MakeMyTrip Ltd (MMYT) 2023 Q3 法說會逐字稿

Hello, everyone. I'm Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited and welcome to our Fiscal 2023 Third Quarter Earnings webinar. Today's event will be hosted by Deep Kalra, our company's Founder and Chairman. 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 relay on our IR website shortly after the 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 guarantees 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 July 12, 2022. Copies of these filings are available from the SEC or from the company's Investor Relations department.

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

Thank you, Vipul. Happy New Year, and welcome, everyone, to our third quarter earnings call of fiscal 2023 for the last quarter of 2022. '22 started with a cautious optimism amid the Omicron third wave. But as the year progressed, we witnessed steady improvement in the COVID situation in India and most countries in the world, which helped demand led by leisure-related travel. Indians increasingly took to traveling during the year and the demand recovery trends improved with each successive quarter. The reported quarter is the second high leisure travel season quarter of the year, aided by winter and festival breaks and long weekends. We leveraged on this demand and executed our business strategies were to get back to full recovery over pre-pandemic levels in gross booking terms while driving operating leverage from the cost optimization initiatives over the last few years.

As a result, this has been our highest ever quarterly performance, both in terms of gross bookings and adjusted operating profit. Gross bookings for Q3 stood at $1.74 billion, witnessing an increase of 64.4% year-on-year and 15.9% quarter-on-quarter in constant currency terms. Adjusted operating profit stood at $19.7 million versus profit of $13.2 million in Q3 fiscal year 2022. As we enter 2023, consumer sentiment continues to stay positive for travel. While we watch the COVID situation with China opening its borders, global inflation and other macro challenges in the world closely, trends suggest that travelers are back on all travel segments where leisure, business, pilgrimage and corporate events and will continue to drive the growth in the coming years as well.

While domestic travel led the recovery in 2022, we believe that full restoration of supply aided by some fair rationalization and easing our visa processes could help international travel recover to pre-pandemic levels soon with improved traveler sentiment. During this quarter, the industry witnessed strong recovery in domestic aviation traffic, which is good news for the airlines and the other partners. Government is committed to the growth of the sector, and it is projected that in the next 5 years, government and other private entities are going to spend up to $12 billion on the infrastructure development of the airports.

As per plan, in near future, there will be capacity expansion in many of the existing airports and new greenfield and brownfield airports will be set up. Recently, a second airport was operationalized in Goa with an annual capacity of 4.4 million passengers. Goa is among the most popular tourist destinations in the country, and this will help drive tourism growth. Our new terminal in Bangalore is now functional and expansion work in Delhi Airport is underway. India is now the third largest aviation market globally as per government data and initiatives are being taken to drive tourism and air traveler to smaller cities.

In the last 8 years, 72 new airports have come up in the country. In coming years, air travel growth will be driven by addition of new airports, infrastructure growth and increasing disposable income. All Indian airlines have placed record orders of new aircrafts, and this will help drive penetration further into smaller cities. Outlook for aviation market is favorable, and we expect a prolonged period of sustained growth on the back of these initiatives.

Another important pillar for domestic tourism growth is ground transport and world-class highways are a prerequisite for fast and seamless movement. This has been a focus area of government. The length of national highways has gone up by more than 50% from 91,287 kilometer as on April 2014 to more than 140,000 kilometer in March 2022. Government has set an ambitious target to develop 200,000 kilometers of national highway network by 2025. Similarly, for accommodations, the outlook continues to be robust. Almost all hotel chains have announced expansion and increasing their footprint in India. In the next couple of years, there's an estimated increase of 25% in the number of hotels for these hotel chains.

Coming to highlights of the reported quarter now. We restarted our brand campaign, both on TV and digital media platforms for both MakeMyTrip and Goibibo after a gap of 2.5 years. We launched a 360-degree campaign to capture large chunk of festive demand. The campaign focused on relevant value propositions such as enhanced flexibility, book hotels with no upfront payment and numerous choices, best suited to varied customer needs. For Goibibo, we ran a campaign promoting daily steal deals on both hotels and flights, a collection of deals unique to Goibibo. We deployed a digital focused campaign across platforms in order to target relevant consumer segments to drive efficient conversions. As for business segments now, starting with air business, we continue to add value for our customers through our industry-first features.

QuickBook feature for launched last quarter has led to a reduction of 15% in time taken for bookings for these travelers. During the quarter, we strengthened our free cancellation flow within 24 hours of booking. This is again an industry-first initiative. All these innovations help us remain the first choice of customer. We continue to maintain our leadership position in our market share in domestic air ticketing this quarter stood at 30.3%. We witnessed a jump in domestic air traffic during this high season quarter. Domestic air ticketing for us has gone beyond pre-pandemic levels, while international air ticketing recovery is still lagging. Traffic, to most of the domestic issue destinations, have now surpassed pre-pandemic levels and has started to grow.

