in the country and will help popularize this category further. The awards attracted nominations from 2,500-plus homestays across the country. Consumer voting is going on, and more than 460,000 votes have already been cast by the users. We continue to add more properties on our platform and increase our supply moat.

It is encouraging to see that more and more properties in smaller towns are keen to come on our platform and sell online. In Q1, we sold rooms in over 43,000 properties spread over 1,900-plus cities, which reflects the extensive support being provided to small accommodation service providers, particularly in the remote towns and building deeper engagement with suppliers and customers in larger Bharat.

Coming to our bus ticketing business. We maintained our recovery momentum in the seasonally strong quarter. Demand and supply recovery has been lagging in southern states of Tamil Nadu, Karnataka, and Kerala. In the coming quarters, reopening of offices and gradual move away from remote working in the corporate sector, especially in the IT sector, should help drive full restoration of demand. On the product side, we launched a project aimed at increasing the last-minute booking share of redBus through targeted interventions on select routes by ensuring price competitiveness and pricing advantage with offline channels.

Additionally, interventions such as keeping the booking window open at a boarding point till the actual time of departure based on real-time [bias] delays, as well as showing them earliest available bus at the nearest boarding points have helped improve conversion rates for us. We launched new initiatives to differentiate our [primary] experience, 7 redBus lounges across top boarding points pan-India, including 4 Cafe Coffee Day lounges in Bangalore, are now functional.

Let me now share more details on the current areas of investment, which would be growth drivers in the next few years as they scale up. These include both supply side initiatives and demand-side initiatives, apart from small inroads in adjacent markets like GCC. On the supply side, our investments are primarily towards bringing more and more small service providers and accommodations onto our platform and ground transport services like rail and intercity cabs. We now have accommodation service providers in about 1,900 cities, up from 1,600 cities earlier. We aim to have accommodation supply in over 2,000 cities before the end of this fiscal year.

On airport transfer use case, we recently piloted to promote carbon-efficient services, particularly in the metro cities, starting with a partnership with BluSmart, a ride-sharing company with electrical vehicles, offering our customers hassle-free, guaranteed, and on-time pickup and drop experience at Delhi Airport. We are looking to expand the supply at other locations through similar partnerships. One of the key objectives around our ground transport services is to acquire customers, particularly in the hinterland and eventually get them to buying other travel services on our platforms.

Our key initiatives on the demand segments, as shared earlier, are focused on catering to the corporate travel demand via myBiz and Quest 2 Travel Q2T platforms, as well as improved outreach to customers in the hinterland while tapping into the small travel agents across the country for last-leg booking facilitation via our myPartner platform and through our franchise stores. Our target is to double the booking contribution coming from these demand segments from about 7% last year to about 15% over the next few quarters.

According to our estimates, we are now the largest OTA powering the travel demand from Indian corporates via our myBiz platform targeting with the SMEs and Q2T platform for large corporates, where we added notable clients like 3i Infotech, Grant Thornton, Gati Logistics, et cetera, during the reported quarter. Coming to our foray into the GCC market, our first focus has been UAE market, and it continues to scale. Q1 has been a good quarter for us with market showing strong recovery post Omicron wave and seasonal customer demand around Eid holidays.

During Q1, our gross bookings grew 2.3x quarter-on-quarter organically, albeit on a low base. We have made significant progress in building supply strength and automation. Our first target is to be the leading OTA in UAE by the end of this fiscal year. Before I wind up, I would like to reiterate that the outlook for travel industry has improved considerably, and we have started the fiscal on a strong note with robust top line recovery and growth in profits.

With this, let me now hand over the call to Mohit for financial highlights of the quarter. Over to you, Mohit.

Thanks, Rajesh. Hello, everyone. I hope you're all staying safe and keeping healthy. During the last 2 years under the pandemic, we have been focused on tight cost control to get to operational profitability, while being in the business recovery phase. This year, the objective will be to improve profitability along with strong bookings growth over the previous year.

Before getting into the financial highlights, I'd like to call out 2 specific things. One, while our operating business is largely in Indian currency, our financial reporting is in U.S. dollars, significant weakening of the INR versus USD during the quarter have a translation or restatement impact, and hence, I'd focus on growth in constant currency to reflect the stronger underneath growth in the operating currency.

