Company Name – Easy Trip Planners Limited (EaseMyTrip)
Current Share Price – INR 39.9 (August 17, 2023)
Market Cap – INR 6,943 cr
1. What is interesting about the stock?
“To travel is to live” Hans Christian Andersen
He should know, having transported us mentally and emotionally for generations to faraway lands in tales like “The Little Mermaid”, “The Ugly Duckling” and “The Emperor’s New Clothes”.
In the modern day, one company that facilitates such transport and is the second-largest online travel agency (OTA) in India is Easy Trip Planners Limited or EaseMyTrip.com, founded in 2008. The company offers a comprehensive range of travel-related products and services for end-to-end travel solutions. The Company’s products and services are organized primarily in the following segments: (i) airline tickets (94% of revenues); (ii) hotels & holiday packages (5% of revenues) and (iii) other services (0.6% of revenue). The Company, as with other OTAs, generate most of its revenue from airline ticket sales which is a very low-margin business with the expectation of selling hotels/holiday packages and other travel products which have higher margin.
It also has the largest network of travel agents with ~60,000 registered travel agents across almost all major Indian cities. Its ‘No Convenience Fee’ strategy helps it to attract a large number of customers, which has resulted in industry-leading growth for the company. This has also led to stickiness by customers with a healthy repeat transaction rate of ~85% in the B2C channel. The Company has been profitable since its inception and is the only profitable player among key OTAs in India.
The Company is the second-largest online travel platform in India with 14 million customers.
So how does the Company make money? As it generates high sales volume, it earns performance-linked bonuses, commissions, and incentives from Global Distribution System (GDS) service providers, select airlines as well as credit card companies periodically. Additionally, the Company also earns revenue from convenience fees, cancellation services, rescheduling charges, and advertisement revenues.
In India, OTAs have gained market share by offering a one-stop shop for travel-related bookings at competitive price points. While investments in technology helped them to become more user-friendly (great user interfaces and design) and increase customer loyalty, tie-ups with various banking and payment channels ensured competitive pricing across segments. Further, the industry should see increased traction as online bookings across segments are expected to rise due to technological improvements, travelers' evolution, and higher security for online payment options. The OTA market in India is expected to double over the next five years registering a 12% CAGR to ~ INR 2,980 billion in FY27 from INR 1,865 billion in FY23. Other key players in the Indian OTA market are Cleatrip, MakeMyTrip, and Yatra. MakeMyTrip and Yatra are listed on the US stock market with a market cap of ~ USD 4 billion and ~ USD 150 million respectively. Based on news reports, Flipkart acquired Cleartrip for USD 40 million in April 2021 to support its super-app ambitions.
EaseMyTrip and SpiceJet Airlines signed a GSA to sell, promote, and market passenger tickets and other services in India. EaseMyTrip will be responsible for selling and promoting SpiceJet's products in India to help customers avail of their services. The Company needs to be cautious as SpiceJet's financial position is precarious and it can go down like Go First and Jet Airways. Go First owes INR 71 cr to EaseMyTrip which may be difficult to recover as Go First has suspended its operations.
Why invest in EaseMyTrip?
The critical investment arguments summarized would be:
The global OTA market is expected to grow at 27% CAGR - domestic travel in India is picking up
The ‘No Convenience Fee” model has yielded high loyalty amongst B2C players – even I am guilty of using them all the time because of this feature
Omnichannel presence with an extensive network of agents (B2B2C), direct consumer channel (B2C), and enterprise sales (B2E)
Increasing international presence in the UK, Singapore, and UAE through organic and acquisition routes to capture a higher share of international tourism
Efficient operations leveraged through technological advancement reducing employee expenses as a % of gross booking revenue to 1/3rd of competitors, low customer promotion costs & discounts because of high loyalty and low overheads allow it to be profitable
2. Key Historical Financials
The Company had a fall in revenue in FY21 due to COVID-19 but had a sharp uptick in FY22 and FY23. However, revenue growth has slowed down in Q1FY24
EBITDA margin has fallen sharply in Q1FY24 - lower incentives from the airlines due to the shortage of inventory, primarily because of the Go First issue, and the hotel business has recorded a small loss during the quarter
CFO was negative in FY23 due to higher receivables
EaseMyTrip has a cash balance of ~ INR 48 cr as of March 31, 2023 with a debt of INR 87 cr
3. What is my view on company valuation?
The Company did its IPO for INR 187 (INR 11.7 - adjusted for bonus shares and stock split) in March ’21 and saw a massive subscription of 159.3x. It is listed at a 13% premium to its issue price. At its lowest in its brief trading history, it saw a dip of 14%. The stock has appreciated ~3.5x since listing.
EaseMyTrip trades at a P/E (TTM) multiple of 55x vs Expedia at 19x and Booking Holdings at 28x. The Company trades at P/Sales multiple of 14x vs MakeMyTrip at 7x and Yatra at 3.8x. Cleartrip acquisition happened at ~1x of revenue.
So, the Company is significantly overvalued vis-à-vis its competitors, especially when cash flow from operations is negative. The Company’s INR 7,000 crore market cap can only be called a reflection of “narrative investing” that seems to be driving tech company valuations currently.
However, this is a Company that should be on the radar for any long-term investor as the Company is efficiently run and has the elements of becoming an attractive acquisition target for a large global OTA player interested in expanding into the fast-growing Indian market, but the investor would be better off waiting for the valuation to cool-off significantly from here.
4. What are the risks to the investment analysis?
Risks to the analysis are:
The Company’s fortunes can be severely impacted by any disruptions to the travel industry as seen during the Covid-19 lockdowns
Technology is constantly evolving, and should any competitor offer better solutions or deeper discounts to the consumer, the possibility of consumers moving to the competitor is high thereby increasing the Company’s customer acquisition costs (CAC) to become in line with the industry
The Company has dabbled with a lot of unrelated businesses in the past like coal trading, share trading, and movie production
Globally, yields on airline ticket booking are low (~1-2%) and the Indian OTA market has intense competition. Over the long term, Indian companies may also see lower yields and margins.
EaseMyTrip generates a lot of business from Google and Google AdWords – the Company has pending litigation with MakeMyTrip against the main keywords
About the Author
I have over 19 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.