Easy Trip Planners (Easemytrip) - An outlier in OTA

Stock Opportunities Untested - but worth a good look
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Starting a thread on Easy Trip Planners (Easymytrip).

Note: This is my 1st company analysis, let me know if I missed something or you have any comment.

About Company:
EaseMyTrip commenced its operations in 2008. 2nd largest among the Key Online Travel Agencies in India in terms of booking volume.
Business: Online ticket booking mainly airlines, hotel and holidays.

Summary of Industry
The online ticketing industry, in terms of value, expected to reach approximately 58% to 60% by Fiscal 2023, based on gross booking revenues (Source: CRISIL Report).

Review of the online ticketing market in India
In Fiscal 2020, the Indian online ticketing market increased at a CAGR of approximately 15% to 17%, from ā‚¹ 680 billion to ā‚¹ 700 billion in Fiscal 2015 to approximately ā‚¹ 1,455 billion to ā‚¹ 1,475 billion.

The air ticketing segment accounts: approx 60% to 62% of the overall online ticketing.
The rail ticketing segment accounts: approx 23% to 25% and
The hotel segment accounts: approx 13% to 15% of the online ticketing industry.

E-ticketing in 3 sub-segments:
Airlines have a relatively high online penetration of approximately 68% to 70%.
e-ticketing in total rail ticket bookings improved from approximately 55% in Fiscal 2015
to approximately 73% in Fiscal 2020 (Due to IRCTC).
Online penetration of hotel bookings in India is relatively lower at approximately 24% to 26%.
The bus ticketing segment has less than 2% share in Indiaā€™s total online ticketing industry.

Share of OTAs and captive websites within online ticketing market in India

In the online air ticketing segment, OTAs have the highest share of approximately 76% to 78% in comparison with captive websites which account for approximately 22% to 24%.

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OTA vs captive website based on Gross Revenue.

I n value terms, OTAs accounted for approximately 61% to 63% of the total

online ticketing industry in India in Fiscal 2020, based on gross booking revenues. In absolute terms, the market size was estimated to be approximately ā‚¹ 900 billion to ā‚¹ 910 billion in Fiscal 2020.

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Indian OTA industry:

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Competitors:

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Competitors based on GBR:
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Promoters are Mr. Nishant Pitti, Mr. Rikant Pitti and Mr. Prashant Pitti.
CEO is Mr. Rikant but Mr. Prashant is the key man. He holds a bachelorā€™s degree in electrical engineering from the Indian Institute of Technology.
USP:

  1. No-convenience fee
  2. Profitable since inception. They have bootstrapped the company, never raised money before IPO.
  3. Lean operations:
    EMT vs Ind leader (In %)
    Employee cost: 1.0 vs 6.5
    Adv & Promo: 0.7 vs 1.4
    Other Exp: 1.3 vs 3.1

Risks or red flags:

  1. Promoter is taking high salaries; 2 promoters taking total 7-8 cr salary.
  2. Out of 3 promotors; most holding is by Nishant and Rikant; however key person is Prashant; he has less than 0.5% holdings.
  3. Certain corporate governance issues. In the past, the company had funded movie production and other business operations of promoter entities.
  4. Stock increased more than 100% in month or so and trading at 70 PE
  5. Risk on industries: Impact of the COVID-19 pandemic on the tourism industry

Valuation:
The stock had more than doubled (IPO price of Rs 187 per share) since then to the level of Rs 450 level. At present, it is now hovering around Rs 400 per share (Market Cap: Rs 4350 crore).
Itā€™s trading at M Cap / Sales value of 39.1 whereas MMT is trading at 18.6 and expedia is 5.7.

Key matrix to watch:
GBR (Gross Booking Revenue) is halved to 2128 Cr (Fy 21) from 4204 Cr (Fy 20). However PAT is increased to 61 cr (Fy 21) to 33 cr (Fy 20) due to cost cutting in Marketing, Employee exp, payment gateway exp etc.

Key figure to keep track - Revenue as % of GBR; in Fy 21 it was 5.0 and Q4 FY 21 it was 6.3%. Whereas cost as % of GBR is 3% in Fy 21 vs 3.1 in Fy 20.

Resources:

Disclosures: Invested since post IPO; added more post Q4 results. Hence I may be biased. This is for educational purpose only, am small retail investor not sebi registered.

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Have been following the company for few weeks. Somehow I am still not convinced that big daddys like MMT are making losses for the last 20 years and EMT is making big profits. The main thing they say is they are not charging convenience charges, but that MMT can also do (I know EMT says, MMT canā€™t afford to lose convenience charges). EMT is doing cost optimization everywhere, why canā€™t MMT Yatra do it too.