For international destinations, we witnessed steady recovery for short-haul tourist destinations across Southeast Asia, Maldives and Middle East due to tourism demand, demand for international long-haul destinations, however, improved in this quarter, but still face high fares and visa backlog headwinds to full recovery. We expect this to normalize during this year, as stated earlier. Our accommodation business, which includes hotels, packages and homestays segment, with continued focus on expanding accommodation offering on our platform, our inventory is now comparable to pre-COVID levels. This has also helped us now offer stay options over more than 2,000 cities. Aided with seasonality, this quarter, we sold more than 53,000 unique properties, which is at par to pre-COVID levels. The recovery continues to be strong across all price points, barring the super budget segment of $20 or lower per room night stay.

Overall gross booking for hotels has recovered to pre-pandemic levels, on constant currency basis, on the back of strong growth in premium and medium premium segment and partially aided by higher room tariffs. We continue to innovate and invest in our product. Book @Rs.1 launched last quarter that offered flexibility to the customers, which helped drive growth in longer advanced purchase bookings. GoStays, which is our flagship program for certified budget hotels is now contributing to over 40% of the overall budget volume with much better customer experience and NPS. International outbound travel opened in March '22 -- 2022. And since then, we have been witnessing a steady recovery for short-haul destinations. While we saw some slowdown in international travel bookings with Covid scare at China opened at the end of the quarter, but overall we witnessed good traction.

And during 2023, we hope to see travel to Europe and long-haul destinations also return fully. Homestays continue to lead recovery in overall accommodation category. 10,000-plus unique properties across 640-plus unique destinations have been sold during this quarter. During this quarter, we launched a new section of properties called hidden gems, where every property in this set has unique USPs and are away from the center of the city. We also launched our brand campaign specifically for homestays to create more awareness among travelers. The campaign emphasized on the concept of stay for every need and highlighted various stay options, including pet-friendly villas, pool villas and villas best suited for large families.

Moving to packages business. You would recall that last quarter we talked about how we have scaled up this business with the addition of Holiday Experts and franchisees. We are now reaping the dividends in the high season quarter. Total packages bookings are now more than 150% of pre-pandemic volumes with online channel leading the growth. Domestic packages are now more than twice of the pre-pandemic volume and for international packages, the recovery is now picking up. Our bus ticketing business revenue recovery was at around 113% as compared to same quarter pre-pandemic on constant currency basis. This quarter saw a growth in inventory compared to pre-COVID with both number of private bus operators and the number of schedules being higher.

Recovery in southern market, which has been traditionally strong for buses slower than expected, as large IT workforce is still working remotely. This slowness has been made up by nontraditional markets in central, north and east, which have witnessed both as an increasing number of bus operators are adopting online channels for their distribution in these regions. Our initiatives to drive higher revenue through value-added inputs to our customers and partners have gathered steam in Q3. redBus assurance program that protects the customer from bus cancellation has also seen increased traction. Our other ground transport services such as intercity cabs, rail tickets, et cetera, continue to scale well and gross booking value touched an all-time high.

We have now opened up our trip guarantee product for nonbookers, also wherein a user who has a waitlisted train ticket booked from any channel outside of MakeMyTrip, can buy a trip guarantee product by paying a small fee. If the ticket remains waitlisted at the time of charting, the user is eligible for a 3x refund, which he can use to book an alternative mode of transport. Business travel is now normalizing and both our corporate platforms are growing at a robust pace. Active corporate count for myBiz has crossed 42,000, while on Q2T, which is our platform for enterprises, active customer count has reached 231 as compared to 114 in December 2021. We have doubled the number of customers in last 1 year.

On product side, on myBiz, we went live with enhanced workflows to support in-app approval and to support easy reconciliation. We went live with our reporting module. The new reporting model allows corporate to customize and schedule reports according to needs of different corporates and their departments. My partner, our travel agent platform, added 2,892 agents during the quarter, taking the overall number to 34,600 plus. Quarterly repeat rate for buying travel agents is at a healthy 80%.

Coming to international businesses, our OTA business in GCC growing slowly and steadily, gross booking value grew 29.6% quarter-on-quarter. We launched our first radio brand campaign in November to increase MakeMyTrip awareness amongst Emiratis, Arab and Western expats in the UAE. We reached about 780,000 audience with presence across English and Arabic radio stations. Our redBus International business is showing robust recovery in Malaysia. redBus has more than doubled its business in Q3 as compared to the same period pre-pandemic and emerged as a clear market leader with a 25% share of the overall market and running profitably. The same playbook is being replicated in other big bus markets in emerging countries in Southeast Asia and Latin America. With this, the contribution of international to overall bus business has now crossed double digits in Q3.

