YTRA: Initiating Coverage - Market Share & Platform Advantages to Accelerate Topline Growth as Pre-Pandemic Behavior Returns

By Tim Moore, CFA

NASDAQ:YTRA

READ THE FULL YTRA RESEARCH REPORT

Initiating Coverage

We initiate coverage of Yatra Online, Inc. YTRA with a valuation price target of $4.25 per share. Yatra Online, Inc. is the parent company of India's leading independent corporate travel provider. It is also the #2 or #3 Leisure OTA (Online Travel Agency) for consumer travelers in India. Yatra focuses on travel, leisure and tourism bookings through a combination of B2C, B2B and B2B2C. The company's mobile applications, website, corporate SaaS platform and call centers provide unique advantages for airfare ticketing, hotel bookings and activities. Its platform is easy to integrate with end-users. "Yatra" means a journey, trip, tour or pilgrimage in the national language of India.

Yatra has distinct ecosystem advantages including its technology platform, leading independent #1 market share for business travel in India, access to the largest hotel network within India for bookings and as the #2 or # 3 leisure OTA India. Yatra has over 700 corporate clients (employing more than 5 million people). The company provides access to bookings through its platform to 94,000 hotels and homestays in 1,400 cities. Yatra Online offers 350 holiday vacation packages & 450 activities including sightseeing, tours and shows. One-stop shop for travel needs and ease-of-use booking.

Beneficiary of the ongoing shift from offline travel agents (55% of bookings market share) to online players (45%) like Yatra. During the COVID-19 downturn, Yatra has gained market share in leisure air ticketing as some distressed offline players (traditional travel agents) burned cash and struggled.

Medium-term underlying growth market fundamentals are intact. India was a high-growth travel and tourism services market until mid-2018 when a major domestic airline went into financial difficulty. This drag was followed by the onset of the COVID-19 pandemic triggering lockdowns and limited travel since March 2020. Prior to those rare one-off drags, the India OTA (online travel agency) leisure market was growing at a teens rate and corporate travel was growing 10%+.

Yatra's leading position in corporate travel OTA in India for business travelers, along with its platform for B2B and enterprises, make this company unique to leverage and grow its reach and offerings.

Cancellation rates of bookings and trips appears to have peaked in April & May during the Delta wave of COVID-19. Stabilization likely occurred in May and should be improving this summer.

November could begin a significant step-up in hotel occupancy and flights for travelers originating from cities and suburbs in India. Second wave of COVID-19 was an unexpected setback, driven by the Delta variant. Supply of vaccines was off to a sluggishly slow start until June. However, the vaccination rollout has improved during the past two months. That, coupled with antibodies from prior infections, could trigger enough herd immunity in metro areas in November. Just in time for an uptick in travel for the Diwali festival holiday, Christmas and more comfortable weather for travel.

Investors should take a medium-term view of India's travel market realizing "this too shall pass". False starts of the COVID-19 pandemic subsiding in early 2021 were derailed by the arrival of a more transmissible variant (Delta). We encourage investors to keep in mind that YTRA's end markets will become attractive again with larger revenues. Growth to be fueled by India's growing population, middle class, household spending and the eventual resumption of work-related trips and family travel.

Latent pent-up demand from cabin fever could be unleash a travel binge during calendar 2022. Revenge Travel has been a term tossed around in the US since March in reference to fatigue from staying at home and less willing to cancel vacations after becoming vaccinated. Overly eager to travel and wanting some control over their lives again instead of cancellations. Catapulting back into the world and making up for lost time during COVID-19. 


We highlight catalysts and attractive aspects, which are detailed in our initiation report:

1. Underlying Secular Growth Market in India: GDP growth tailwind & shift from offline travel agents to online travel agents (OTAs like YTRA)

2. Technology Platform Advantages for Cross-Selling Opportunities

3. Operational Efficiency Improvements Support Likelihood of Positive EBITDA in 2022

4. Additional Services Could Become Meaningful in Calendar 2023

5. Activist Letter Raises Improvement Opportunities

6. Profitability Inflection Point in Calendar 2022

7. Valuation Discount Could Narrow

8. Herd Immunity Possibility for Late November in Metro Areas (if No Third Wave)


We value Yatra Online, Inc. (YTRA) using a peer comparables valuation methodology based on EV/Sales for 2022 estimates. We apply a 10% discount to peers based on its micro cap size & single-country risk.

We reach $4.25 stock price per share by applying a 10% discount to the peer group average of 3.2x EV/Sales 2022 & median of 3.3x. The stock is trading at 1.3x our calendar 2022 Sales estimate, which represents a 59% discount to peer group. 12x EV/Adjusted EBITDA calendar 2022 is a 35% discount to peers. We expect a re-rating to narrow the relative valuation gap as travel picks up.

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