The year-on-year growth metrics during this reported quarter look very high because Q1 last year was significantly impacted by the second wave of the COVID-19 pandemic. I'll, therefore, focus on quarter-on-quarter growth to reflect the continued strong momentum in travel demand recovery. I'm glad to report that during the reported quarter, we posted very strong growth and profit numbers. We have achieved 63.3% quarter-on-quarter growth in bookings on a constant currency basis, apart from posting our highest quarterly adjusted operating profit or adjusted EBIT of $16.5 million.

Adding for non-cash expenses, the adjusted cash operating profit or adjusted EBITDA stood at about $20.1 million. During the quarter, our air ticketing adjusted margin stood at $60.6 million, registering a 38.7% growth over the previous quarter on a constant currency basis. We're glad to share that our domestic flight segments have nearly recovered to pre-pandemic levels of same quarter in fiscal year 2019-'20, although the recovery on international flights is still around the halfway mark for mostly the reasons that have already been called out by Rajesh.

The air ticketing margins for the quarter were on expected lines at about 6.1% in view of the high airfares. And therefore, you can see that the average selling price in domestic flights was up almost 18.6% versus last quarter. Adjusted margin in our hotels and packages business stood at $66.9 million, witnessing a growth of 62.3% quarter-on-quarter in constant currency terms. We witnessed a surge in bookings this quarter, aided by the holidays or vacation seasonality. The margins in the segment came in line with our expectations at about 17.2%. The average selling price for domestic hotels was up almost 11.5% over the previous quarter.

In our bus ticketing business, the quarterly adjusted margin stood at about $20.8 million, registering a very strong quarter-on-quarter growth of about 72.3% in constant currency terms. The margins were in line with our expectations at about 8.8%. And the average selling price increase in domestic bus tickets was about 15.6% over the previous quarter. Adjusted margin in our other businesses was $7.9 million, which is a 42% quarter-on-quarter growth in constant currency terms.

Coming to our operating costs, we continue to be prudent with our variable spends, especially the customer acquisition costs. Marketing and sales promotion expenses stood at about 5.1% of gross bookings, in line with the 5.1% reported during the last fiscal year. While it has been reported earlier, during the quarter, we took a majority stake in India's leading online forex provider, BookMyForex, to help build ancillary forex services as a part of our TripMoney Fintech platform to meet the growing needs of our travel customers. As international travel picks up, this will allow us the opportunity to service the forex requirements of our customers. We will continue to leverage our strong brands and cash position to drive investments in the areas of future growth already outlined by Rajesh.

With that, I'd like to turn the call back to Vipul for Q&A.

Thank you, Mohit. (Operator Instructions) First question is from the line of Vijit Jain of Citi.

Congratulations on a great set of numbers. My first question is just the air ASPs, the average ticket size of the air transactions. How much of it is being driven by the price increases in domestic aviation and how much of an impact from international improvement? And if you can talk about overall how much has international improved on a QoQ basis?

Sure, Vijit I could take that. So like I had called out, on domestic side, the domestic fares on an average have increased by about 18.6% over the previous quarter. So that's the kind of increase in fares that we are seeing on the domestic side. International, clearly, the recovery has been kind of muted. Like I called out, international recovery is kind of more in the 50s right now, and therefore, kind of lagging. A couple of reasons over there. While we're doing quite well on the short-haul destinations, which is destinations like Southeast Asia, et cetera, we are doing well, however, recovery in the long-haul destinations, particularly Europe, U.S., et cetera, is yet to pick up. And multiple reasons over there, including high airfares and also the fact that issuances of new visas had been kind of severely impacted because of the large backlog that these embassies are kind of running. So I believe the improvement of recovery in the long-haul destinations will actually be -- would be something that we'll look forward to in the coming quarters.

Got it. Mohit, my second question is within the domestic hotel business also, is it -- is budget segment still lagging relative to the premium segment because there's a fairly decent jump in average ticket size there as well? And just a clarification question to what Rajesh said earlier. He mentioned new channels, you aim to have their contribution doubled from 7% to 15%. I just wanted to understand what are you including in that 7% number.

