Easy Trip Planners – Travel play on rising Indian aspirations

Updated: Feb 15


Company Name – Easy Trip Planners Limited (EaseMyTrip)


Current Share Price – INR 599 (February 09, 2022)


Market Cap – INR 6,505 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). 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 59,274 registered travel agents across almost all major Indian cities. Its ‘No Convenience Fee’ strategy helps it to attract large number of customers, which has resulted in industry leading growth for the company. This has also led to stickiness by customers with healthy repeat transaction rate of ~85% in the B2C channel. The Company has been profitable since inception and is the only profitable player among key OTAs in India.


Company also ranks second in terms of air ticket volume and third in terms of gross booking revenue and number of registered 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 on a periodic basis. 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 is expected to rise on account of technological improvements, evolution of travelers and higher security for online payment options. The OTA market in India is expected to double over the next five years registering 15% CAGR to ~ USD 30 billion in FY25 from USD 16 billion in FY20. 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 3 billion and ~ USD 100 million respectively. Based on news reports, Flipkart acquired Cleartrip for USD 40 million in April 2021 to support its superapp ambitions.


Why invest in EaseMyTrip?


The key investment arguments summarized would be:

  • The OTA market is set to grow with the growth of digital transactions worldwide. Airline ticketing is ~68% and hotel booking is 20-25% online going up higher after COVID-19

  • ‘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 a large network of agents (B2B2C), direct consumer channel (B2C), and enterprise sales (B2E)

  • Increasing international presence in UK, Singapore and UAE through organic and acquisition routes to capture 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 because of high loyalty and low overheads allow it to be profitable

2. Key Historical Financials

  • Company had a fall in revenue in FY21 due to COVID-19 which is seeing rebound in last few quarters. EBITDA margin is quite healthy at ~60%

  • EaseMyTrip has negative working capital which is also reflected in high CFO/EBITDA ratio

  • Company has net cash balance of ~ INR 120 cr as of September 30, 2021

3. What is my view on company valuation?


The Company did its IPO at price of INR 206 in March ’21 and saw massive subscription of 159.3x. It listed at a 13% premium to its issue price. At its lowest in its brief trading history, it saw a dip of 14%. Stock has appreciated ~3x since listing.


All the OTA suffered due to COVID-19 which led to fall in air travel (business & leisure) and hotel bookings. So, it would make sense to benchmark the companies on FY20 revenues. Market leader MakeMyTrip trades at P/Revenue (FY20) of ~6x vs Yatra at ~1x vs EaseMyTrip at ~46x. Flipkart has acquired Cleartrip at P/Revenue (FY20) of ~1x.


So, the company is significantly overvalued vis-à-vis its competitors. The Company’s INR 6,500 crore market cap can only be a 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

  • Company has dabbled with lot of unrelated businesses in 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 lot of business from Google and Google adwords – company has a pending litigation with MakeMyTrip against the main keywords

 

About the Author


I have over 16 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.


Disclosure


I have no stock, option or similar derivative position in any of the companies mentioned since 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 purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.


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