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

Thanks, Rajesh. Hello everyone, and Happy New Year. With improved travel sentiment, we witnessed good uptick in this seasonally strong quarter and have delivered strong performance, both in terms of business growth and profitability. Q3 gross bookings were at $1.74 billion, witnessing a growth of 64.4% year-on-year and a 15.9% growth quarter-on-quarter in constant currency terms. Adjusted operating profit was at $19.7 million as compared to $13.2 million during the same quarter last year, an improvement of 48.6% year-on-year.

As stated by Rajesh earlier, this is the highest ever quarterly gross bookings and adjusted operating profit achieved by the company. For the 9 months ended 31 December, '22, our YTD gross bookings grew by 141% in constant currency terms and came in at $4.9 billion, while our YTD adjusted operating profit came in at about $51.3 million as compared to $11.2 million for the same quarter last year, witnessing a jump of over 4.6x. Our air ticketing gross bookings for the quarter were at $1.1 billion, witnessing a growth of 71.6% year-on-year and 7.5% quarter-on-quarter on a constant currency basis. As this was a high season quarter, on expected lines, the take rates normalized to about 6.6% compared to about 7.4% in the previous quarter.

As a result, adjusted margin stood at about $70.2 million, registering a strong 45.2% year-on-year growth in constant currency terms. Gross bookings for the hotels and packages segment were at $445.7 million, witnessing a strong growth of 55.4% year-on-year and 26.9% quarter-on-quarter on constant currency basis. Q3 is a seasonally strong quarter for tourism and travel, and we recorded a strong growth of over 150% year-on-year in our packages business.

Due to the increased mix coming in from the packages business, our margins or take rates from this segment stood at about 16.2% as compared to 17.2% in the previous quarter. Adjusted margin for our hotels and packages business stood at $72 million in Q3, witnessing a growth of 45.3% year-on-year and a 28.8% growth quarter-on-quarter in constant currency terms. In our bus ticketing business, gross bookings for the quarter were at $227.1 million, growing at about 51.9% year-on-year and 24.1% on a quarter-on-quarter basis on constant currency terms. Take rates were at about 9%, which is in line with the previous quarters.

Adjusted margin stood at $20.3 million, registering a strong year-on-year growth of 57.6% and a quarter-on-quarter growth of about 24% in constant currency terms. Our adjusted margin in all the other businesses in Q3 was at $9.6 million, which is a 79.1% growth on a year-on-year basis and 30.6% growth on a quarter-on-quarter basis in constant currency terms. In terms of operating expenses, the operating leverage in terms of rationalized fixed costs during the last few years and more efficient customer acquisition spends are helping us drive bottom line gains with improving scale. The high season quarter also saw us restart our brand campaigns across the brands after a gap of over 2.5 years. Also, the higher brand marketing expenses were more than offset by efficiencies in other marketing and promotional costs.

Accordingly, overall marketing and sales promotion costs for the quarter came in at about 5.2% of gross bookings, lower than the 5.4% in the previous quarter and lower than 5.6% in the same quarter last year. This has helped us achieve the highest ever quarterly gross bookings, surpassing the pre-pandemic peak and at the same time, achieve our highest-ever quarterly adjusted operating profit of $19.7 million.

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

Thanks, Mohit. (Operator Instructions) The first question is from the line of Sachin Salgaonkar of Bank of America.

I have 3 questions. First question, Mohit, more as a follow-up to the comments that you made. Looking at the take rate both at air ticketing and hotel and packages, clearly, looks like this time around as compared to historical 3Q, the decline was slightly higher. So I just wanted to check, apart from seasonality, is there anything else which is impacting these margins? And how should ideally one look at going ahead? Should we see normalization now that the seasonality gets behind us?

Sure, Sachin. If you -- like I was mentioning, particularly if you look at the hotels and packages business, overall, due to the high seasonality, packages kind of came in much stronger in terms of the overall mix, and packages, as you know, is a lower-margin business, and that contributed significantly to a little bit of a dropping of margins for the segment as a whole. The other thing that we have been calling out is, if you would recollect that in the entire recovery process, the mix of the budget segment of hotels has been coming down.

And therefore, to some extent, that's also kind of keeping the overall margins on the hotel sides on the lower end of our range. There is a good kind of probability of the overall margins improving on 2 counts: 1, as the mix kind of gets restored more in favor of hotels as we get to kind of a regular seasonality; and the second is as the mix from budget segment kind of keeps improving. So I would say, possibly, there remains an upside of about a percentage point or so for the hotels and packages segment to improve in the hotels and packages segment overall compared to this particular quarter for the reasons that I have just explained.

