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00:00 Hello and welcome to BQ prime, you are watching IPO Adda and the company in focus today is Yatra
00:09 online. It is a company which we all use on a daily for intercity or domestic travel. The
00:17 company is coming out with an IPO which is opening on September 15th, closes on 20th of
00:21 September, price between 135 to 142 per share. It has a fresh issue of 602 crores and there is an
00:30 OFS component of 173 crores taking the total size to 775 crores. And joining me today is Dhruv
00:37 Sringi who is the whole time director and the CEO of the company. Dhruv, thank you very much for
00:42 joining us on BQ prime. Give me a sense of the 602 crores which you are raising in fresh capital,
00:48 how is it going to be used? Firstly, good morning and thank you for having me here. It is my
00:54 pleasure to be here on your platform. In terms of the use of proceeds that we are looking at,
00:59 so for the 602 crores that we are looking at raising, there are largely two key buckets
01:05 within which this will get deployed and this will get deployed over the course of the next three
01:09 years. The first bucket is on growth initiatives which are largely organic in nature. This will
01:15 focus on customer acquisition, driving the business deeper into tier 2, tier 3 markets
01:20 as travel becomes more and more pervasive across the country and you see more and more airports
01:25 being opened up in tier 2, tier 3 markets and expansion in the current metros in terms of
01:32 airport capacity. So one area would be organic growth initiatives for our consumer business
01:37 and likewise for our business travel business. So these are two areas where we are extremely
01:44 gung-ho about the growth opportunities. The overall market is expanding very strongly
01:49 and as a market leader in the corporate travel space, especially the technology-enabled corporate
01:54 travel space, we want to go deeper into the market using our technology solution. So the larger chunk
02:00 of the capital that we are raising will be focused towards organic growth and then the second part of
02:05 it which is there will be towards M&A. So we have set aside about 150 crores for M&A. We have
02:13 successfully done some acquisitions in the past and these have been in the nature of business
02:18 travel companies that we have acquired. These are companies typically with a strong customer base
02:23 but maybe limited amount of technology capabilities. So our endeavor is to acquire
02:28 these entities, put in technology and significantly improve the operating margins of these businesses.
02:34 So that is the other avenue that we are looking at from a growth standpoint.
02:39 Before I come to the use of proceeds a little more and try to get more color on it,
02:44 you have a holding company Yatra Inc which is listed on the Nasdaq OTC platform if I'm not
02:51 wrong. What is the kind of relationship that you have with that and how much promoters hold in
02:57 that company and who are the other big holders of that company? Sure, so it's listed on the
03:02 main exchange not the OTC in the Nasdaq. The main holders over there are largely
03:08 institutional funds and the combined holding of institutional funds plus retail will be close to
03:14 about 85% over there with 15% being held approximately on a fully diluted basis
03:20 by the management team and employees. And of late you have entered into some
03:25 agreements with Mac Capital which owns nearly 90% percent. Can you give us an idea of what
03:31 kind of capital agreements that you have entered into? Sure, so Mac has been a long-standing
03:37 shareholder and supporter of Yatra and we hope they will continue to be so for the long run as
03:44 well. They've been on our board right now and they've been on the board for over a year. We've
03:49 entered into an agreement with them whereby they will continue to be on the board for the next
03:54 couple of years. And is there a financing or debt financing agreement with Mac for Yatra?
03:59 There was one at the Holco level and that will come to fruition. That debt is due on the 5th
04:07 of October. But that will be hold for the level. So part of the proceeds of the OFS will be used
04:14 to repay that. So the promoters had taken the debt or the holding companies have taken the
04:19 debt and that will be repaid? The holding companies have taken the debt and that will
04:24 just get repaid from the OFS. So one part of the OFS of 173 crores will go towards repayment of
04:30 that debt. Okay. You said 150 crores for acquisition and M&A. What kind of opportunity
04:38 that you see because you are a technology platform as well. You've seen that the value
04:45 chains of many of the tech platforms are very high. Is it building up a better option than
04:50 buying out or if the acquisition happens it's only for a customer acquisition point of view?
