Yatra Online Inc (YTRA) 2019 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Yatra First Quarter 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Manish Hemrajani. Please go ahead, sir.

Thank you, Anne. Good morning, everyone. Welcome to Yatra's Fiscal First Quarter 2019 Earnings Conference Call for the period ended June 30, 2018. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi; and CFO, Alok Vaish.

The following discussion, including responses to your questions, reflects management's views as of today, August 17, 2018. We do not undertake any obligation to update or revise this information.

As always, some of the statements made on today's call are forward-looking, specifically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements.

Additional information concerning these statements is contained in the Risk Factors section of the company's annual report on Form 20-F filed with the SEC recently on June 30 -- sorry, July 31, 2018.

Copies of this and other filings are available from the SEC and on the IR section of our website.

With that, let me turn the call over to Dhruv. Dhruv?

Thanks, Manish, and good morning, everyone. I'm pleased to report that we've started fiscal 2019 on a strong note. We are seeing the power of our multichannel approach and the efficiencies we can gain as our brand recognition grows. We believe that our unique strategy of segmenting consumers between business and leisure travel is a powerful one. It enabled us to better capture the higher spend and loyalty of business travelers, while separately serving the more cost-conscious and opportunistic leisure travelers. We believe we are very well positioned to capitalize on India's rapidly expanding travel industry.

The multichannel approach that we've adopted drove our top line up with adjusted revenues up 24.8%, operating efficiencies driving cost savings, enabling us to reduce our adjusted EBITDA loss by 1/3. Most importantly, we can dial by consumer promotions and other brand building spends on the back of our high-brand vehicle. Marketing expense was around 50% of adjusted revenue this quarter, which is a meaningful reduction from last year. Furthermore, the integration of ATB is on track, and we're beginning to realize the initial cost synergies. The full impact of which will be reflected in the subsequent quarters.

I also want to highlight that we've made a reporting change this quarter as it relates to IFRS 15. We have replaced our Revenue Less Service Cost line item with adjusted revenue. Adjusted revenue is broadly similar to the earlier Revenue Less Service Cost on our adjusted revenue number and represents revenue and other income after deducting service costs and adding back expenses related to consumer promotion and loyalty program costs that have been reduced from revenue due to the adoption of the new accounting standard, IFRS 15, effective April 1, 2018. This presentation allows us to continue reporting on a like-for-like basis.

On a pro forma basis when accounting for IFRS 15, I'm delighted to share that our adjusted revenue growth is 53.6% year-over-year. This clearly shows the improvement in efficiency of our consumer promotions and our marketing expense.

Let me now review key operating highlights of the quarter. I'll touch on the general macro environment then review air, hotel, corporate travel and some of our other initiatives and marketing and technology. We believe the aviation macro trends will remain favorable over the long term due to low aircraft penetration and government impetus. Growth in air travel should be sustainable due to an expanding number of airports and meaningful growth in fleet sizes by domestic carriers. The immediate aviation environment was strong too, with domestic air traffic up 20% year-over-year in the June quarter. Our own air ticketing transactions were up 26.3%. There are, however, a few recent macro trends like rising oil prices and the depreciation of the Indian rupee versus the dollar, which are pressurizing airline profitability. This could result in airlines raising airfares, which may negatively impact the more price-sensitive leisure travel. However, as we've stated in the past, we do believe that the business travel demand in India is less price sensitive and we do expect the business travel industry to continue to witness healthy demand on the back of a strong overall macro environment in India.

As a leading player in the business travel segment, we believe that we are strongly positioned to capitalize on this trend. These near-term headwinds do not in any way reduce our confidence in the long-term outlook of the Indian aviation industry.

Drilling down, gross bookings from our Air Ticketing business grew a solid 40.2% in the first quarter. Adjusted revenue posted growth of 18%, largely on account of lower air take rate of 5.2% as a result of our higher corporate business mix and higher airfares. This lower take rate, however, does not have any negative impact on our operating profitability given the lower cost structure on the corporate travel side. This change in mix and our continued optimization of consumer promotions also result in a pro forma IFRS 15 adjusted year-over-year revenue growth of 38.4%.

Let's turn to hotels now. We continue to be the leading platform for domestic hotels and homestay options as we added over 3,000 properties on our platform in the quarter, taking our inventory to a market-leading 95,000 properties. Our Hotel and Packages business grew at 20.5% on an adjusted revenue basis with gross bookings growing 21.2%. Standalone hotel room nights booked were up 23.5%. We are now just starting to see the cross-sell benefits in our corporate business, and we expect to see further progress along that front as we continue to migrate legacy ATB corporate customers on the Yatra platform, the first set of which will go live towards the end of fiscal Q2.