Sure, I could take both. When it comes to the domestic hotels also, there has been a bit of inflationary impact, like I called out the ASPs have increased by about 11.5%. As far as recovery is concerned, again, while the budget segment was lagging very significantly over the last fiscal year or the last 2 years, it's actually now improving. So while pre-pandemic it used to be more in the high-40s to close to 50% mark, it's already gotten into the 30s. So I would say it's more the inflationary impact rather than the mix impact which is reflecting in the ASPs. So that's more on the hotel side. The second question, if you could just repeat that. Sorry?

The 7%.

Okay, so the 7% growing to 15%. So like, Vijit, we had called out, we're kind of tapping into a lot of new demand segments, and Rajesh had called out in his narrative that we're largely looking at 3 channels of new demand segments to tap into. One is the corporate segment, which is being catered to by myBiz platform for small corporates and Q2T by large corporates; the second one is the entire the franchisee networks that we're looking at expanding; and the third is the entire small travel agent network being tapped into, along with powering a lot of the affiliate channels. So looking at all of these channels together, because traditionally we have been more focused on the retail customer which comes in directly and books on the app or the platforms. So these new demand segments that we're tapping through the nonretail kind of a platform, these we believe should keep increasing in the mix. And these were accounting close to about 7% last year. We believe we can possibly look at doubling the entire mix coming in from these new demand segments.

We'll take the next question, which is from Gaurav Rateria of Morgan Stanley.

Congratulations on great performance in this quarter. So a couple of questions. Firstly, on advertising and sales promotion, Mohit, you have always hinted it to go back to 6% to 7%, while 1Q has kind of remained much lower than that, despite gross booking improving quite a bit. So how should one think about this number going forward? Has there been any material change in the comparative intensity, which kind of changes your view?

Second related question is you had made remarks on the investments. So how do you think about balancing those investments and operating leverage benefit? You earlier had given an outlook of EBIT margins closer to 0.5% of gross bookings. Does that change after what you have done in 1Q?

Gaurav, I'll take both of these. On the first one, which is on customer acquisition costs, like I called out during the quarter, these have largely trended at similar levels to the previous fiscal year at about 5.1%. We have been calling out that we do expect that this could slightly go up. And this will be linked to a couple of things. One, it will be linked to the overall business mix getting restored to pre-pandemic levels, where hotels used to contribute almost like 50% plus on the mix. Right now, hotels is still in the 40s, because generally in the recovery pattern we have seen air leads the recovery and the other segments tend to lag a little bit. So as this mix gets restored over the next few quarters, I think we should possibly see this number increasing because the amount of customer acquisition cost that we incur on the hotel side are slightly higher, in line with the larger margins that we make in those businesses.

The second point is we are also not getting into any significant brand expenses, which are more longer term in nature, keeping in mind that we have still not crossed the pre-pandemic volumes. And once we're getting beyond the pre-pandemic volumes, I think there will be a requirement to really start on the brand expenses. And therefore, these 2 factors keeping in mind is where we have called out that we could see a little bit of increase coming in the marketing cost. But the good part is we should also see with the improvement in the mix towards hotels, we should also see the blended margin going up marginally as well. So some part of the increase in the promotional expenses will be offset from the improved blended margins as well.

Moving on to the second question on the investment. Like we have said, I think that the business now firmly having established its profitability and the cost levers well in control, also the fact that the larger investment in terms of opening up the larger segments like air ticketing or say, for instance, hotels, et cetera, that investment is already behind us. What we are now curating is a variety of demand segments, which will be very useful from the longer-term growth point of view; and secondly, getting into a lot of adjacent travel services or travel-related services. Again, there both of these demand and supply side increases we don't necessarily need to invest in a big way. So the size and scale of investment is going to be much lower compared to the investments we have been doing, say, for instance, over the last 4, 5 years in the hotels business.

So I think a large part of these investments practically will keep getting funded out of the operating cash profit generation that we see on a quarter-to-quarter basis. And keeping that in mind is where we have pretty much given a broader guidance that we do believe we should be able to see overall EBITDA getting to close to about the 1% levels of gross booking and we'll be -- it will be good if we can establish that kind of profitability and then we'll gradually look at scaling it up further.