04:56 So what we look at is, we are looking at two things. One, in terms of what is the opportunity
05:03 for us to improve the performance of the entity that we are acquiring and two, does it offer a
05:08 significant cross-sell opportunity for us. So more than the raw price, it's about what incremental
05:14 return can we drive from that acquisition is what we are focused on. And like we've done this
05:21 successfully in the past, we would be looking at acquiring these entities and then putting in place
05:25 our technology solution to thereby drive operating margins significantly higher. That would be our
05:32 endeavor or the other opportunity that we are looking at is option for products that can be
05:37 cross-sold into our large corporate customer base. So that would be the other opportunity that we
05:43 would explore but these have to be highly synergistic in nature. We are not going to be
05:47 looking at doing something which is completely unrelated to what we do. Before I come to
05:54 that business, B2B business that is growing very fast for you, customer acquisition and retention,
06:00 you are using 392 crores from the IPO. If I see the cost that you are putting in for acquiring
06:10 a customer that's been increasing every year, just to give a perspective from 226
06:15 crores in FY21, it has gone to 456. I'm talking about the airline ticketing part here.
06:23 It has gone up to roughly, it's nearly doubled in two years. What is happening in this sector and
06:28 is this going to continue going forward? I think you should look at that in the
06:33 context of the revenue growth as well and in terms of the growth in passenger numbers.
06:38 And on those models and metrics, you will see that the jump is not as stark as it looks out
06:44 here just comparing the absolute number. See our business also has almost doubled
06:49 year over year. Our gross bookings went from I think about 3,300 odd crores to almost 6,800 crores
06:55 between 2021 and 2023. So there's been a meaningful growth happening in the numbers and the business
07:04 as well. So in percentage terms, we continue to see good operating leverage. In fact, our
07:09 profitability has also at the EBITDA level. So if I look at adjusted EBITDA as a metric,
07:14 it's gone from like 33 crores to almost 67 crores in FY23. So we are seeing bottom line also
07:22 almost doubling in line with the spend that's happening. So spend is just one part of it.
07:27 It's about the revenue growth that we are able to drive from that spend.
07:31 Ruv, you spoke about the adjusted margin here. When you calculate your revenue,
07:37 you remove that cost of acquisition while recognizing your revenues. In adjusted
07:42 margin, you add back the cost of acquisition. Now the cost of acquisition is going up
07:46 and you are using that as a matrix. Is there a timeline or path or glide path for you to say
07:55 that this is going to be the maximum cost of acquisition that a company would be putting on?
08:01 Because while you said that there is an exponential growth in revenues coming in
08:05 and so is the EBITDA coming in, your EBITDA margins are at 7% or so. I'm talking from
08:12 a core EBITDA margin and not the adjusted one. So it's 9.6% if I'm not wrong. That's EBITDA margin.
08:21 So I'm talking from a point of view of cash burn that is happening at the end and how
08:25 long will it take for you to stabilize the cost of acquisition price going forward?
08:33 So just to also just maybe throw some more color on that. Firstly, from a cash burn point of view,
08:40 at the operating level, we are free cash flow positive. So we are not burning any cash.
08:44 That's one of the things which is different about us. So we are not consuming any cash.
08:49 Whatever cash consumption is happening at the overall level, it's towards working capital
08:55 to facilitate growth on our corporate business. But at the operating level, we are cash flow
09:00 positive. And I mean truly cash flow positive, not on some adjusted measure.
09:04 But your cash flow from operations were negative in FY23. Only cash flow from financing was
09:10 positive. So because that's because of the working capital, right? So the working capital deployed,
09:16 if you see our corporate business, our corporate business from the previous year would have more
09:20 than almost doubled. And the corporate business has about 28 days of DSO. So with that spike
09:27 and growth in corporate business, there is incremental working capital which is being
09:30 deployed. Once the growth rate, I don't think we'll maintain 100% growth rate. Once the growth
09:36 rate stabilizes to a 20-25% kind of growth rate, which should happen over the course of the next
09:41 couple of years, we will then start seeing the cash flow generated from operations being more
09:47 than sufficient to take care of the incremental working capital needs. Here, it's been a slightly
09:52 different scenario because you're coming from a low base of COVID. As you would recall in FY22,
09:59 a significant part was impacted by COVID. So corporate travel was at a very low ebb.
10:04 But in the second half of 2023, we've seen very strong recovery happening in corporate travel.
10:09 So that's where you see the jump in working capital utilization happening.
10:13 So give me a sense at the current run rate that you have, your cash flows from operations,
10:20 when will it turn positive? So we think from a cash flow from
10:25 operations point of view, and we are delving a bit into future looking statements out here.
