Yatra Online Inc (YTRA) 2022 Q1 法說會逐字稿

Good day, and welcome to the Yatra First Quarter 2022 Financial Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Manish Hemrajani. Please go ahead.

Thank you, Katie. Good morning, everyone. Welcome to Yatra's fiscal first quarter 2022 financial results for the period ended June 30, 2021. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi.

The following discussion, including responses to your questions, reflects management's views as of today, August 19, 2021. We do not undertake any obligation to update or revise the information.

Before we begin our formal remarks, allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond the company's control. These include expectations and assumptions related to the impact of the COVID-19 pandemic. For a description of these risks, please refer to our filings with the SEC and our press release this morning. 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.

Thank you, Manish. Good morning, everyone, and thank you for joining us. I hope that you and your families are safe as we continue to navigate our way through this pandemic.

As you're all probably aware, India was hit particularly hard by the second wave of COVID-19, with cases reaching over 400,000 a day, a bit height in the quarter. This led to widespread localized lockdowns across the country, significantly reducing air travel, though not as severe as a year ago. The impact was widespread and touched most of us personally, with family, friends and employees impacted. Despite these challenging conditions, we continued our strong execution.

Adjusted revenue was INR 489 million, which is approximately USD 6.6 million, down about 50% from the prior quarter due to the effect of the widespread lockdowns across India, but up 107% versus a year ago when India was first placed under lockdown.

Despite the effects of this second wave, I'm proud to report that stringent cost controls enabled us to deliver positive adjusted EBITDA of INR 39 million, which is approximately USD 0.5 million. As I've been telling our shareholders, Yatra will exit the pandemic a more financially stable and profitable company than it was pre-pandemic. And as a result, we'll be in a much better position to get maximized shareholder value going forward.

While we are not out of the woods yet, I'm guardedly optimistic that the worst of the lockdown is now behind us, and that we saw the trough in travel this June. The combination of lockdown and the vaccination drive has lowered case counts to a level low enough right now to encourage a recovery in travel.

July industry air passenger numbers grew 56%, and the strength has continued into August. I'll go into more detail shortly, but Yatra has seen a rapid recovery in consumer travel and hotel bookings in July and August. Perhaps more importantly, corporate travel is finally starting to come back and rapidly. Recall that before the pandemic hit, BB accounted for approximately 50% of Yatra's gross bookings and greater than that of our profitability.

Why is corporate travel coming back now? The reasons are manyfold, but we believe the most significant factor in corporate travel recovery is the genuinely remarkable mass vaccination program India has undertaken. India is vaccinating nearly 5 million people per day. To date, 557 million-plus doses of the vaccine have been administered, with 123 million people, approximately 9% of the population, getting fully vaccinated and another 434 million people, which is about 32% of the population, having received at least 1 dose. At the current pace, we anticipate close to half of India's population being fully vaccinated by the end of this year, which will reassure businesses that they are getting back to normal.

I'm very confident that the industry is well on its path to recovery. As we look forward to the end of this pandemic, which we believe will be driven by the pace of vaccination in the coming months, travel should recover strongly, as evidenced by the strong recovery post the first wave.

Now coming to our June quarter performance. In the June quarter, we felt the broad impact of the second wave in India. Adjusted revenue of $6.6 million was up 107% year-over-year, but down 50% sequentially. Despite the sequential revenue decline, our tight cost management helped us achieve positive adjusted EBITDA of $0.5 million, and we ended the quarter with a solid balance sheet with a cash balance of approximately INR 30 million.

As we look to the year ahead, we see travel rapidly recovering as vaccination accelerates and travel restrictions gradually lift, with domestic in the near term and international towards the latter part of this year. We continue to hold our cost to the minimum, and we believe we have adequate liquidity on the balance sheet to see us back to sustained profitability.

On the consumer side, we are beginning to see demand coming back in domestic travel on account at the low case counts and the vaccination guide in India. In the month of July, air passengers grew 56% from June and are currently trending at a growth rate of 39% for the month of August over July. We expect the recovery in international to continue to be more gradual and more likely towards the end of this calendar year and largely dependent on the case counts and the rate of global vaccination.