And maybe, Mohit, if I can just add, Gaurav, just one more point on the marketing spend. I think that's an important one. I thought it will be interesting to call out that as well. See, we have also seen the organic traffic growth in the last quarter, which has been very robust at these marketing spend levels, and that's how we are evaluating if we have to up the ante give on the marketing spend and all just looking at what the traffic trends are. So quarter-on-quarter, our traffic growth on these spends, which is a large part of our traffic is organically, as we have mentioned it earlier as well, was about 40%, which was very, very robust quarter-on-quarter. And just keeping that in mind and also the fact that just the overall, like I called out earlier as well, the macro headwind on high fares, look at that and look at the organic traffic growth that is already happening, we end up balancing our overall marketing spend, which is what we ended up doing in this reported quarter.

Great. Just a follow-up. Mohit, you said 1% of gross booking. Is it for EBITDA or is it for adjusted EBIT number? Just wanted to clarify that.

Yes. directionally, EBITDA, although the EBIT to EBITDA gap will not be very large going forward. It's usually around the $3 million mark per quarter. So that may not be very material going forward. But yes, more in terms of EBITDA.

Okay. Sure. Secondly, just wanted to get sense on the cash balance came down quarter-on-quarter. So what's going on there? Ideally it should have gone up with the strong -- positive adjusted EBIT number. Thirdly, a question for Rajesh on the market share. If you had shared, I missed that on the airline, domestic air segment, what is the market share this quarter compared to what you shared last quarter? And lastly, a data point, just a bookkeeping question. How should one look at the UAE bookings? Is this a part of the overall booking number on the respective segment for us? And how big is that? Any quantification there if possible?

Sure. So in terms of cash balance, Gaurav, actually, a large part of the increase that would have otherwise come through is getting impacted because of the translation with the rupee weakening. So the balances that we have in India and the payables, intercompany payable that India has to some of the other overseas companies in the group, that is what is creating a translation issue and a drop in the cash balance. Otherwise, this is more a notional kind of one because, guess what, none of these payments are due anytime soon. So therefore, this is more a temporary drop coming in because of the change in exchange rate, the INR-dollar exchange rates, very significantly during the quarter. So that I'm hoping should get course corrected over the next few quarters.

Moving on to the air market share. Again, it's remained around the 30% mark. And like we had called out, we are more in terms of making sure that we are able to retain our strong market share in the air segment and not necessarily looking at very significant gains in the market share on a year-on-year basis on the air ticketing side. It will be a very different approach in some of the underpenetrated segments like hotels, accommodation, or say bus ticketing, et cetera, where we're clearly looking at significant market share gains and the growth is far outpacing the growth not just in the market but also in the online market.

Lastly, on your question on UAE, again, like I said, this is again more foray into the adjacent market where we believe we have a reasonable kind of a brand resonance and therefore the approach is to do gradual, slow investment buildup rather than a big bang market entry. And therefore, we're looking at this being part of our respective segment reporting, and so you'll see those numbers kind of coming in as part of the respective segments. And therefore, the Flight Ticketing segments also kind of combined in the overall operating metrics being shared for Air Ticketing segments.

The next question is from the line of [Ruchi Sheth].

My question was on the hotel segment. I just wanted to understand as part of the overall market, what is the current market share that we have in the hotel segment? And specifically, if we divide the hotel segment into budget, what is the market share there? And how are we looking to gain share over there, especially given some of the material competitors in the budget segment maybe scaling back their marketing efforts?

And maybe I can take that, Ruchi. Ruchi, I think it will be suffice to say, I guess in line with our previous quarter's comments as well, that we do have a leading market share in the online market across the hotel segments. But quantifying that is very, very hard, given the fragmented nature of the market, especially now, as we called out, the -- our focus also increasingly to build the supply on the alternative accommodation side as well, whether it is homestays or the apartments or the villas or the hostels. Now if you start looking at all this even more fragmented nature of the supply, it becomes very hard to be able to sort of overall quantify. But we do know sort of the data that we sort of estimate and collect from the supply side with our partners on a basis various discussions and conversations, et cetera, that our wallet share across the segments has only been improving.

The next question is from the line of Mithun Soni of Geecee Ventures.