On the air ticketing side, again, if you look at on a normalized basis, possibly we have been guiding that the 6%-plus kind of margins is where we see longer-term kind of air ticketing margin is stabilizing. And tactically or kind of based on a quarter-on-quarter basis, depending upon how the load factors are and what is the kind of promotional activity that the airlines want to drive in terms of driving load factors through our platforms, that will kind of marginally tweak the overall take rates for the domestic air ticketing business. But otherwise, air ticketing business, longer term, I think this is a healthy margin to kind of remain at. And we believe unless there is a significant kind of drop in the load factors, our margin should largely remain in line with this with a plus or minus kind of 0.5 percentage point range. So very broadly, this is how I would put it.

Second question, clearly, this, as you rightly indicated, was a stronger quarter. And despite that, we did see the air ticketing revenues being down Q-o-Q, I did see the bookings are up. So just wanted to understand what happened and why was air ticketing revenue down?

Exactly the same thing, like the previous 1, because the gross margins on the air ticketing business have kind of come down, that's how we see their revenue kind of adjusted margin coming down a little bit. But the growth overall in terms of segments and gross bookings is higher. So -- and similarly, you would see even on the marketing and promotional expenses, they have come lower than even the previous quarter, for that matter, despite the marketing investment.

So there's a, like I said, some of these promotional expenses as they kind of come in from the airlines can optically look at kind of take the margin also higher and take the overall marketing promotional spends also higher. In this quarter, because the incremental kind of promotional incentives provided by the airlines were on the lower end, that's how we are seeing that effect coming through both in terms of the adjusted margin coming down and also the promotional and marketing expenses coming down.

So Mohit, I did look at that obviously, there is a margin dip which happened last quarter, 3Q and so on and so forth. Out there, the airline revenues did not dip despite the take rate going down. So this time around, it has more to do with the promotional expenses, what you mentioned?

No, no, see, promotional expenses don't count. When you look at the overall adjusted margin, the promotional expenses don't make a difference. It is purely -- the overall delta, if you look at it on a quarter-on-quarter basis, it's gone down when compared to the previous quarter. So that's what's kind of causing the delta change on the margin side.

And maybe if I can just add an additional point, Sachin. If you look at the numbers on, as Mohit was explaining on gross booking side and the air segment's growth, it is positive. It's not a decline. It's like on a constant currency basis, it's 7%, 7.5%. The only additional point that I will bake to what Mohit has already said.

As I was indicating it earlier as part of my script as well, that the while domestic flights have recovered or domestic traffic has recovered, actually more than recovered to the pre-pandemic levels, international is still lagging behind, right? International bookings, international, especially long-haul flight bookings have not necessarily fully recovered. And in fact, towards the end of the quarter, second half of December because of the China opening up, there was a bit of a scare on COVID as well.

Thankfully, after 1 week, it sort of died down and things got started to get back to normal. But all things considered, because of the high fares, with fuel prices going up or the overall focus being on yield by all the airlines, and the backlog of operational issues like backlog or visa clearance, et cetera, continue to sort of play in terms of just putting international bookings under pressure.

And that's really just one more additional factor on just overall air despite being the high season, while the consumer sentiment remained positive and people want to travel. But if you continue to see higher fares on the international side, then sort of plans get pushed, if they are not necessarily essential travel related and stuff. So that -- I think that's the additional point you should keep in mind.

And last question is now that you guys got the NCLT approval for MakeMyTrip ibibo, looks like the key regulatory hurdle for a potential India listing is behind. So any thoughts in terms of timeline and how you guys are thinking about it?

So from a regulatory hurdle point of view, I think, yes, this is one kind of intimately good step to kind of taken in that direction. But like we've been calling out tapping into the Indian capital market and -- is probably there on the agenda but not necessarily in the near future. So we kind of remain open to it and we kind of really come back and update as and when we are able to crystalize our plans around it.

The next question is from the line of Gaurav Rateria of Morgan Stanley.

So I have a couple of questions. Firstly, when I look at the volumes in each of the individual segments, they haven't reached the pre-COVID levels compared to the same quarter during the pre-COVID. So somehow the recovery has been a little slower than expected. So is it largely because of international in each of the segments or there is other -- some other phenomenon going on?