Our SMART hotel program also continues to gain traction with over...

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Ladies and gentlemen, please stand by as we reconnect our speaker. Mr. Shringi, you are live.

Thank you. Sorry, I think our call got dropped. I'll just pick up the thread again, on our SMART hotel program. So just to do a quick recap on that. Our SMART hotel program continues to gain strong traction, and we now have 6,000 hotels live as part of this program, under which we are ensuring a certain degree of product and service standardization for our customers backed by Yatra's service guarantee. The increase in our hotel footprint and our focus on the SMART hotels allowed us to rationalize the consumer promotions on Hotels and Packages as well. As a result of this, our pro forma IFRS 15 adjusted revenue for Hotels and Packages grew 46.9% year-over-year.

Let me now talk about our corporate travel business. In an emerging market with limited disposable income, business travel is generally the first form of travel undertaken by consumers. As such, by being the leader in business travel, we believe that we are positioned to capture some of the most attractive target group of consumers in India as they make their first online travel purchase. Corporate travel demand also tends to be less price sensitive when it comes to fare hikes, an important characteristic when considering those near-term headwinds, I mentioned earlier.

We believe we are firmly entrenched as the largest corporate travel provider in India in terms of gross bookings. Corporate travel opportunity in India in our mind is the more exciting and larger opportunity in travel in front of us. It is projected to grow at over 12% per annum through 2020, which makes India the fastest-growing corporate travel market in the world according to KPMG research.

Let me cover some other recent accomplishments in the corporate travel segment. We continue to strengthen our presence in the corporate travel segment and some of our key recent customer wins include the Essel Group, Tata Consulting Engineers, United Phosphorus, Airtel and Bridgestone. These organizations cumulatively employed over 45,000 people. We now have well over 700 corporate customers using Yatra for their corporate travel needs.

Our partnership with Chrome River Technologies, a leading provider of expense management services in the U.S., is still in its early days, but we're starting to see traction in customers opting for a bundled product with Chrome River EXPENSE as part of an integrated travel booking and expense management solution with Yatra self book platform.

Speaking of the self book platform, our online self book platform adoption continues to grow strongly. About 50% of Yatra's organic corporate business transactions are now being done on the self book platform, and this is up from 46% in the sequentially previous quarter. Also, we continue to successfully migrate customers from being business travelers to personal travelers. This number grew over 100% versus the same quarter last year.

Let's now turn to some other highlights of our business. The brand campaigns that we've undertaken over the course of the last 15 months continue to deliver well for us with direct and organic traffic up 41% versus the same quarter last year. At this point, the band investments that we've made over the past year have allowed us to significantly scale our direct traffic to our online properties. We do not think we need to maintain similar levels of investments going forward as we focus more on better conversion of the higher traffic now.

In the ATB business, we expect further growth and improved operating leverage once it is fully integrated. We believe that there is an opportunity to cross-sell Yatra's hotel inventory to the now combined over 700 strong corporate customer base. We also recently launched a simplified version of our corporate self book platform for SME customers and over 8,000 SMEs have signed up on this platform.

Mobile traffic continues to garner the largest share of our overall traffic with 80% of our traffic during the quarter coming from mobile devices. We expect to see this trend accelerate further in the coming quarters as the cost of mobile data in India continues to drop sharply, thereby significantly expanding the market. Our organic mobile app downloads have now crossed the 15.3 million mark as we added over 1.2 million new installs in the quarter.

To conclude, we think that on the back of our higher brand recall and deep distribution network across India and now our leadership position in corporate travel, we are well positioned to strongly capitalize on this next wave of growth.

I'm now going to hand it over to Alok to walk you through the details of financial performance. Alok?

Thank you, Dhruv. And hello to everyone. As Dhruv mentioned in his opening remarks, we're obviously very pleased with our performance during the quarter ended June 30, 2018.

Let me take you through the key financial highlights for the quarter starting with the income statement. But before I get into the details, as Dhruv mentioned earlier, I want to highlight that effective April 1, 2018, we have adopted IFRS 15.

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Ladies and gentlemen, please stand by as we reconnect our speaker. Mr. Shringi, you are live.

All right. Thank you. Sorry, for some reason our call dropped again, apologizes for that. Let me just start all over again. So I was just saying before I get into the details, as Dhruv mentioned earlier, I want to highlight that effective April 1, 2018, we have adopted IFRS 15 accounting standard that requires us to reduce certain marketing and sales promotion expenses from revenue. We have also, starting from this quarter, changed the non-IFRS financial measure Revenue Less Service Cost, which we're using until last year to adjusted revenue, which represents IFRS revenue and other income after deducting service cost and adding back the expenses in the nature of consumer promotions and loyalty program costs, which had been reduced from revenue.