Yes. Congratulations on the good numbers. So I have a couple of questions, and starting with Hotels and Packages business. So want to understand like if you can give a picture as to like how has the mix changed compared to last year in terms of the top hotels like 3 Star or 4 Star? What will be the mix of alternate accommodation for us and staying within the budgets? And how will we see this changing over the next 1 year or 2 years?

[Had 2 in 1] question, we are also seeing that a lot of these (technical difficulty), Marriott, they are also pushing a lot more direct booking through their own website. How do you see that impacting our business? And the same way, where Google also trying to do (technical difficulty) the pricing packages, price competitors on their platforms. How does it change the business dynamics [for us]?

Yes. Mithun, your line was really, really poor, but I think I got your question. So let me just make an attempt to respond to that.

Yes.

The various segments, how has our mix changed in this quarter between the premium segments and the mid segments or the budget segments, as I were just sort of mentioning in response to the earlier question, what we have witnessed during the COVID as the recovery was happening in between after Wave 1 and Wave 2, and after that, for the last couple of quarters now when the COVID restrictions are lifted and business is coming back to normal, what we have seen is that our actually wallet share, which is sort of defined more as what percentage of sort of bookings that we end up doing as part of the different sort of segment of hotels at our defined occupancy level has only improved across the segments.

Now it is not necessarily only on premium segment and not necessarily on a mid segment or independent hotels as well as the budget segment. As Mohit mentioned earlier, and we've reported that out earlier as well, that budget segment growth was or the recovery rather was lagging behind. That also is -- as we have seen in the April, May, June quarter, that's also come back nicely and hopefully, the momentum will continue going forward as well. So I guess, net-net, I would say, mix hasn't really changed significantly.

Now coming to the direct hotel supply bookings on the Marriott's and the others who try to push direct bookings on their platform, this has been the phenomena forever, actually, global phenomena to some extent, even in India. But from the way we have seen our numbers sort of growing as an intermediary, like literally quarter-on-quarter over the years, I think both the platforms have their own sort of independent role to play. There is a set of value that we bring it for the customers clearly in the form of selection choice and convenience and hopefully, the best pricing.

And just from a brand loyalty standpoint, every hotel chain, global chain will have their own loyalty sort of program as well to attract their customer to -- customers directly on their platform, we haven't really over the years seen the SKU moving towards, given the fact that the customers end up sort of doing selection where they want to see, especially in the market like India, compare it with many other hotels before they sort of make their decision to book.

We have seen our platform growing much, much faster than what our understanding is on the supply direct growth. During the difficult times, we've seen the chain of hotels, in fact, across the board working lot more closely, lot more deeply with us in terms of just sort of leveraging the traffic that we get on our platform, which is huge and to get the benefit of them and doing all those promotions, et cetera, on our platform rather than sort of doing their own platform. So -- and from a parity standpoint, we end up getting parity through their platform as well. So I'm not necessarily concerned about that given -- and largely on the back of the value proposition that we bring it to the -- to our partners. I guess these were your 2 questions, right, Mithun?

Yes. Yes. And on to this same point, like in my recent experiences as I keep doing the research on MMT or MakeMyTrip product, what I've observed is that during this good period when there was a lot of demand, lot of these hotels, even the single or the good properties in each of the locations, they were not giving enough rooms is what I understood. They were almost -- they would say, okay, not enough rooms on our platform. Maybe they were directly selling. Is there something like -- and maybe -- or they were selling through the other channels. Is this something more worrisome in the medium to long-term?

Yes. No, it could be a fair observation, and I don't really remember -- no more details, maybe we can take it offline to just more understand of what period did you actually observe that. But because our model is the allocation model and we get inventory allocation, we haven't really seen any such examples where we were short of supply on -- from any particular hotel or the partners would have come back and said that we don't want to give. In fact, the way it works is that as we sell, we keep getting them in the rooms sort of replenished automatically. We don't really need to -- there's no manual process involved here, and we didn't see any sold out.