2 reasons Gaurav, if I could call that out. If you look at it overall in terms of the market recovery, so if you look at human domestic air, the overall market recovery is at about 90%, whereas our recovery is kind of close to about 100% plus. So therefore, while we are kind of growing ahead of the market, but the market recovery itself is, -- at an industry level, is lagging the prepended of segmental volumes. So that's 1 reason. And secondly, if you look at it in terms of the overall air ticketing kind of a pace like Rajesh was calling out, international hasn't really kind of bounced back as strongly. So that's the other reason for the lag in the overall recovery for the air ticketing business as a whole.

Got it. Second question, how should one look at the lower customer inducement charge as a percentage of the gross booking. Is it that the competition or the competitive activity has subsided in the market, and hence, there is no need for that high customer inducement charge? Is it more tactical like a shift between branding versus customer inducement charge? How should one think about like overall ad and promotion spend? You have always been saying 5% to 6%, but it's kind of come at the lower end. So how should one think about it on a sustainable basis?

I think on a sustained basis, like we have been saying, possibly the range would be more like 5% to 6%. And a couple of things going in over there. 1 clearly is the extent of competitive activity that we are seeing in the market. And as you have seen, that kind of makes a difference.

Secondly, and more importantly, I think it is also about building a certain amount of base of volumes in each of the relevant or important segments, particularly including the hotels and kind of packages segment or overall accommodation segment. There, if you see over the last almost like 6, 7 years, we have gradually build a -- robustly build volumes over there and as is kind of inherent in the e-commerce models or the online models, as you build volumes, your customer acquisition costs start kind of panning out much better.

So I think it is about getting to a threshold base and therefore, you see why there has consistently been a decline in the marketing and sales promotion expenses over the last, I would say, 6, 7 years. That reduction has kind of become sharper over the last few years as we have kind of crossed that threshold, pretty much almost just kind of pre-covid is what I would put it around. So that's another factor apart from the fact that there is much lower competitive intensity, particularly in the hotel segment.

Got it. Last question, the cash balance, if I compare versus last quarter, I think has come down from $466 million to $449 million. Is there something missing? You have generated a lot of the large EBIT during the quarter should have cash balance should have gone up. So how should one read the decline in cash balance (inaudible)?

No, you're right. And this being a seasonally high quarter usually do see deployment in working capital during peak seasonality. And then you also see releases happening as you kind of move into the lower seasonality quarter after quarters. So it's kind of largely linked to seasonality per se, nothing else over there.

(Operator Instructions) Next question is from the line of Aditya Suresh from Macquarie.

So I had a few questions. First question was just on the competitive dynamics which you mentioned. Can you elaborate a bit about kind of what's happening in the air segment, in particular, with Cleartrip getting kind of a newly (inaudible) perhaps? So can you maybe speak about that a little bit? And I do kind of note that your customer inducement costs and marketing spend has kind of come down.

But in absolute terms, it's still a fairly chunky number, in particular, in an environment where some of the competitors may kind of challenge for funding, at least the conditions are a little bit tighter. So can you speak a little bit about that? 1 is the competitive intensity in air and Cleartrip et cetera; and 2 is, I think about fiscal '24, fiscal '25, are you sticking with this 5%, 6% of gross bookings as a guide or is there any kind of absolute number I think you add as well?

Aditya, maybe I'll take the second part, and I'll invite Rajesh to kind of share more color on the first one. But on the second one it may not be kind of, in the kind of growth situation that we are, it may not be kind of relevant to kind of look at absolute number per se and therefore, looking at it in terms of a percentage of spend might be a better way to kind of look at it. And yes, we do kind of expect this to remain in the 5% to 6% range going forward as well. I'll just invite Rajesh for the first one.

Yes, sure. Happy to, Mohit. Aditya, to your first question, I think couple of first important points I just wanted to remind you and everyone. I think you should always keep in mind that our market share on domestic flights, as we've been sort of reporting out, is pretty healthy. We're at about 30% market share of the total market. And also the fact that the -- for whatever it's worth, the flight product for us has been fairly matured, and we continue to keep innovating as I was also trying to highlight some of those unique features that pretty much every quarter we will end up sort of launching. That helps the customer confidence, that helps us becoming the first choice in the market and has been the case, for a while.

And that's precisely the reason no matter what the competitive dynamics might be in the market, we've been either gaining share or has been able to stabilize at right around 30%. I think these are important points because I think they get lost in the noise often. From our point of view, we have seen they actually work beautifully well when it comes to the repeat rate over a period of time. The stickiness really continue your platform, if you continue to keep delivering the promise on the product side.

Now as far as sort of specific dynamics on every quarter of who's doing what and all that, frankly, I'm not sure that sort of -- we watch the competition, we obviously look at the competition very closely, et cetera, but we're not necessarily obsessed by of what's happening specifically, for a particular -- on a particular day of what kind of discounting that is happening and so on. I think our strategy has been very clear, that we have to continuously keep improving our product experience and eventually, that sort of helps get more and more customers and more and more market share and keep managing your P&L or the unit economics accordingly basis, whatever might be the dynamics in the marketplace.