Our adjusted revenue in the quarter grew 24.8% year-over-year to INR 2.04 billion or USD 29.8 million. We also recorded a reduction of revenue, which was related to the timing and recognition of revenue required by IFRS 15. Without considering the impact of this reduction in revenue, our adjusted revenue would have been INR 2,063 million or USD 30.1 million, translating to 26.2% growth on a like-for-like basis. Gross air passengers booked were 2.37 million, that represents year-over-year growth of 26.3%. Standalone hotel room nights booked were 579,000, representing an increase of 23.5% year-over-year.

Our adjusted revenue from Air Ticketing business increased by 18% to INR 1.25 billion or $18.3 million in the current quarter. This growth was driven by an increase in gross bookings by 40.2% to INR 24.3 billion or $400 million in the current quarter. Gross bookings growth was offset by a decline in our net revenue margins to 5.2% versus 6.1% in the year ago quarter due to a change in business mix in favor of B2E business and slightly higher domestic fares.

Corporate business has lower net revenue margin, but significantly better economics due to negligible marketing and sales promotion expenses and payment gateway costs. The resulting change in mix and optimization of our consumer promotions enabled us to deliver 38.4% growth in pro forma IFRS 15 adjusted air revenue.

For Hotels and Packages, our adjusted revenue for this segment was up 20.5% year-over-year to INR 528 million or $7.7 million in the current quarter. This growth was due to an increase in Hotels and Packages gross bookings of 21.2% and continued growth in standalone hotels on the back of largest online hotel inventory in the country.

Our Hotels and Packages net revenue margin was 12.9%, a marginal decline from 13% in the year-over-year quarter. This growth in the Hotels and Packages business, as Dhruv mentioned earlier, has been achieved in parallel with an improvement in our unit economics and our pro forma IFRS 15 adjusted revenue growth for Hotels and Packages is a strong 46.9% for the quarter.

Other revenue grew by 94% to INR 257.5 million or $3.7 million from INR 132.7 million or USD 1.9 million in the prior year quarter.

Moving on to expenses. Our marketing and sales promotion expenses decreased to INR 286 million or $4.2 million in the quarter from $16.8 million in the prior year quarter. Adding back the consumer promotions and loyalty program expenses, which were reduced from revenue as per IFRS 15, our marketing spend would have been INR 1 billion or $14.9 million, which would have been -- which is about 11.3% lower than a year ago number. This reflects the increasing efficiency of our marketing and sales promotion expenses on increasing gross bookings. This adjusted marketing and sales promotion expense as a percentage of adjusted revenue decreased to 50.1% in the current quarter from 70.5% during the year ago corresponding quarter.

Our personnel expenses increased by 8.5% to INR 786 million.

(technical difficulty)

Ladies and gentlemen, please stand by as we reconnect our speaker.

Please stand by, we will resume the call shortly. Thanks.

And you are live.

Thank you. Apologies, there's something wrong with the lines here, I don't know what's going on. Let me just start, where I was, which is on the personnel expenses. So our personnel expenses increased by 8.5% to INR 786 million or $11.5 million in the current quarter from INR 725 million, which was $10.6 million last year. This increase was primarily due to consolidation of ATB, partially offset by a decrease in employee share-based payment expense to INR 166 million or $2.4 million in the current quarter from $4 million in the prior year quarter. Excluding the effect of ATB consolidation, our employee costs would have been lower by 7.6% year-over-year.

Our other operating expenses increased by 26% to $803 million -- INR 803 million, which is $11.7 million in the current quarter from $9.3 million in the prior year quarter. The increase is primarily on account of impact of the consolidation of ATB and increases in payment gateway expense and commission, both due to increase in business volume.

Based on these factors and operating efficiencies, adjusted EBITDA loss was reduced to -- reduced by INR 203 million or $3 million in the current quarter from $8.9 million in the prior year quarter to INR -- $5.95 million in the current quarter.

Turning to liquidity. Our cash position remains strong. As of June 30, 2018, the balance of cash and cash equivalents and term deposits on our balance sheet was INR 5.9 billion or approximately $86 million.

Let me conclude with the guidance, as Dhruv noted earlier, we remain bullish on the Indian macro environment, we see solid growth potential in air and hotels industry and believe we're uniquely positioned with a strong presence and market leadership in the corporate travel space.

For fiscal year '19, we anticipate our -- over 20% growth in adjusted revenue with a meaningful improvement in our adjusted EBITDA loss for fiscal year '19 on the back of efficiency marketing spends and operating -- and leverage and operating cost.