You know what might have happened, having said all of this, so as a trend, we don't see any of that. But what might have happened, sometimes what happens is when a peak destination during the leisure or a heavy holiday season period and very short period, and we don't have in our country too many sort of long periods like that, where in a particular hyper-location, that market would be genuinely sold out, and that market would be generally sold out across channels. And if I may just add one more point, we now not only have the all 3, our platforms, online platforms, we also have our B2B platforms, platform called myPartner. So -- and we've got the Corporate platform. So from a partner standpoint, there are more than one platforms that they can actually offload their inventory and get different, different demand segments. So I don't think -- and there may be some anecdote that you might have observed, but as a trend, I don't see any of that.

So just coming to just finish this point, basically, I try -- we keep doing as internally compared with MakeMyTrip and Booking.com as a comparison to see how are things, how are pricing, how is it compared to Google, that's it. Now one -- so...

I understand.

Yes.

No, I understand that. I mean we do that as well. So I understand that.

My second question is, as in Europe, alternative accommodation on booking platform is quite a big business for them. How do we see that for us over the next 3 years to 5 years? You have already said, but if you can give some more color as to what will be the -- what can be the proportion of that for us?

Yes, Mithun, no, that is absolutely right. And that is the reason why we started focusing on this segment now for the last several quarters. And we've been -- and that's like 360 degree sort of focus. We've been building supply. We've been getting all the kind of alternative accommodations from Pan-India and premium, super premium, mid segment, budget segment and all of them, whether it is the classical homestays, the cottages or the apartments or the hostels and all. And I would -- I could just tell you directionally, from an opportunity standpoint, I think it's a big opportunity. And it just early days of evolution in India, but catching up really fast in terms of just the emerging trend in consumers' mind.

And part of that was also, in fact, ironically, thanks to pandemic as well, where people were looking for safe, secluded sort of stays that they wanted to get in. But I can tell you on our platform, we've been adding sort of accommodations like hundreds every quarter literally. And also on the -- on -- in terms of bookings from our pre-pandemic last year level, we have already in this segment, we have done sort of 125% growth on that. Of course, it's a smaller base, it's not comparable to the hotel base that we have, but directionally, it is very, very encouraging.

And last, but not the least, I will make the point or even on our platform, given that you're quite familiar with our product, you would notice that we actually have a dedicated funnel for this called homestays, which is -- which will give the customer experience specific to this -- these sort of property types with the differentiated experience. It's a journey. There are a few things that we've already done, few features that we've already included, and there are many, many more that are waiting to come on that funnel.

Fair, fair. And one last question, if I can. Today -- now the discounts, and it has come back a little bit, both in the hotel segment and primarily the hotel segment. So should we say that this is now the new base because now we are almost there in the market, like full fledged or there is still the scope for the discounts or the promotion expenses to go up in the hotel segment?

Mithun, I think I just kind of answered that in one of the biggest questions, possibly from Vijit.

Yes, which you indicated.

Yes. Yes. Yes. So I think the answer remains the same on this one as well.

The next question is from the line of Aditya Chandrasekar of UBS Securities.

Yes. Just a very quick question from my side. So when we look at adjusted margin percentage, right? So for Air, it's down from around 7.1% last quarter to 6.1% and hotels, it's down from 17.7% to 17.2%. I understand this is because obviously, the transaction sizes have increased a bit this quarter. How do we look at this number going ahead? Because as long-haul international kind of growth, et cetera, transaction sizes are probably going to increase further. Is there some (technical difficulty) kind of way to think going ahead?

Sorry, Aditya, you kind of broke out a little in between, but I think I got the gist of the question. You broke up in the last few seconds. But I think if it's about the trends on the existent margins, yes, you're absolutely right. This is kind of largely kind of moving in tandem with the change in the average selling prices. If you look at on the international side also, our margins are largely in line with the domestic market.

And there also, unless there is a very significant change in the ASP, the overall kind of take rates would kind of largely remain on similar lines. So don't expect too much of a change. Overall, if the fares come down, as is expected, hopefully, with some relief on the crude oil side and therefore, kind of the impact passing through in terms of [ETF] and ETF costs and, therefore, on the overall fares, then I believe we should -- we could possibly see an optical kind of increase on the Air Ticketing margins.

Coming on the hotel side, again, there has been a, like I called out almost like 11.5% quarter-on-quarter impact on pricing, which has come in. But hotels overall, we do believe will kind of remain in that broad range of about 17% to 19%. So I think so long as we are in that range, this seems pretty much in line or in line with expectations.