So -- and if you see the history for the last few quarters going into specifically on, let's say, domestic air market, there might be volatility. There may be specific quarters, you would see some more competitive action, et cetera. But over a period of time, it sort of stabilizes because never is that sort of deep discounting et cetera never stable or never sustainable rather. And so you have to just sort of deal with that on a quarter-to-quarter basis. But from a long-term standpoint, we haven't really been shifting or moving or even have plans to shift or move our strategy in the domestic flights market or for that matter, any of the products and services that we offer.

Rajesh, that's clear. I guess the second question was me trying to think about incremental EBITDA margins or incremental profit. You did kind of mention quite a few growth levers across different products. Now over time, I think your employee expense have been a fairly large part of at least as a proportion of revenue.

Can you maybe touch on 2 things, 1 is in terms of incrementally how are you thinking about kind of staff expenses? That's 1. And 2 is, therefore, do you have any guide in terms of incremental EBITDA margin, let's say, you have $100 million next year incremental, I think it should be much more than that, but let's say you did add $100 million. How much of that do you think you can keep as EBITDA?

Aditya, maybe I'll take that. If you really look at it in terms of fixed cost overall, including kind of people costs, in particular, they're kind of now despite like almost 3 rounds of inflationary increase is going through, they are still kind of below the pre-pandemic levels in that manner of sort and almost getting closer to that, but it's still kind of slightly behind the same quarter numbers for pre-pandemic year. So that way, I think we've kind of done a significant amount of rationalization on the fixed costs. Clearly, it's not that they'll remain completely constant, they'll kind of possibly increase at a lower proportion than the growth in the volumes of the business?

And secondly, a large part of the increase is going to come in more in terms of inflationary increases because we don't -- we aren't really kind of planning any significant headcount increases per se, in the business in the quarters or years to come. So that's one part of the question that you asked. The other is what is the margin expansion opportunity? Again, good kind of referring from getting into shorter-term kind of margin gain opportunities. But the longer-term opportunity clearly that we're kind of looking at there is clearly an opportunity to take this business to at least possibly getting to about 1.5 percentage points of adjusted operating margin on a gross booking basis.

Now whether that happens in a few quarters or in a couple of years, and clearly, it'll be dependent on a multiple -- on multiple factors, but you can see there's kind of as in terms of the volume change that you see, even on a year-on-year basis, in terms of fiscal year '23 versus say fiscal year '22 and then the kind of corresponding changes that you see playing out through an operating leverage on the bottom line, that would be quite an indicative trend. I wouldn't necessarily say that the same trend would continue, but it would be indicative in nature.

The next question is from the line of Puneet Saraogi of Hill Fort Capital.

This is Hari from Hill Fort Capital. I had a couple of questions. My first question is on the working capital. Can you just double click on the working capital and why it's higher in this quarter seasonally? And how do we generally think about OCF in relation to EBITDA on an annual basis? And my second question is whether an India listing is on the annual at all or not?

Yes. Mohit I'll take both and probably you missed some of the earlier kind of questions on this. But on the working capital side, like I said, there is seasonality involved in the business. And generally, we do see kind of deployment happening in working capital during high-season quarters and generally releases kind of coming through in the off seasonality. So I think it's better to kind of look at it on a kind of a more like an annual basis or a 4-quarter basis.

On an annualized basis, I would just kind of suggest that you need to bake in some amount of deployment on the working capital linked to volume. So that's on the overall kind of working capital and the trend lines over there. And when it comes to your second question, yes, I mean, the India capital markets are kind of open to e-commerce platforms, clearly, and we have seen some of the e-commerce companies kind of go and tap into the Indian capital markets. From our point of view, 1 of the key things is that we're not necessarily looking at any fundraising in the short term.

We are kind of sitting at a good amount of cash and cash equivalents on the balance sheet, including free cash, even if we were to kind of potentially look at setting aside certain amounts for the convertible bonds that we had to kind of raise 2 years back, even setting -- after setting that aside, we're kind of sitting on a healthy cash balance of close to about $250 million. So from that point of view, tapping into the capital markets on an immediate basis doesn't seen like a requirement.

But from an overall kind of investor value creation and from kind of leveraging the brand and multiple other things, we would kind of keep an eye on kind of tapping into the Indian capital market at some point in time. But like I said, probably, there's no immediacy to wait. But in the longer run, on an opportunity will kind of tap in the capital markets, I think India will be a more preferred market than kind of tapping it or going into the U.S. market once again. So that's how I will put it.