10:32 You have a game plan in place, so that cash flow from operations
10:36 start looking positive from here. Yes. So in the relatively near term,
10:42 we should be looking at a scenario where cash flow from operations also
10:45 will end up being positive. So that's what we are working towards. As I said, this has been
10:51 largely a working capital requirement, which has this scenario on the back of the growth.
10:56 So it's a good problem to have. Your business is growing very rapidly and you're deploying
11:00 working capital for that. So it's not a case where you're spending more than what you're earning.
11:05 So nearly 28% is coming from B2B today, right? Corporate switch of your revenues.
11:12 How do you see that segment growing going forward?
11:15 Yeah, so we expect, if I look at pre-COVID kind of number, pre-COVID our business mix was roughly
11:23 half and half between B2C and B2B. So we expect corporate recovery to continue to be strong.
11:30 We've seen this happen in the second half of FY23 and we see that momentum continue to carry
11:36 forward. So my sense is over the course of the next year or so, we will again get back to a 50-50
11:43 kind of setup between B2B and B2C. That's interesting because that will
11:49 give more stability on revenues for you going forward as well. Give me a sense of
11:59 the revenue flow. Is your operation dependent on seasonality there or big events coming in
12:08 and which are the quarters that from an investor's point of view you should be looking at? Because
12:15 is there a volatility in the revenues that we are talking about?
12:20 Sure. No, that's a good point. So travel industry is slightly seasonal in nature.
12:26 And if I look at both of our businesses, they do have a slightly different seasonality.
12:30 So the B2C business will have a strong April, May, June, and then a strong October, November,
12:35 December. Corporate, again, typically corporates will have new budgets which will come into place
12:40 from April. So April, May, June will be strong. October, November, December will be a bit weaker
12:46 because you'll have the Dussehra and Diwali holidays and then Christmas holidays. So you
12:50 lose almost 30 days in holidays in that quarter. So that would be typically a weaker quarter.
12:55 For the corporate business and overall for the industry and overall for both our businesses
13:00 combined, you will typically have the July to September quarter being the overall weakest
13:06 quarter. That's typically when people are coming back from summer vacations, right? There isn't
13:11 that much travel happening. You've also got disruptions happening on account of rains and
13:15 monsoon in India. So flight disruption is at its peak during the month of July. So that would
13:22 seasonally be the lowest quarter. So the revenue recognition for air tickets happens at the time
13:26 of booking or at a time of utilization? It's at the time of issuance of ticket.
13:31 So typically what will happen on the domestic side is the lag between booking and travel is
13:38 not that long, right? And on international, there might be a bit more of a lag. Domestic will
13:44 largely happen within a 30-day window. Okay. So give me a sense of how you're
13:48 planning to increase your international presence as well. Sure. So in terms of international
13:54 presence, the first step that we've taken towards that is to have partnerships in the Middle East
13:59 and in Africa. Other emerging markets have exhibited attributes which are very similar
14:04 to what we are seeing in India. We are seeing strong adoption of technology post-COVID
14:10 that's happening in these markets as well. So we have a tie-up with one of the largest companies
14:15 in the Middle East and this company is using our technology solution and will be using that
14:21 going forward to service its customers in the Middle East. And the same in the partnership.
14:26 These are still relatively early days for these partnerships, but we are quite hopeful that these
14:32 will continue to be strong revenue generators for us and also provide us an opportunity for
14:38 further growth into these markets. How do you plan to penetrate the tier 2 and tier 3 markets?
14:44 Because that's something which you haven't penetrated much because you are there in tier 1
14:48 metros, big cities, everywhere you are there. Tier 2 and tier 3 is not there. So if I were to ask you
14:53 that, you know, what portion of your revenues today come from tier 2 and tier 3 and how do
14:59 you want to increase that revenue? What would be the answer? Sure. So in terms of percentage of
15:04 revenue on the consumer side coming from tier 2, tier 3 markets, you're right that the vast
15:08 majority of our revenue will come from the top 10 cities. That's what the current mix is. We're
15:15 looking at a hybrid model going into tier 2, tier 3 cities. We are looking at an agency network that
15:21 we have of partners. We have almost 30,000 partners who've worked with us over the course of the last
15:27 five, seven years. So we will use that partnership network to expand deeper into tier 2, tier 3
15:32 markets. We are seeing a scenario right now that, you know, in these markets, you can continue to
15:38 see new airport development happening. Airlines are also launching new flights. So we are working
15:43 closely with the airlines as well on the new routes that they put forth and we partner with
15:48 them to try and promote and generate demand on these new routes. So it's a combination of using
15:54 our distribution network that we have of partner agents and then on the other side, working with
15:59 the airlines to create some special value proposition on these new routes. Give me a sense
16:05 of how big events like G20 and the World Cup changes, means impacts a company like you.