This concludes our prepared remarks. We can now open it up for Q&A. Thank you.

(Operator Instructions) And we will take our first question from Jed Kelly with Oppenheimer.

Great. I appreciate the added disclosure for the sales and marketing this morning made it easy to update our model before the earnings. So I guess, just since the quarter -- just since last quarter, it sounds like you're a little more incrementally cautious on some of the macro. I mean, how much in your guidance for that 20% growth, do you have any conservatism factored? And what do we expect -- are you expecting rising fuel, are you expecting some more rupee depreciation? Can you just unpack what you're thinking about in the macro in terms of your guidance?

Sure. Jed, this is Dhruv. So in terms of the macros. I think there is a bit of headwind that we're looking at on account of the oil prices and also on account of the currency. The currency is being fairly volatile over the course of the last 3, 4 months now. So I think it's better from our perspective to be a bit cautious on this. So we're cautiously optimistic, that's the way I would put it. There is a bit of a reduction in our own growth forecast that we are carrying right now on the back of these 2 factors. But having seen how oil has played out in the last week, if these kind of trends continue, then I think there could potentially be some upside on this number.

Okay. And then just on the guidance. I mean, can you help us, can you unpack a little bit what that sort of implies the OTA segment growth, what it implies corporate travel segment growth and then your traditional travel agent segment?

Sure. So from a growth point of view, what this is implying at this point in time is a bit higher growth on the corporate travel segment. We do expect corporate travel to be less price sensitive given the nature of that business. Whereas, on the consumer side, we feel consumer demand as we've seen in the past does tend to be a bit more price sensitive, especially in the near term. It has the habit of recovering and recovering fairly quickly, but there are some short-term blips that happen when prices move up. So the way we are modeling it right now and looking at this is that we expect corporate travel demand to be stronger. We expect the consumer travel demand to be slightly muted giving us this blended growth rate.

In your corporate travel segment that's going to be profitable this year, correct?

That's right. Yes.

Can you share any profitability metrics?

At this point in time, we will not be sharing the blended number and directionally what we are pointing towards is a meaningful improvement in our operating performance and a significant reduction in our EBITDA loss. What we're also guiding towards, Jed, as you would have seen in Alok's commentary, is around the marketing expense and where do we see it trending and we see a very meaningful reduction in that as a percentage of adjusted revenue.

So your -- yes, so on the marketing, following up, I mean, your expense comps obviously in marketing get tougher now after what happened, as you said you're moving into next 3 quarters. I mean, should we expect a little bit of growth. You think you'll be just some low single digits. And can you give us a -- any sense on like the magnitude of marketing leverage you think you're going to drive this year?

So in this year's numbers, I think we should -- we are looking at them to be flat to slightly lower than last year on a like-for-like basis. And then going forward looking at mid-to-late single-digit growth going forward.

Okay. And then can you just give us an update on competition. Looks like your largest competitor is being a little more rational with their marketing spend. And then, I guess, given that corporate travel is going to drive a lot of the profitability this year and it's probably going to be the main story people should concentrate on. Can you give us a sense on competition in your corporate travel segment too?

Sure. So on the corporate travel segment, there are 2 sets of competitors that we have. One is the foreign players, which is Amex and Carlson Wagonlit. They typically will play in the higher end of the segment. And then on the Indian side, we've got a couple of homegrown players, people like Thomas Cook and Cox and Kings and their Indian arms, which are operating here. Versus both of these segments, we think we've hit a real sweet spot in the market, and we've got a product market set going absolutely right. We're offering a technology solution today, which is far more customized and far more localized with Indian content, including, as we said, over 6,000 SMART hotels, over 95,000 other budget hotels in India. And from a pricing point of view, we are much sharper than most of our peers for a comparable solution. So we've got the added benefit of a technology platform, which most of our other peers don't have. This technology platform will integrate into the company's ERP systems, into their HR systems, right, into their expense management systems. So it's a fairly sticky proposition that we offer, which allows the organizations to customize their workflows, manage their expenses much better through a very tight quality compliance tool that we have inbuilt into this solution. So on the competitive landscape on tariff, I think we continue to be the dominant force and we expect that we will continue to gain market share on the back of the technology solution that we have.

Okay. And then just one more for me. Any partnership opportunities, I saw your largest competitor is partnering with Flipkart, any opportunities for you?

I think there are few opportunities as we continue to explore. There is a partnership opportunity that we're looking at with people like Jio, who are rolling out a large 4G mobile network. We had something in place with them earlier. We are trying to see how best we can expand the purview of that. And likewise, there are other commerce players as well in the country with whom partnership opportunities exist in the market.