The next question is from the line of Vijit Jain of Citi.

Congrats on a great set of numbers. I have 3 questions. First is within the hotel segment, would you say that barring that super budget category you called out sub-$20 a night, every other category, perhaps with the exception of international is now back to pre-pandemic levels? That's my first question.

Yes Vijit.

Yes, yes, yes, Vijit.

Okay. So -- okay, got it. And what would be international now as a percentage of your GBV? I know last quarter, you guys had mentioned something early double digits. How has that moved in this quarter?

Same -- similar, similar Vijit. I mean it's not a substantial change from what we had shared earlier.

Got it. And my last question is just on staying on this international theme. Now in the last 2 to 3 years, you've launched these programs like My Affiliate and myPartner, et cetera, you're working with a lot of offline agents as well. So I guess my question is, how are you thinking about ramping up your international business in the next 1 to 2 years, what would be the focus areas there? And if you can shed more light on how you're going to use even Ctrip's partnership, et cetera, to kind of ramp that business? So if you can talk a little bit more about that.

Yes, sure, Vijit. I think it's a great question. Given that the recovery is lagging behind, but are we really prepared for when the business comes back and future growth on top of it. And the answer is, Vijit, it's absolutely all set from our side. So when you look at the levers that you could use potentially to grow international business, given the fact that it is an underpenetrated online, underpenetrated sort of segment, even pre-pandemic, our growth rate was much higher, both for international flights and hotels. We are almost sort of restless and waiting for that to sort of open up.

And from supply side, multiple sources of supply on our platform, on the customer side, whatever new features and innovation that we could sort of unlock in the international flights, for example, or for that matter, for international hotel bookings, they're all ready, they all have been actually rolled out, tested on the domestic side, and we are expanding that to the international side. In terms of customer acquisitions, like you rightly pointed out, we made investment in some of the other channels also besides our own core B2C platforms.

And they would definitely be sort of helping us grow or get the incremental demand on the international segment because international segment -- international travel market, like I mentioned, it is underpenetrated, which effectively means that there is more market offline available as well. So we do have a channel which is myPartner, which is through the travel agents, we can reach out to the B2B2C sort of demand coming our way as well.

So whether it is distribution channels or it is on the supply side, including leveraging the international supply of Trip.com, multiple sources of supply and the product experience on our platform. So on all fronts, we have absolutely invested. And like I said, we are all set waiting for the market to open up.

Great. I guess just my final question to Mohit. The brand campaign spend that you mentioned in this quarter for both Goibibo and MakeMyTrip, how should we think about that on a going-forward basis? I know you have mentioned in the past that some of these expenses are fungible between here and the customer incentive spending, et cetera.

But just trying to get a handle on how to think about it on a quarter-to-quarter basis? And secondly, the fixed cost overall, which you mentioned is still below pre-pandemic levels or almost there. I think last we have is an approximate $14 million, $15 million a quarter -- sorry, a month type of a figure in terms of your fixed cost base. Is that now closer to $17 million, $18 million?

Vijit, yes, yes. So if you look at it. I mean the first question was really more on the brand marketing kind of expense errors, generally, if you see historically, we kind of usually have kind of had higher kind of expenses on the brand marketing side, particularly in the high season quarters. So that's typically Q1 and Q3 from our fiscal year point of view, which is April to March, so generally, that is the -- those are the quarters where you kind of typically would see higher spends on this particular side. But overall, like I've always been calling out, overall customer acquisition cost is what is relevant.

Some of it kind of possibly pays out with a shorter duration timeframe or some possibly have a longer kind of a lead time as well as a lag effect. But I think it's kind of relevant to look at it more in terms of a blended number. And before, I would just say, that's the reason that we kind of call out the marketing and sales promotion kind of expenses together because that gives you a better kind of overall understanding of how customer acquisition costs are trending. So kind of looking at it in isolation may not be a great idea. But yes, you can kind of budget for a slightly higher mix coming in from brand marketing expenses, particularly in the seasonal quarters.

Got it. And my second question was just on the fixed cost base, where are we in terms of run rate?

Yes. So if you look at it in terms of the run rate pre-COVID, used to be almost like about $15 million to $16 million. They are still just a shade below $15 million in the reported quarter. That's what I was calling out that despite kind of almost these inflationary increases going through, we are slightly kind of below that run rate. So reasonably good on that.

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

I have a question on the air side. So this has been a seasonally strong quarter, right? And we also saw the passenger data, et cetera, from DGCA, I mean being quite healthy with record highs, et cetera. Just wanted to understand like was there a potential of a better growth on the air side I mean even ignoring international because we saw 4% kind of Q-o-Q growth and air gross bookings.