Okay. Got it. Just a quick follow-up maybe. So on the hotel side, it used to be between, say, 20% to 22-odd percent pre-COVID, right, but that has kind of come down to the 17%, 18%. So this is the sustainable number kind of going ahead, or how do we look at it?

Around 2018, it [exceeded about, again, 23%], and we had called out back then that we would gradually want to bring it down to about into the high teens rather than being in the 20s, because you don't want high take rates being an issue, allowing entry for other platforms to kind of make inroads with the suppliers. And therefore, this was a conscious attempt to kind of get it into the 17% to 19% range over the last few years. And this is also happening in tandem with the significant shift in the promotional expense like we are doing in that category.

So as we kind of reduce the quantum of promotional expense that we are incurring, we kind of pass on some part of that back into the margin relief to the suppliers as well, because guess what, the suppliers are now kind of front-ending a lot of these consumer promotions. So we've got to kind of keep -- look at it in that context. So yes, pretty much happening on a -- in an organized manner.

The next question is from the line of Santosh Sinha of Axis Capital.

My question is regarding the finance cost, actually, it has gone up during this quarter. So can you tell me the reason for that? And also on the employee side, what is the outlook of the company? Because it had optimized the employee strength in FY '21. So will it add back the employees? And the third question is regarding cash spending. So what exactly is the plan of the company regarding all the cash balance that the company has, whether it plans to give dividend or want to invest into the company? So these are my 3 questions.

Yes, sure. I'll take those. On the finance cost, like I had called out what are the significant impacts this quarter has been the translation impact of our -- the INR balances into dollar, because the INR has weakened very significantly. So there's almost [$11.5 million] kind of a forex restatement of liabilities, which is sitting in the finance cost. And that's the reason that you see the overall finance cost at a high of about $16 million. So it's more a one-off for the quarter because of the significant weakening of the rupee. And again, these are largely intercompany kind of payables and therefore, not a realized kind of a cost, more like a translation cost. So that is one part of it.

On the employee side, like we had called out, the only place where we had kind of done a little bit of a pruning on the overall employee numbers was on our offline channel. We used to have close to about 20 stores across the country. And we were already kind of in a program where we were trying to kind of convert many of them into franchisee stores and also onboard new franchisee stores. So as part of that effort was accelerated when we kind of -- when the COVID pandemic hit us, and therefore, quite a few of these stores have actually now turned into franchisee stores for us. So they have not gone out of the system completely. But yes, the -- they are no longer kind of -- the folks over there are no longer on the payrolls of the employee, but are kind of working on a franchise model. So that was predominantly the kind of change in the employee kind of structure that we have done through the pandemic.

We are not looking at any kind of significant changes to the employee strength. We would have possibly marginal kind of increase in head count as the volume picks up, but nothing in large numbers. Lastly, on the cash balances, we kind of have a good cash balance and also we kind of accreting cash like I called out in every quarter, we'll continue to kind of remain in the scouting more for any investment opportunities. And we've already called out a few in the last few quarters, and we'll keep kind of remain open to that. No real kind of plans or thoughts around any dividend payouts currently.

The next question is from the line of Bryan Wang of Maxim Asset Management.

Management, can you hear me?

Yes, we can hear you. Please go ahead.

Congratulations on the strong results. I have 2 questions, please. First one is on the Air Ticket economics again. Could I please clarify how does this work? Is it a fixed fee per booking, or is it a percentage of a transaction basis? And the second one is on domestic accommodation supply, especially as it relates to hotels. Could I please ask what are the plans to grow domestic hotel supply and why have the number of domestic accommodation been flat since FY 2019?

Yes. Sure. I can take the first one. On the Air economic side, like I'd mentioned, the changes are largely because our take rates are largely flat. And therefore, as the ASP kind of or the selling price kind of increases, optically, the take rate percentage goes down or the margin percentage goes down. So that's to address to your point, whether this is largely the -- an effect of the increase in the selling price, yes, it is largely coming in from there.

On the second point, I think clearly through the pandemic, there has been some amount of disruption. And we're kind of seeing most of the top selling kind of hotels have now kind of come back on the platform. And we continue to kind of increase more and more, particularly on the budget side and also on the alternative accommodation side.