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Fair question Sameer,
I donā€™t have the right answer on behalf of MMT or Yatra, nor I advocate EMT. I somewhat know the mentality of an entrepreneur (I myself got angel funding a decade ago). Due to easy venture money, their focus is always to increase market share and not to bother with profit. Whereas EMT not taken (or not got) VC money, hence they need to focus on profitability besides growth. Internet business makes it possible to run lean - less HR and less direct advertisement etc.

Before covid, I come across an advertisement from EMT of no convenience fees and had booked a ticket which made me interested in EMT ipo.

My narrative with EMT is GBR - Gross Business Revenue and Profit.

GBR: (In INR for FY 20)
Easy : 42 billion = 4200 cr (and FY 21 GBR is 2128 cr)
MMT: 452 b = 45200 cr (11 times EMT)
Yatra: 85 b = 8500 cr (2 times EMT)
If you think from MMTā€™s viewpoint as they are 11 times ahead of EMT, they donā€™t need to make any changes to sacrifice profit for revenue.

EMT profit = 61 cr for 2128 GBR (Fy 21) which is 2.86 % of GBR. GBR reduced due to covid for Fy 21. (Gross Profit margin is 5-6% of GBR - minus 3 to 3.1% expenses of GBR)

In normal yr their growth rate for last few years is 47% in GBR
If we take GBR as 6174 in FY 22
Profit @ 2.86% of 6174 comes to 176 cr. Onward those fig are imp to trackā€¦

Disc: Invested at a lower level at the time of IPO. Invested and my views are biased. Do your own research, studied co thoroughly hence able to give you more viewpoint if required.

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Q1 Fy 22 results were on 14/8/2021. Results were impacted by covid.
Highlights of conf call.

  1. GBR calculations for this Qtr
    GBR=3567
    PAT 149.8 is 4.2% of GBR
    Revenue 187 that is 5.2% of GBR

  2. EMT is inching close to the leader (Read as MMT)
    Leader vs EMT (Numbers of time in air segment)
    A. 5.6 x in FY 19
    B. 4.2 x in Fy 20
    C. 2.7 x in Fy 21
    D. 2.3 x in Q1 Fy 22

  3. For the non air segment company is looking for an inorganic acquisition.
    They may do 5-6 small acquisitions in the year of now.

Disc: Invested post IPO. Biased views.
From the Last Qtr MF and FII reduced stake significantly - please do your research before investing.

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Source: Telegram Channel ā€˜Beat the Streetā€™.

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@Deven @dcoolsam have you read this article? any rebuttals? i also wanted to invest in EMT but while research i found this.

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@jatinbaveja If you have seen the below video of Varindar Bansal with EasyMyTrip founders they have given answers to the queries asked in this post. This was already posted by @Deven DHANDHA: EaseMyTrip - YouTube

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How difficult it is for startups focussed entirely on growth to get the unit profitability right? MMTs etc - the focus on growth and not profits for the short term - iā€™m just wondering how easy / difficult it is to get lean? It doesnā€™t look a simple ā€œif they can do it, so can Iā€ to me. But that could also be a investment bias.

Do we have any examples where in a competitive space, an aggregator was able to go lean and shut out competition?

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@luckbychance Ravi,
Not sure I can answer, just putting my thoughts.

Two schools of thought with an entirely different mindset. One has to earn profit to run the operation and the second doesnā€™t have to worry about profit. 2nd group of companies thought it should be easy for them to lean operations and to be profitable like a flip of switches. However, a change in mindset takes time. If there is no disruptor in industries it goes long way and nobody bothers to be profitable e.g. e-commerce or food delivery.

Some examples of disruptor comes to mind like Zerodha, star health insurance etc.

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Thatā€™s where Iā€™m coming from. I do not (personally) believe that one can overnight do cost optimisation and turn profitable. Many of the aggregators (like Amazon) turned profitable because of pushing competition out and getting economies of scale but in a market where the competitors are losing market share, it remains to be seen.

Also, can anyone shed light on why ICICI isnā€™t assuming higher EBITDA margins as EMT gains market share? To me, it seems that incremental revenue should mostly flow directly to bottom line given the nature of business.

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Fair to say that OTA cos are underperforming relatively to market right now? Indigo and IRCTC have jumped quite a bit in past few weeks and air traffic is also surging. 67 lacs pax in both Aug & September compared to 77 avg in Q4FY21 when EMT posted 30 crs of profits.

This coupled with the fact that EMT has been gaining market share in the OTA space. Guesstimates point towards a good Q2 for EMT, perhaps getting close to Q4 numbers.

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Make My trip declared results on October 26 and doubled its revenues from air ticketing segment on a YoY basis to 21mn or around 160cr. Margin from Gross booking is 8.6%. MMT has said that this was primarily driven by airlines to drive the ticketing growth.

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I forsee EMT reporting better adjusted margin numbers since they help airlines with advances etc helping them to have better margins.

MMT is currently valued at 5/6x of EMT and I think there is scope for EMT to do a catch-up here.