We will take our next question from Mark May with Citi.

Just regarding your comments in the prepared statements regarding airline profitability and possible headwinds there. Can -- how would we likely -- how would that likely show up in your business and in the financials? Is that more of an impact on bookings? Or is that more of an impact on net margins? Just trying to anticipate a little bit of how some of these macro factors kind of flow through the business?

Sure. Mark, this is Dhruv. So there are a couple of ways in which these macros affect us. The first is in terms of rising fuel prices, typically do with the lag effect lead to higher air ticket prices. And higher air ticket prices do lead to a slight drop in consumer demand, especially on the leisure travel side. So we would look at maybe the overall macro market growth slowing down a bit on the back of increased airfares. So that's one way it flows through. The other thing if it does become an extremely severe circumstance, right, where their profitability gets impacted on a continued basis, there could be some take rate pressure as well. At this point in time, however, we feel given the kind of incremental supply, which is being added by the airlines, take rate pressure is not really going to be the key focus area. So what we would look out for in the near term is the impact that it has on overall domestic passenger traffic on the back of these rising fuel prices and how much of this fuel price increase the airlines pass on to the consumer.

And at this point, have you begun to see signs of this on the consumer side of your business? Or are these comments just more anticipatory? Or have you already begun to see on the fringe some of this already?

Sure. So in the 3 months ended June 30, for this quarter, we saw air ticket prices being up 11% versus the same quarter last year. A large part of this came in the month of June itself. So while there is some impact of the change in mix towards higher-value business travel and international airfare, but on a like-for-like basis as well, we've seen domestic air ticket prices go up, especially in the month of June. And we've seen a similar trend continue in the month of July and August. So we're beginning to see some increase in airfares. It isn't at a stage yet where it becomes alarming from a passenger traffic point of view, but this is something that we want to keep a very close eye on.

Okay. Great. And when you do see these types of macro factors, be it higher air prices or whatever it -- may be at the root cause, what is typically been the company's marketing strategy during these periods? Do you tend to lean in, in order to maintain share and top line growth? Or do you tend to kind of pull back? How do you tend to think about your marketing strategy?

Sure. So from a sales and marketing point of view, the multichannel approach that we have, I think gives us a unique opportunity. So while we've seen in the past that leisure traffic demand, especially on the fringe does tend to be price-sensitive where customers move away from air and start traveling by rail. On the business travel front, we see that the demand is fairly inelastic. People at least up to a certain increase in price point continue to travel as planned. So we would continue to focus on the corporate travel side and use this as an opportunity to expand our footprint on that side, while the leisure travel market may potentially slow down. So that's how we are looking at this. We would lean in more on our distribution and the technology platform that we've built in on the corporate travel side to be able to maintain our growth rate as opposed to go after, let's say, consumer promotions and incentivize and subsidize customers to a greater extent to manage and maintain that growth rate.

Great. And maybe one last one if I could. On the business travel side, I believe, correct me if I'm wrong, one of your strategies is to try to increase your business with medium and large-size businesses. Is that in fact one of the efforts? And if so, any sort of update on how that -- those initiatives are going?

Sure. That's absolutely spot on, Mark. And our focus remains on making sure that we can garner a larger share of these large and mid-size corporates in India. And with regards to this, we've had a fair bit of success. I mentioned a few key customer wins that we've had in the quarter. And these include one of India's largest telecom players, a very large multi-conglomerate, one of the largest pharma companies. So these organizations cumulatively employ about 45,000 people. So we continue to see strong traction on this front, on the corporate travel side. And the next wave for us is not just at the air level, but beyond this what we've seen is that once companies adopt the platform, it tends to significantly improve our ability to cross-sell. So we're looking at hotels, and we should start seeing meaningful contribution over the coming quarters from hotels. And we are also looking at expense management to be another incremental revenue stream for us, which will start kicking in from the last quarter of this calendar year.

We will take our next question from Matthew Brooks with Macquarie.

You've talked a little bit about the macro headwinds. So I just wanted to ask, do business or leisure travelers take fewer international trips when the currency is lower. Is that something in your sort of conservative optimism?

What we've seen on the business travel side is that there isn't that much of an impact of the currency swing, given that the Indian economy itself is growing at a very brisk pace, business travel continues to keep pace with that. But on the leisure side, yes, you know that's something that we would typically see an impact of. This quarter was the high season. This was the peak summer holiday period, so a lot of people had already baked in their travel plans. If the currency remains at this level, then the quarter which would be October, November, December and the next peak from our leisure travel point of view is the one that you would need to closely look at to see how people behave. In the past, we have seen instances where people have deferred their leisure travel a bit. But then usually this seems to come back with a lag effect. So you will see the deferment happening for a quarter or 2, but post that once the new reality of the currency sets in, we've seen demand come back. But we haven't really seen any detrimental effects of currency movements on business travel.