16:12 We had the G20 which was spread all over the country. So it's got over the last weekend,
16:17 but a World Cup which is coming up and top 10 cities where it is there, what is the kind of
16:23 demand that you're seeing? How does it impact a company like you? So the G20 should have a good
16:30 long-term positive benefit in terms of customers coming into India. See, India as a destination
16:37 has obviously suffered a bit in the last maybe three, four years. I think the G20 has really
16:44 put a new benchmark in terms of people's perception of India. I think it has at least
16:50 the initial conversations we've been having with our partners in different parts of the world.
16:55 It has really raised India's profile as a destination. And I think on the back of that,
17:01 we should see international foreign travelers coming into India going up quite meaningfully
17:06 over the course of the next few years. So there I'm quite gung-ho on the inbound business.
17:11 The inbound business, as I said, has been suffering for the last three, four years,
17:15 first because of COVID, then on account of a general slowdown in Europe. But seeing what the
17:20 G20 has done in terms of raising India's profile, I'm very optimistic that inbound travel will pick
17:26 up in the coming years. In terms of the World Cup, the World Cup is a great flip from a domestic
17:32 travel perspective. We've already seen really high demand happening for both hotels and for flights
17:39 into the places where there are key matches that are happening. So that definitely is a huge boost
17:45 to domestic tourism at this point. How does it impact you?
17:48 The only challenge which is there is that supply is running out very quickly.
17:53 So you constantly are getting into a scenario where people are reaching out to you, friends,
17:58 family, everyone's reaching out to you saying, "Can you help us get a hotel? Or can you get me
18:02 a cheaper flight into some of these places?" So do you have the flexibility of pricing the
18:08 airline ticket during these big events? Because you are based on an inventory model, right? You
18:14 buy the ticket and then you sell it off. See, we do a very limited amount of inventory buying
18:19 that will typically happen during periods of scarcity. But at a time like this, we don't want
18:24 to look at this from a profiteering point of view, right? So we are not engaging in any inventory
18:29 buying. The pricing is set by the airline itself in terms of what price the airline wants to price
18:35 the ticket at. So we are doing this as a pass-through only as opposed to doing any markup
18:39 from our side. I think it's a great event. This is the time to really grow volumes as opposed to
18:45 looking at this as a short-term opportunity to profit from it. Give me a sense of, you know,
18:51 we've seen consolidation of GDS happening in the market. Air India has already done it,
18:56 and I think two, three years back, 2018 if I'm not wrong, they have done it. How do you see that
19:02 as a potential risk going forward? And how does it impact a company like you?
19:09 I think Air India did experiment with going to a single GDS and look at GDS consolidation.
19:14 My sense is, and we've seen some press releases to this effect as well, that they will move into
19:20 a multi-GDS platform in the relatively near term. I think everyone realizes they need large
19:26 distribution. See, we are in a situation in India where there is a tremendous amount of
19:30 incremental supply coming. We have less than 700 aircrafts that are operating at the moment.
19:36 You have almost 2x of that number more in terms of new demand that the airlines have put forth
19:42 with the aircraft manufacturers. So we will see a tremendous amount of incremental capacity coming
19:47 in. And on the back of that incremental capacity coming in, the airlines need all the distribution
19:52 help and support that they can get. So I don't see this to be a time where people will start
19:57 narrowing down their distribution channel. I in fact see this as a time when people will look
20:01 at expanding their distribution so that they can get as large a share of the pie as they can.
20:07 See, from an airline's perspective as well, if they have so much incremental capacity,
20:13 they also need to defy this capacity. They can't just have it sitting idle. They need to drive
20:19 plane load factors as well for them. So I see this as a market which will grow and expand from
20:25 a distribution perspective as opposed to contract. One of the biggest risks for you is airlines going
20:34 into insolvency. We saw Jet going in and then followed by Go Air. What is the kind of dues
20:40 outstanding that these airlines owe Yatra and how do you plan to recover that part of it?