So could that have been higher considering the large (inaudible) volumes? Have we lost -- I mean I don't think we have lost any market share, but just wanted to get a sense of could the growth be better or should it have been better in Q3, considering the volumes as well as it being seasonally strong? And how should we look at that going forward?

Sure Aditya. Like I called out, if you really look at it in terms of recovery during the reported quarter, the domestic air recovery, the industry recovery was more about 95%, whereas our recovery was close to about 100%. So from that way, if you look at it, possibly our kind of market share kind of gains continue to kind of help us and we are kind of growing ahead of the market like -- could the overall industry growth being higher?

Yes, I mean, clearly, the potential is there for the overall domestic industry numbers to kind of keep increasing, but quite a few challenges there in terms of the prevailing kind of inflationary pressures, et cetera, and the overall capacity and the in some amount of challenges being faced by the airlines also on the maintenance and spares availability, as a result of which some of the kind of planes are also kind of right now grounded. So as all of this capacity comes back, hopefully, in the coming quarters, we should see the industry expanding faster as well.

I guess the important point I mean -- sorry, Aditya I was just going to add one more point. I think the important point is what we all sort of get excited about at times, including us, is the peak numbers for certain days. But I think the important point will be just to look at the full quarter numbers even from a sort of overall domestic market traffic and you would realize that sort of up and down and overall as Mohit pointed out, the traffic recovery was -- for the market, it was about 95%.

And if I can just give you additional data point on departures, flight departures, given the fact that we just literally have every flight and we sort of monitor that very closely as compared to what it used to be pre-pandemic, was actually 92%. And then the reason for that was -- is that the load factors have been high. The airlines have been very, very careful in deploying more traffic because they've all been and rightly so, coming out of the tough period of pandemic, focused on higher load factors, more yield per passenger and thereby reducing the losses for them.

As we get into the steady state market and all the sort of the health or the financial health of the airlines start to improve with some of these results, and we're getting some news from Air India that they might turn profitable, et cetera, some of these things that happened, it will further stabilize. We'll get more capacity for sure. And then because of that, the demand and the growth will also come back.

That was helpful. And just a very quick question on the marketing side again. So this quarter it came by 5.2%, even though we did TV campaigns, et cetera, after a while. You -- I mean, you have mentioned multiple times that it probably stays in that 5%, 6% range. Do you think there's also a potential for it to come down also from these levels? Because going forward, if we kind of don't do some of this TV or ad campaign, which we probably won't in the quarter, right? And we are seeing efficiencies in the other side of the other marketing costs. So do you think it could head towards that 5% or 4.8%, 4.9% or do you think largely 5% to 6% is where we should aim for?

Like I was calling out, Aditya, we should -- we kind of currently estimate it to remain in the 5% to 6% range. I think it's good that at least in the peak seasonality in the reported quarter, we were able to kind of keep it more closer to the lower end of the range while reviving the brand campaign. So let's see, as we kind of keep making progress, we'll keep sharing color, but our current estimate remains 5% to 6%.

The next question is from the line of Tarbir Shahpuri of Nidara Capital.

Actually, my question is for you, Vipul, when are you going to organize an Investor Day for us.

We're working on it, give us some time. We are getting the structure ready. So hopefully, hopefully, soon, we'll come back with the details.

The next question is from the line -- and it will be the last question, we are out of time. It's with Lester (inaudible) from Hong Kong.

In the past, the management gave a guidance that the adjusted operating margins will not be lower than 1% of the gross booking revenue. And for Q3, I did a quick calculation. It's about 0.12%. And Q3 already is a peak season. So does he mean that in other non-peak seasons, the percentage may fall below 1 or you are confident that you can maintain the 1% in the future?

So Lester let me take that. We had guided for this full fiscal year, we would kind of look at close to about 1%. And if you look at it on a YTD basis, we are kind of slightly better than the 1% that we had guided for. And therefore, we do believe that for the full year also as a whole, we should be able to kind of maintain that 1% run rate or be slightly above that, and we should know in about a quarter's time. We'll share more color about the subsequent years as we kind of get into the new fiscal year.

That was our last question. I'll just now hand over to Rajesh for his closing comments.

Yes. Thank you, Vipul, and thank you, everyone. Thank you, everyone, for your patience, your time and all the interesting questions and look forward to come back to you next quarter. Thanks a lot.

I would just add that in case we have not been able to take questions from any of the participants due to paucity of time, please feel free to writing to Vipul, and we'll try and get back to you as soon as we can.

Thank you, Rajesh. Thank you, Mohit. This brings us to the end of the call. You may please disconnect.

Thank you.

Thank you.