Just to add do that, even on the leisure travel, I think, a lot of it depends on what the outlook, as generally, people think this is a temporary depreciation in the Indian rupee, therefore they will defer their travel. But if it is seen that this is the new normal then, I guess, very quickly people readjust their spends according to that. And you see the more -- activity back. And we've seen this a couple of times in the past as well when Indian rupee went from almost INR 57 to INR 64 and then to INR 68 and now to INR 70. So I think people just wait for some time to see whether this is the new normal or this is a temporary phase that they will go through.

Okay. And is there a period of time where it has to be at a new level to be -- for people to adjust? Is it like 3 months, 6 months?

I think really over 3, maybe 2 to 3-month time frame people get a sense whether this is now a new normal as opposed to just a temporary phase. I think we're still in the early days of that. So I think we'll probably have to see it for a couple of more weeks before it comes down to that this is the new normal for them.

Okay. And can you explain, was there anything to talk about in terms of the driver, the lower margin in hotels?

There was a marginal decline, which was 12.9% versus 13%. That was, again, largely because of the change in business mix as opposed to any change in the margin from the standalone businesses. As you know we have 2 or 3 segments in there, which is the standalone hotels, we've got the corporate hotels, and then with the hotels -- sorry, holiday packages. So all of those 3 combined, so there wasn't any decline in any of the individual components. It's just the way the business mix played itself out. There was a slight decline from 13% to 12.9%.

Okay. And I guess, last one here. Can you give any guidance about how much the sales and marketing expenses were as a percent of bookings in say the last 4 quarters or something so that we can adjust for IFRS 15 going forward?

I think we've always seen ourselves looking at as a percent of revenue as opposed to percent of gross bookings, while we can go back and give you that number. I think the way we've looked at this is, last year, that number was about 57% as a percent of revenue. The year prior that number was 47% and the increase was only on account of the brand marketing and the brand ambassador campaigns that we did. But as we mentioned earlier, we will see pull back on all of those spends given that we have invested a fair bit on that and bring that number down to lesser than 50%.

We will take our next question from Ranjeet Jaiswal with Jefferies.

I would like to first understand what is the status of ATB acquisition wherein you had mentioned that you had acquired majority of the stake in August '17 and you need to acquire minority stake. So can you help us understand that?

So I think what we put out was, I think, put out in the 20-F as well, that the time line for that is somewhere in this quarter -- in the current quarter is what we're looking to work that through. It has to go through certain steps in terms of the audit of Indian financials and then the purchase price calculation based on that. So that is what we're all working towards and we will update that once we have better clarity in terms of what those final deadlines look like.

Okay. One more follow-up question on this. So x of ATB, what was your growth for both Air Ticketing and Hotel and Packages business on an adjusted revenue basis?

Sure. On an adjusted revenue basis for our Hotels and Packages, there is very little contribution that comes in from ATB, so that's largely pretty much Yatra. And on the Air Ticketing side, out of the 40% growth in gross bookings, about 10% to 12% would have come from ATB.

Okay. So -- because I just wanted to understand you have -- your guiding for 20% growth for this fiscal, wherein for the first quarter, we had ATB contribution because of which we grew by 20%. But for the rest of the year, ATB contribution was largely there last year. So how confident are about this growth for the current fiscal?

Sure. So just looking at that, what we've looked at is the kind of macro trends out there and the kind of new customer wins that we had on the corporate side. There are some large corporate customers who've gone live in this -- in the current quarter. And there are some more who are in the pipeline scheduled to go live in the coming quarters. So on the back of that, we're fairly confident of being able to get to these kind of numbers. There was some delay in terms of implementation of a few key customers with customers grappling with their own GST implementation in the March 31 time line and then subsequently in the month or 2 post that and that's the reason why those few large accounts got pushed back into the current quarter. But now that those have kicked in, we expect that the organic growth rate will also lift up on the back of those accounts coming through.

And we will take our next question from Andrew Carreon with the University of Notre Dame.

Just one quick question based on the new IFRS 15. It looks like about 70% of the overall marketing and promotion spend was counted against revenue and about 70% to 80% last year same quarter. Just curious how that differs quarter-to-quarter throughout the year? And then it seems like in the past, it's been messaged that most of the promotion and marketing spend would be to enhance brand recall. So how do you kind of reconcile that with us now saying that 70% of the spend is counted against revenue?