Having said that, off late, a number of European countries, including Switzerland, France, Spain, have eased restrictions on travel for fully vaccinated Indian citizens. And the UAE also today announced further easing of travel restrictions. This should give a boost to international travel in the short term as well.

Air passengers booked was up 170% year-over-year in the June quarter, but down 62% sequentially, reflecting the impact of the second wave. Our hotel room nights almost quadrupled year-over-year, but was down 76% sequentially. On both air and hotel at a competitive level, we continue to see moderate to low levels of competitive intensity during this quarter. We are also currently in the process of expanding payment options such as book-now-pay-later solutions, which are similar to Afterpay, that some of you might be familiar with, on a consumer platform to enable customers greater flexibility of payment timings.

On the corporate side of things, our corporate travel business is beginning to recover well. We are seeing a strong recovery in business travel as more employees continue to get fully vaccinated. July gross bookings for corporate grew 268% over June, and August is trending at 316% growth over June. And August, it looks most likely to be the best month for corporate travel since March 2020.

We are optimistic about the growth and recovery based on the trends that we are witnessing in the months of July and August, and believe that our healthy balance sheet puts us in a solid position to capitalize as the recovery continues to gain momentum. Our pipeline of prospective new customers continues to grow as well as inbound interest has increased meaningfully post-pandemic. We believe online penetration in the corporate travel market in India is approximately 10% to 15%. A large part of the market today, approximately 60%, is served by smaller to mid-tier offline players. As a result of the pandemic, we see evidence of an accelerated shift towards online players, especially as contracts come up to their end of life and rebidding.

Once we get back to normal, given our recent new customer signings and our ability to gain share in this highly fragmented market, we believe it is possible that corporate travel accelerates growth to levels higher than pre-pandemic.

One other strategic growth driver for us is the expansion of our corporate digital platform as we continue to add non-travel-related services to our captive corporate customer base. As the largest corporate travel service provider in the country, we have strong relationships with some of the biggest and best-known enterprises in India. We continue to make inroads into these organizations with the nontravel offerings, primary amongst which is freight.

So let me now give you an update on our freight initiatives. As we look towards digitizing the logistics space, our corporate travel relationships with both airlines and enterprise executive management, together with our technology capabilities, give us a significant headstart. Despite the pandemic, we have rapidly scaled up this business over the past few months. And we believe this business, longer term, has the potential to be even larger than our corporate travel business. We now have a team of almost 200 seasoned trade and industry -- and logistics industry professionals, who we believe can help scale up this business. We expect 2022 to be a year of rapid expansion for this business.

The freight industry is multiple times the size of the travel industry and exhibit similar attributes to what the business travel industry did about a decade ago. The industry is highly fragmented, has very low levels of technology adoption. We are fortunate to be able to leverage the expertise we have built in our corporate travel platform over the past several years, and we can look at leveraging that strength for building out our freight travel platform as well.

Additionally, we are also looking to leverage our existing vendor and corporate relationships on both the supply side and demand side of our trade business. We remain confident in our platform capabilities to serve any scale and type of customer. Our corporate customer base is a great asset for us and is a platform that we intend to leverage to cross-sell services.

As of June 30, 2021, the balance of cash and cash equivalents and term deposits on our balance sheet was INR 2.263 billion or approximately USD 31 million. When we come out of this pandemic on the back of the secular growth in Indian travel, the mid-teens signing growth we made during the pandemic in new customers and in the growth of our hotel network, our digital platform business, has the potential to grow to the size of our pre-pandemic corporate travel business in the coming years.

We should be on a significantly better revenue growth trajectory as we come out of the pandemic. We believe the opportunity ahead for Yatra is massive. We believe Indian Internet travel will hit an inflection point in the coming years as we get past COVID, and we believe corporate travel, where we are the leaders, will recover quickly and also adopt technology at a rapid pace. In addition, the efforts we made during the pandemic to improve operational efficiency will lead to significantly higher levels of profitability and cash flow.

I want to thank our shareholders who have stood by Yatra through these trying times. I'm hopeful and honestly believe it is only a matter of time before your patience and understanding are rewarded. Finally, I would like to extend my appreciation to our employees, whose hard work and dedication is the ultimate driver of our success. I also want to voice my sympathies to my friends and colleagues, many of whom have lost near and dear ones in this pandemic. Stay safe and healthy, our prayers are with you.