D: Invested, biased.

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Q2 Results are excellent due to the opening of air travels. Thanks, @luckbychance for the MMT details. I tried to compare with MMT.

GBR of air segment for H1 of 2021

  1. MMT 628570K USD = Rs 4678 cr vs 1251 of EMT (3.73 times)
  2. Air ticket adjusted revenue of MMT is $ 21.3 Million = 158 cr vs 100 cr of EMT
    Note: EMT adjusted revenue is for the entire business, however, their other business is small hence itā€™s comparable with MMTā€™s air ticketing revenue.

Other details from the conference call:

  1. Total 370 employees out of it 72 is into Tech dept. Avg salary is 10-11 lakhs per employee. 180 employees are in call centre type job. The First 10 tech employees out of that 7 are working with us even after 13 yrs.
  2. Cash flow is negative. Reasons: 72 cr advance deposit to airlines, 22 cr dividend and 26 cr transfer to long term from cash in hand.
  3. Co started spending on branding.
  4. Acquisition (Traviate) is under consideration hence details are not disclosed.
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I tried to ask question on con call but it seems EMT, like many other companies, isnā€™t giving much chances to retail investors. My question was mainly around how theyā€™re claiming to be 2.3 or 2.7x the leader when on a GBR basis MMT is 3.73 times bigger?

Also adding to what @Deven has already noted from the con call:-

  1. Advertising spend to remain within 1.5% of GBR and the co will now move to brand marketing from earlier performance marketing (SEO etc). Recent advertisements are in that direction
  2. PBT as % of GBR may slightly inch up in coming quarters as most of the other costs in EMTā€™s P&L are fixed (apart from AMP). Prashant mentiond that it should remain around 4%
  3. Rotational advance of 72cr with airlines that enables them better take rates (slightly confused here cos revenue from ops as a % of GBR declined sequentially from 5.2% to 4.9%)
  4. Traviate had a loss of 0.4cr in FY20 and FY21 they expect Traviate to break even.
  5. EMT uses .net tech stack vis-a-vis python, others used by other startups (can anyone confirm if .net would be a enabler or a trouble maker as the company scales up?) Prashant also ruled out moving to any other tech stack. They have someone called ā€œManojā€¦ā€ joining them as CIO / CTO. Avg salary of these .net framework employees is 11L since the tech stack isnā€™t very common and hence employee cost is under control.

Valuations

EMT MMT
Mcap (cr) 5,789 25,725
GBR (H1FY22) 1,251 4,678
Mcap / GBR 4.628 5.499

On a profitability basis, EMT and MMT arenā€™t comparable since MMT is quite diversified with large hotel and bus ticketing business. It is also possible that the higher valuation of MMT builds into those other segments.

Key monitorable here is GBR. How fast can EMT grow this and whether it can keep advertising in control - run a good campaign so that it gets more bang for bucks. In my view, EMT is currently at 4000cr of annual GBR on a normalised basis.

On personal note, I tried booking ticket of same flight via MMT and EMT and EMT was 200/300 bucks cheaper. Good show.

This isnā€™t true. MMTā€™s adjusted margin (equal to adjusted revenue of EMT) is $38.5mn or 288crs which is roughly 2.8x EMT. On tickets booked basis, MMT (60 lacs) is 3.3x EMT (18.63lacs in Q2)

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So I tried to compute figures myself using MMTā€™s earning releases and EMTā€™s investor presentation released around the time of listing.

EMT MMT Multiple
FY2018 1,945 20,284 10.43
FY2019 2,938 24,109 8.21
FY2020 4,205 26,860 6.39
FY2021 2,128 7,356 3.46
H1FY2022 1,251 4,714 3.77

EMT has closed the gap is true but thatā€™s partially because MMT has changed its focus to hotels. Iā€™m not sure if EMT had any competitive advantage because of which it beat MMT. But again, remains to be seen.

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In India, pricing is the major competitive advantage, plus they offer refunds on medical cancellations that no other OTA gives plus if you have waiting ticket of train you get 50% discount on flight ticket if seats available, they carry forward credit from cancellation for 2 years whereas other OTAs only for 3 to 6 months.
Here I have pointed out 4 differentiation.

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As per the audit report in FY21 Annual Report
" Undisputed statutory dues including provident fund, employeesā€™ state insurance, goods and service tax, cess and other statutory dues have not been regularly deposited with the appropriate authorities and there have been serious delays in large number of cases in case of goods and service tax and slight delays in case of Equalization levy, tax deducted at source, Provident fund and employees state insurance."

This is a serious red flag. Iā€™m surprised that a company which has not been able to pay statutory dues on time, has paid interim dividend.

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Fair question. Weā€™ll have to seek clarification from the management on this and also monitor next annual report since this could also be a one-off with multiple rule changes in FY2020-21. But needs to be monitored.