Sure. At a macro level, our view still continues to be the same that a large part of this consumer promotion, which is being done is to build habit. It's being done to get customers who would otherwise have bought online to come in and buy online. So it's category creation work, which is happening. So we still contribute to believe in that wing and that's the reason why we continue to show Revenue Less Service Cost as adjusted revenue in a pro forma manner. The reason why the change has been done is obviously on account of the implementation of the new accounting standard. But from our perspective and the way we look at the business, right, we still view this as an essential cost of long-term customer acquisition and getting people to migrate from the off-line channel to the online channel.

Got it. That's really helpful. And then just curious on the recent share issuance. At $5.50 a share, I think it's pretty meaningfully below the price at which the company came public years back, and I think quite a bit below what a lot of people would consider a fair value for the business. So just trying to understand from a shareholder view, why that seems like a good thing to do and then maybe some uses for the capital now that there is $86 million on balance sheet?

Sure. So there is a bit of background to that. And I'll do a quick summary of that. Our stocks actually went through a phase where on account of some distribution by our early-stage shareholders to their LPs and some other charities, there were noncore shareholders, who came into the Yatra shareholder base and these noncore shareholders were offloading stock in the open market at a certain rate. Given that we had come through a SPAC process, we did not have a large enough shareholder base to absorb that kind of incremental supply. The idea behind doing the raise was partly to offset that, right. The idea was to get a larger shareholder base and a better quality shareholder base, which would enable us to take on some of that incremental supply that comes through. So that was part of the reason behind doing it, and obviously, over a period of time we would have needed incremental capital as well and that capital we want to deploy behind growing our corporate business, behind growing our SME platform that we launched recently and also looking at selectively M&A opportunities, which might exist in the market.

We will take our next question from Gaurav Rateria with Morgan Stanley.

Dhruv, a couple of questions. Firstly, on the air transaction side, ex of ATB, has there been any shift or change in the market share trend for Yatra?

Ex-ATB as well, we've seen fairly strong growth in our business, and we continue to see, especially international flights growing at a very rapid pace. So that's definitely an area where I feel that the channel shift from off-line to online seems to be happening at a very rapid pace.

Gaurav, did that answer your question?

Hello?

Yes. Gaurav, did you get that?

Yes. What would be the growth in the domestic air ticketing transactions?

That's not something, Gaurav, that we call out separately. Yes, what we do call out and have been calling out for the last whatever 6, 8 quarters now has been the overall growth in gross bookings.

Sure. Secondly, just wanted to understand your growth in the hotel room night had been very, very strong in fiscal '18. And this quarter, we saw -- this fiscal year starting off with a slower growth rate. Is there anything, which is going on in that particular segment?

See on the hotel side of things, we've tried to look at rationalizing our consumer promotions, especially on the consumer front, on the direct-to-consumer, B2C front. On the corporate side, the growth continues to be strong. So there is a bit of realignment that's happening on account of the consumer promotion rationalization. We also in terms of the next quarter onwards have the ATB customers migrating on to our platform. So that we think will create another large opportunity for us, hence, we've started moderating some of our consumer promotions on the B2C side knowing that we've got a certain amount of visibility on the corporate front where we will have incremental hotel growth coming in, in the second half of this year.

All right. Just wanted to check another trend. What's happening on the budget side? You had announced some partnership with OYO. How has that been shaping up? And in general, the overall growth in budget has that been ahead of your overall transaction growth?

So on the budget segment, we've seen strong growth. But given that at this point in time a larger part of the growth is coming from the corporate side. On that front, it's more the -- the more mature 3-star chains and the 4 and 5-star hotels, which are driving large parts of the growth. The OYO growth side and the growth story over there, we've got OYO, we've got Treebo, FabHotels, all of them on our platform. But we also have our own portfolio of SMART hotels, which are partner hotels where we are standardizing the supply. We are trying to make sure that there is a certain minimum service guarantee, which is provided by us that's backed by the hotels. So our endeavor has been to try and increase the share of SMART hotels in our overall sales portfolio. And we think that has a very positive impact on our consumer NPS as well. So our focus would be to try and see how we can drive incremental demand to the properties, which are on the SMART hotel platform.

We will take of our next question from [Vincent Williams] with [CVC].

Can you just talk about the significant cash outflow and change in working capital this quarter, as well as given your revised guidance your expectation for reaching kind of breakeven profitability?

