YATRA – RTN asia

Mumbai-based online travel company Yatra Online Ltd has launched its initial public offering (IPO) to raise Rs 775 crore. The IPO, which opened on September 15, will close on September 20. The price band for the IPO is Rs 135-142 per share. Yatra was founded in 2006 by Dhruv Shringi, Manish Amin, and Sabina Chopra as an online travel portal. Over the years, it has evolved into India's leading corporate travel services provider and the third largest online travel company. Yatra's Business Model Yatra operates in both business-to-consumer (B2C) and business-to-business (B2B) segments. Its B2C platform provides booking services for flights, hotels, holiday packages, buses, trains, and cabs to retail consumers. The B2B platform provides end-to-end travel solutions to corporate clients. As of FY23, Yatra had over 800 large corporate clients and 49,800 SME clients. The corporate segment contributes around 60% of Yatra's revenues. Yatra has signed marquee names like Flipkart, Swiggy, PharmEasy, Dream11, Nykaa, Delhivery, Urban Company etc as its B2B clients. The company leverages its corporate client base to acquire retail consumers by providing incentives to employees to book personal travel on Yatra's platform. Yatra has developed a technology platform that straddles website, mobile apps, call centres and API integrations, and its mobile apps have been downloaded over 26 million times. Yatra claims to have the largest hotel supplier network amongst key OTA players with 2.1 million domestic and international tie-ups. It also has partnerships with 7 domestic and over 400 international airlines. Besides flights and hotels, Yatra also facilitates bookings for trains, buses, cabs, homestays and activities. To drive customer loyalty, Yatra offers an eCash loyalty program which enables customers to earn and redeem points on travel bookings. The company claims to have 70 lakh registered eCash members. Industry Overview The Indian online travel industry is projected to grow at 15% CAGR to reach Rs 7,340 crore by FY28, as per CRISIL Research. Factors like rising internet penetration, shift of travelers to online platforms due to competitive pricing and discounts, and growing aspirational middle class population will drive robust growth. Within the online segment, online travel agencies (OTAs) like Yatra, MakeMyTrip, Cleartrip etc command around 50% market share currently. Their share is expected to increase to 75% by FY28, as per analysts. OTAs are gaining popularity due to their wider hotel and flight options, discounted pricing, and ease of making bookings on a single platform. The travel industry was severely impacted during the Covid pandemic with lockdowns and travel restrictions. But demand has bounced back sharply as restrictions have eased. In FY23, the industry is estimated to have reached 90% of pre-Covid levels. Business travel demand is also reviving with offices reopening and companies resuming physical events and meetings. This bodes well for corporate travel focused players like Yatra. Financial Performance Yatra has seen recovery in its financial performance after being impacted during the pandemic. Its revenue grew 92% YoY to Rs 380 crore in FY23. EBITDA jumped from -Rs 9 crore in FY22 to Rs 37 crore in FY23. The company reported a net profit of Rs 8 crore in FY23 compared to a loss of Rs 31 crore in FY22. Yatra's revenue growth was driven by a 67% increase in gross bookings and 40% growth in number of transactions. Average order value also increased by 20%. The growth momentum has continued in Q1 FY24 with revenue rising 105% YoY to Rs 163 crore. EBITDA more than doubled to Rs 23 crore compared to Rs 10 crore last year. Despite the growth, Yatra's financial profile remains modest compared to larger peers like MakeMyTrip and easeMyTrip which clocked revenues of Rs 2,547 crore and Rs 616 crore respectively in FY22. Yatra had revenue of just Rs 380 crore in FY23. Its smaller scale limits its ability to spend aggressively on customer acquisition and technology compared to bigger rivals. IPO Details Yatra is raising Rs 602 crore through a fresh issue of shares in the IPO. Another Rs 173 crore will be raised through an offer for sale (OFS) by existing shareholders. The proceeds from the fresh issue will be used for strategic acquisitions, organic growth initiatives, and general corporate purposes. Yatra plans to deploy Rs 150 crore for acquisitions and Rs 392 crore towards technology and customer acquisition. Key Risks and Concerns Though the travel industry is recovering post-Covid, concerns around new virus variants persist. Fresh waves of infection can impact demand and disrupt Yatra's growth plans. Yatra faces stiff competition from larger rivals like MakeMyTrip and easeMyTrip as well as niche players like ixigo. The online travel space requires heavy investments in marketing and discounts to acquire customers. Yatra's smaller scale makes competing with well-funded giants challenging. The company has a modest presence in holiday packages and hotels segment where organized players have relatively lower share compared to flights. It needs to diversify its revenue streams beyond airline ticket bookings. Many airlines and hotels are pushing direct bookings through loyalty programs and discounts. This poses a threat of disintermediation to OTAs like Yatra. Valuations Reasonable At the upper end of the price band of Rs 142, Yatra's IPO is valued at 5.9 times FY23 revenue. In comparison, larger peers MakeMyTrip and EaseMyTrip trade at 5.4 times and 15 times trailing revenue respectively. Thus Yatra's valuations appear reasonable compared to competitors. The company is offering a fresh issue of 27% which is not too dilutive for existing shareholders. Yatra has dominant position in the high growth corporate travel segment. It can leverage corporate client base to acquire retail consumers. Strategic acquisitions and investments in technology can help narrow the gap with larger rivals. Analyst Views on the IPO Ventura Securities has recommended subscribing to the IPO at upper price band of Rs 142 based on Yatra's leadership in corporate travel, large consumer base, reasonable valuations and growth opportunities. Ashika Stock Broking notes that Yatra has strong parentage, being backed by marquee investors like MakeMyTrip. Its B2B and B2C distribution gives it an edge. The issue valuation at 5.9 times FY23 sales seems reasonable compared to peers, it noted. IIFL Securities believes Yatra's strong value proposition in corporate travel segment provides cross-selling opportunities. The issue is attractively priced. But high debt and cash burn are key risks. It suggests subscribing for high risk appetite investors. Another broker has noted that Yatra has incurred losses in the past two years and its financial profile is weaker than rivals. While valuations are reasonable, prevailing market volatility could impact listing gains. It has assigned an Avoid rating on the IPO. In short, Yatra IPO provides an opportunity to invest in India's leading corporate travel service provider at reasonable valuations. The company is well positioned to capitalize on post-Covid travel demand revival. It can leverage its corporate client base for cross-selling. However, investors need to be aware of stiff competition and aggressive spending required to acquire customers in the OTA space. Execution risks in managing a hybrid B2B-B2C model also persist. Investors with high risk appetite can Subscribe to the IPO for listing gains given the positive industry dynamics. Conservative investors may wait and watch Yatra's growth execution before investing.

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Yatra IPO: Go for it if you are not risk-averse