Before I open the call for questions, I would like to make a few additional comments. You may have seen a recent filing by one of our shareholders commenting on our business and strategy. This morning, we have issued an open letter to all of our shareholders, articulating our perspective on the opportunities that Yatra has to succeed as the travel market recovers from the pandemic. As I have discussed on today's call, we are well-positioned, and we are now excited about the initiatives we are underway to create shareholder value.

Now we'd be happy to take any questions you have about our business and outlook. Manish, over to you.

Thank you, Dhruv. Operator, please open up the call for Q&A.

(Operator Instructions) Our first question comes from Scott Buck with H.C. Wainright.

It looks like the corporate travel growth has been pretty impressive coming off of June. But could you help us -- can you give us an idea or frame that in terms of what it looks like versus pre-pandemic levels?

So in a pre-pandemic level, Scott, in corporate travel revenue right now, August would be trending somewhere close to about 25% of pre-pandemic levels, maybe even slightly north of 25%, late 20%s.

Okay. Perfect. That's helpful. (inaudible) How many of these new corporate travel bookings are coming from customers that maybe you've signed over the past 18 months or so?

I don't have that number handy right now in terms of how much of it is new customers and how much of it is existing customers. But there is recovery, which is happening right now. On a fairly broad base, the lead in the recovery is happening by the big consulting firms. So the EYs, BCGs, PwCs of the world. They are the ones who are driving the large part of the recovery, and maybe some of the more industrial and manufacturing businesses are recovering more gradually.

Okay. That's helpful. And then last one for me. It looks like you guys have still been fairly conservative on marketing and sales spend. I'm curious when we start to see that ramp given new demand for travel?

So I think the competitive landscape right now is fairly benign, as I mentioned, Scott. I don't see us needing to ramp up tremendously on the marketing. We are seeing numbers in July and August as well, which are fairly encouraging from an overall competitive landscape perspective. So my sense is that while there will be early -- a little bit of ramp-up, which will have some, it's not going to be very significant as we go forward. The ramp-up, though, will also be in recovery of the B2C business. It's happening quite strongly at the moment. But from an overall percentage point of view, we should see some operating leverage on the marketing and sales spend for the next few months, at least, right?

The advantage that Yatra has when it comes to this, Scott, is that we've got a very strong and well-recognized brand in the country and that high brand recall allows to be -- allows us to get a meaningful amount of direct traffic. So we should not see spends recovering in line with revenue. We should be seeing some operating leverage on the spend.

Our next question comes from Tim Moore with Zacks.

Good work on cost savings shining through. It's nice to see the air ticketing margins so high, and I was kind of curious about your book-now-pay-later option getting added.

So I just have 3 sets of questions to ask. The first one is on the hotel side. I read that 70% of India's domestic hotel capacity is operational. By the end of June, and that the premium hotel side was leading the hotel recovery. Can you -- I know you just mentioned this, and Scott asked about this in operating leverage, but can you kind of share your approach, if you're willing to maybe increase marketing on the hotel side, the market share -- if the discounting behaviors staying rational and kind of benign lately? And just what is kind of your thinking of a trade-off between maybe spending for repeat customers versus acquiring new customers on the hotel side?

Sure. So on to the hotel side, there are 2 factors at play for us, one which is happening is on the corporate travel side. We're beginning to see hotels gain meaningfully on the corporate travel side. And the reason behind that is that a number of companies are now being much more stringent about their managed hotel stay programs. So as a company, you're obviously only as strong as your weakest link. So if your employees in up-country markets are going and staying at smaller places, places which might not be as hygienic, they're on the risk of getting infected and then bringing that infection back into the main office.

Keeping that in mind, an increasing number of companies are now looking at their hotel programs to become much more structured and their employees staying at properties, which maybe have a certain standard, and they are working with Yatra in terms of identifying those properties, which would mean those kinds of standards. So we have a process called Clean Pass, where a hotel's have to meet a certain amount of -- or a certain criteria for the kind of stuff that they are doing to maintain COVID protocols and in good traction on that, and the adoption is also extremely good product on the corporate travel side. So that's one thing which is driving, and for that, we don't really need to get into discounting and marketing, right? And that's an organic share that we are gaining from our own corporate customers who earlier might not have had a very structured and managed corporate travel program, but in the post-COVID environment, are looking at formalizing and putting more structure around the stay program as well.