So the -- on the working capital, yes, I mean, this one, obviously, has some bit of investment in working capital in the quarter, some part of that came from the increase in corporate business, given that corporate business when it close, obviously, has some bit of working capital in there. Also, a large portion of that comes from our consumption of the GDS given that that money is received upfront as opposed to being received on a quarterly basis. So as we keep utilizing those segments, that number goes up to that extent. There was also some small amount that we paid out as advance to some of the airlines as part of our regular business. There was some increase in that. All of those led to some bit of investment in working capital. But I think we should see that number coming off from where it is in the subsequent quarters.

Got it. And your expectation for kind of reaching EBITDA and cash flow profitability, has that been pushed back in light of the headwinds that you discussed earlier in the call?

See in terms of the overall business performance, we do expect that our business performance in terms of operating performance will continue to improve strongly on the back of the corporate travel business and the kind of profitability that we envisaged and expect to drive firmly. So we would expect that we will continue towards our path of breakeven in the near term, right. So that remains on track. In terms of -- and that's at an operating level. In terms of cash flow breakeven, I think for that there will still be a bit more time that will be needed given that beyond the operating breakeven, we've got working capital changes which are there and there is a certain amount of CapEx spend also that happens. Plus, as Alok mentioned, there are certain receivables, for example, from the GDS, there's money which is received upfront. So the impact of that is felt in subsequent quarters from a utilization of cash point of view.

Got it. And one more question if you don't mind. Given you have $86 million of cash on the balance sheet, do you foresee the need to raise any incremental equity? Or do you have enough now to kind of get you towards that breakeven profitability?

Sure. So from an organic need point of view, we don't foresee our business needing incremental capital raises. If there are some good M&A opportunities that do come up at some point in the future, for that we'll evaluate this independently. But at least from an organic point of view, we think we are adequately capitalized.

We will take our next question from Jon Hickman with Ladenburg Thalmann.

The last caller answered my question. Thank you very much. Appreciate it.

We will take a follow-up question from Jed Kelly with Oppenheimer.

Yes. So of the $86 million you have in net cash, how much of that is going to -- or are you going to need to pay ATB for the remaining liability?

Jed, that number as we have stated earlier, we anticipate the ATB acquisition to cost us between $22 million to $27.5 million and I think there was about $7.5 million, which was paid up front. So depending on where the final cash calculation or where the final audit adjustments and everything come out for their India business and the purchase price calculation comes out, the balancing figure would end up being paid out. So it will range from $15 million to $20 million.

Okay. That's helpful. And then just unpacking some of the expectations in the hotel segment given the deceleration. It looks like, okay, you're going to -- you are seeing some deceleration from more rationale marketing, however, better ATB integration, more cross-selling opportunities should allow room nights to sort of grow in line with the 1Q, with the 1Q 20% growth rate, is that the way to think about it?

Yes. So we think on the back of the ATB integration and some key customer wins, which have happened in the recent past, we should expect our hotels -- so we expect our Hotels and Packages growth rate to increase from where we are right now and we do expect the standalone hotel room night growth also to pick up steam from where we are right now.

Okay. And then just my last question. When you say free cash flow positive near term. Is that a 2020 story or are you pushing that out to 2021?

See on the free cash flow, Jed, I think let me just clarify what I was talking about. It was from an operating breakeven point of view in the more near term. In terms of free cash flow, I think it will take us some more time beyond that because of the elements that we highlighted, there is working capital, there is CapEx, there is the impact of the GDS upfront payments, which will all kick in before free cash flow breakeven happens. So there will be a time lag of between 4 to 6 quarters from the operating breakeven to a free cash flow breakeven.

And we will take of our next question from [Dick Gozinia] with [Gozinia Capital].

Do you anticipate any effect on your business from the drafts of e-commerce policy that are currently making the rounds?

[Dick], that's a very good question. That's something that we are trying to keep a close eye on. We've had a few interactions as well with the stakeholders there. We think a policy like that could have a very positive impact on our business, especially if it looks at rationalizing the kind of consumer promotions, which have been running in the market. So I think some of the consumer promotions, we think could be scaled back if the concept of capital dumping does come into the picture. So that should have a positive impact on the overall economics of the business and the competitive landscape. I also think that a policy like that should strongly favor the number 2 players, so the players who are not -- who are more rational in nature are the ones who should benefit from a policy like that coming through because their businesses are not being built on the back of weak consumer promotions.

And ladies and gentlemen, that does end our question-and-answer session. I would like to turn the call back to speakers for any additional or closing remarks.

Sure. Thank you, all.

Thank you, everyone.

Well, go ahead, Dhruv.

Well, just thank -- thank you, everyone. And that concludes our conference call for today. And as always, Manish, Alok and I remain open, if anyone has any follow-up questions, you can feel free to reach out to us at any point in time. Thank you for your time this evening.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's call. And we thank you for your participation. You may now disconnect.

Thank you.