20:47 So with Jet, obviously there was a bigger setback when Jet went under. But I think we've learned
20:53 our lessons from there. And if you look at the Go Air scenario, our exposure to Go Air is 3.9 crores,
21:01 which is, if you look at our peers, you would find this to be significantly lower than any of our
21:07 peers. I'm talking about 5 to 10 percent of the exposure levels that our peers will have.
21:14 So we've been very cautious in this. We've been very careful in terms of how we take on some of
21:20 the supplier risk. And we've seen that pay off for us. So it was involuntary insolvency for Go Air
21:28 and they're now planning to come back into operation. So is there any plan that you have
21:33 in place? How you plan to treat airline, the risk which is involved with that airline? How does the
21:40 company deal with such a thing? Yeah. So, you know, we've taken the view that there is a calculated
21:46 risk that we will take based on the airline and based on what other market feedback we have.
21:51 We look closely at factors like is the airline paying statutory dues on time? Is the airline
21:58 paying salaries on time? Are there delays to other vendor payments in the industry? And based on that,
22:03 we decide from a risk management policy perspective, how much exposure we want to
22:08 take on to the airline. And this has worked out well for us in the last few years. So we've taken
22:13 a carefully calibrated approach to the risk that we have when it comes to working with airline
22:18 partners. And we will continue to do so. I think there will be short term opportunities that people
22:24 will try and exploit. But I think we are here for the very long term. We are not looking at this as
22:28 one quarter and saying here is an airline on whom in one quarter I can make some money if I take an
22:34 extra amount of risk. We will continue this in a judicious manner for the long run. And how are
22:40 you going to deal with GoAir once it comes back or once it attempts to come back?
22:44 See, as of today, we filed our claim in NCLT for the dues that we have from GoAir.
22:51 There are conversations which are going on. We are hoping that and we would like for GoAir to
22:56 come back. This is such a buoyant market. There is such high demand in the overall ecosystem.
23:01 So it's a shame to see an airline go under. Obviously, GoAir has had the misfortune when
23:06 it comes to the engines and being able to get the engine recovery done from the engine manufacturers.
23:12 But that's a different story. But from our perspective, we would love to see GoAir being
23:16 back in the air. And as long as we can come to the right agreement in terms of past dues,
23:23 we'd be happy to continue to work with GoAir. My final question is in the hotel segment,
23:32 which you acquired some of the properties in this segment. How is it doing? How do you plan
23:39 to increase the number of properties into it? And what kind of demand you see in this segment?
23:45 Because if I look at customer acquisition costs, this segment has seen costs coming down
23:51 year in year. So how is it working? So on the hotels, actually, we've got one of the largest
23:58 suppliers in the country. We've got over 100,000 hotels on our platform and the hotels have been
24:03 doing really well. During COVID, there was obviously a lack of new supply coming into
24:10 the market on the hotel front. And we've now started seeing, after that gap of about two,
24:15 two and a half years, new supply beginning to come in. So the demand has been extremely robust.
24:21 And on the back of that extremely robust demand and high ARRs, we are seeing new entrants coming
24:28 into the market, bringing on more supply. So hotels demand should continue to remain very robust
24:34 and the business should continue to do well. We are also seeing strong attach rate happening
24:40 on the corporate travel side of employees when they're traveling, booking their hotels also in
24:45 addition to their flights. Because as you see from a pricing point of view, if prices are high,
24:50 people know that getting last minute inventory is going to be a challenge. So they are using the
24:55 platform to pre-book hotels also. So that's giving a good incremental revenue and at a much lower
25:02 cost of acquisition for the hotels business. How has the World Cup helped you in this?
25:07 See, World Cup obviously is helping in terms of driving demand. People are beginning to look and
25:13 book early, knowing that this is happening, but prices already have started going up.
25:19 So if you are in the market trying to find a hotel for the World Cup, I think you might be
25:24 a bit too late for some of the key games. I think no one should look at Ahmedabad
25:29 because you won't get one. You need to be prepared to drive four, five hours into Ahmedabad
25:37 and even then supply is limited. That's true. Dhruv, it was a pleasure talking to you today
25:44 on BQ Prime. Your IPO is opening on September 15th, closes on 20th, price between Rs 135 to Rs 142.
25:50 It's a Rs 602 crores fresh issue and Rs 173 crores of OFS. Thank you for watching IPO.
25:56 Thank you for your time today.
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