Yes. And if I may just add, Bryan, just on top of what Mohit said on the hotel supply. There are absolutely no plans on slowing down on that. I don't know which number you are looking at pre-pandemic. But like I was just sharing it earlier, today, our Pan-India city level coverage has gone up from 1,600 cities to actually 1,900 cities. So we do have more additional coverage of properties coming in from all kinds of properties, including hotels coming in from 300 more cities. And like Mohit was pointing out, it was during the pandemic, the, obviously, hospitality sector went through huge amount of disruption. And it was slowly and gradually sort of coming back, some of the properties, which were not functional, last quarter, they became operational and functional. And as it gets to the steady state, which is now increasingly getting to, our momentum will further pick up on the supply side. So there's absolutely no slowdown on adding more and more supply on our platform.

We'll take the last question now from the line of Kalpit Narvekar of Allianz Global.

Congratulations on a good set of numbers. So my first question, which -- sorry, I might have missed this answer. But -- so this margins on the Air Ticketing have come off 100 bps Q-o-Q, right? So this 6.1% kind of number, where do you see that settling given the pricing trends in the air market? So the 6% margins, where do you see it settling Q-o-Q, if you could answer that?

Yes. Sure. Maybe I can kind of repeat that once more. Kalpit, like I'd mentioned, this is largely happening because our margins on the Air Ticketing side are largely flat in nature. They're not necessarily a percentage of the overall selling price. And therefore, in a higher fare regime, the -- optically, the margin percentage kind of looks lower. And in a low fare regime, optically, the margins kind of look a lot more robust or a lot better. So that's the reason for this change. Directionally, we have been calling out that we do believe that the margins kind of should stabilize in the 6 to 7 kind of percent a range.

So just a follow-up, was -- is it possible to share any kind of what -- is it like for every booking, you get like $30, $40 or something like that? Is that how it works? And how is it negotiated with the airline?

So actually, the margin has kind of multiple revenue streams coming in, this will include what we get as commissions or incentives, whether it is upfront incentives or rear-ended incentives from the airlines. It could include the service fee or convenience fee that we'll levy on the customers. It could also include the fee that we might receive from our GDS partners or the distribution partners. So there are multiple kind of extremes that kind of make up for these. What I was saying is mostly these are largely flat in terms of per ticket kind of amounts that we make. And therefore, the percentage varies a bit in keeping with the overall fare regime.

Great. And one more question from my side. So on the margins, right? So this quarter, you were at about like 1% of EBIT margin -- adjusted EBIT margins on a gross bookings basis, right? And you're guiding going forward also potentially 1% at the EBITDA level, right? So just to understand if -- so if you see marketing expenses going up 100 bps or, say, 6% to 7% from this, right, these levels. So then another 100 bps, 150 bps increase in marketing expenses. So which cost items or, say, on the mix side, if -- can you offset it by? And is it possible to give some kind of a margin work where you can offset these -- this 100% marketing -- sorry, 100 bps increase on marketing?

Yes. See, that's the reason I was saying that [why we have currently] -- in this quarter also, we've been actually been able to kind of get to close to about 1 percentage points of gross booking. It might kind of vary slightly going forward depending upon how the recovery patterns kind of shape out. And as we kind of build here on, we would also want to kind of restart some of the investments that we typically do on the brand side, so the brand campaigns. Those are more like it's slightly longer-term impact expenses that you need to incur, which we have been avoiding for the last, I would say, 2 years under the pandemic, right?

And this is something that we'll kind of possibly start incurring as we get to kind of going back to pre-pandemic levels or recovering or even kind of growing from there. I don't think we're kind of looking at offsetting this from any of the other cost lines, although what are -- a part of it would get [offsetted] from the fact that as we build growth here onwards, our mix should start improving on the hotel side. And hotels has a better margin structure, which should mean that the blended margins could also slightly improve, and that will partially offset the increase coming in from the brand space.

We are almost out of time. This brings us to the end of the call. Rajesh, any closing remarks and then we can close the call.

Thank you, Vipul. I think they are good, all good set of questions. So thank you, everyone. Thank you for your patience. Thank you for your time.

Thanks, everyone. Bye.

Thank you, everyone. You may please disconnect. Thank you.