The other part of your question, which is on the consumer side. On the consumer side, today, for sure, there is good growth that we are witnessing. But also given that the market is relatively stable, we are seeing an accelerated shift towards us because of the strength of the brand. In the past, especially now I'm going back to like pre-pandemic levels of 2019 and maybe even 2018 when the competitive intensity on the hotel side was extremely high, we did lose a little bit of market share. But that share, we seem to now be gaining back in a much more stabilized environment.

Having said that, I think there are opportunities to accelerate revenue growth, and we are looking at those opportunities closely. So wherever it makes rational sense, we are going to take on those opportunities to continue to scale up the revenue growth in the hotels. But the good thing for us, as I said, just to reiterate, we've got 2 levers working at the moment. One is on the corporate travel side, where the cost -- incremental cost of acquisition is quite low and the other's on the consumer side, where we are evaluating the risk-reward and the cost-benefit analysis of the incremental sales and looking at that judiciously.

That's helpful. My next question is you just kind of helped answer some of the cleaning standards and the Clean Pass. Just I'm just wondering if you can maybe elaborate or add more specific actions, awareness that you might be doing proactively on the corporate travel side to stay in front of corporate clients as the step-up recovery is starting? And I'm wondering if you're focusing a bit more on medium-sized ones? You mentioned consulting. I'm just wondering if you're really focusing more on certain end markets like construction, pharma, consulting, tech, outsourcing, as those start to come back and they bring employees in maybe on the earlier end compared to other end markets?

Sure. So if you look at it from a strategy point of view, our market share has historically been higher in sectors like consulting, where 3 out of the big 4 work with us, right? Then we will have banks, where we'll have a strong presence as and then with this large big tech companies in India like NHCL or TCS, right, which employ hundreds of thousands of people who stay on presence with them. The area where historically, we've got lesser penetration is more on the Indian large corporations. These are the ones who were historically serviced by mid-tier organizations out of India. That's the segment today, which I think is ripe for disruption.

So we have a two-pronged approach for our current installed customer base with the big consulting firms, the big banks. Our focus is on cross-sell of hotels and other services. Whereas in terms of new customer wins, we are, today, now looking much more closely at the large Indian corporations, which were hitherto being serviced by the mid-tier organizations. And a number of these Indian corporations also have shown a higher degree of interest in terms of adopting technology. So that's the area and avenue for growth with us. That's the 60% fragmented market that we've been referring to, right? And this pandemic is actually helping us accelerate penetration in that sector.

So that's the two-pronged approach. On the existing customers, the focus is going to be more cross-sell-driven and getting more and more products sold. And then on the new customer win side, it's this fragmented market that we are going after.

Great. That's helpful. And I'm just wondering, just the air ticketing margins were quite high, and they've gone up nicely. I'm just wondering with low load factors and less discounting and incentives for airlines, which seems to be also the case in the U.S., they're pretty expensive actually to airfares here. How many more quarters do you think you can keep the air ticketing net margins up until maybe corporate picks up and maybe brings that down a little bit, which you would still be good up for operating levers? I'm just wondering maybe how you're thinking about the margins when you look out a couple of quarters?

Sure. Yes. So margins in quarters like these, which have high degree of cancellation also, right, do get in a way a bit -- I'm trying to look for the right one, but maybe they don't really give you a sense of what is the ongoing margin. So if I was to look at the ongoing margin, the underlying ongoing margins, we think, will be closer to the 10% mark at this point in time, right, with these kinds of aberrations happening on account of high degree of cancellation playing out. And as corporate travel begins to pick up more on the mix, the weighted average will then blend towards the 6% to 7% mark over a period of 12 to 18 months. That's the way we would look at this. I think the 16% that you see right now in air margins is more of an aberration, an aberration that is led on account of the high cancellations in the quarter.

I am showing no further questions. I will now turn the call back over for closing remarks.

Thank you, everyone, for joining the call today. As always, we are available for any follow-up questions you may have. Stay safe. Thanks.

Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.