READ THE FULL YTRA RESEARCH REPORT
First Quarter Financial & Operational Results
On August 19, 2021, Yatra Online, Inc. YTRA announced its first fiscal quarter financial and operational results.
June Quarter adjusted EBITDA was a nice beat helped by cost savings and air ticketing margin. Revenues were sequentially lower than past two quarters because of the second wave of COVID-19.
July & August inflection improvement is underway for corporate Hotels, B2C and air passenger flights.
Yatra issued a detailed letter to shareholders in response to the activist shareholder's open letter.
Operating leverage thesis remains intact. Re-rating of the stock should occur if the company achieves a full 12 months of positive adjusted EBITDA, which we forecast for $2 million this year.
We believe the worst has passed for the India travel market and Yatra Online, Inc following the end of the second wave of COVID-19 in India. While we cannot predict a new variant strain to cause another severe wave of slowdown, we are optimistic that trough revenues are behind them following the Delta wave from late March to mid-June.
While corporate travel in India is approximately 70-75% below its calendar 2019 pre-pandemic levels, it is showing greenshoots and an acceleration during the past six weeks. Consulting, Banks and Big Tech Indian firms (including outsourcing players) are leading the recovery.
July & August-to-date air passenger travel and corporate hotel bookings improved sequentially from June. Corporate gross bookings in July were up 268% over June. August so far is up 316% from June and could be its best corporate travel month since March 2020.
Latent pent-up demand from cabin fever could 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.
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.
Highlights of the June Quarter results include:
YTRA reported Adjusted Revenues growth of 110% year-over-year, 18% below our estimate.
Hotels & Packages Adjusted Revenues growth of 280% came in at half our expectation and was the main culprit of the topline shortfall. Despite an easy non-existent year-ago comparable during lockdowns. Sequentially, Hotels & Packages revenues declined -76% caused mostly by the second wave of COVID-19 (Delta), which hit India hard from late March through mid-June. Sequentially, hotel room nights fell -62% for the same reason.
Air Ticketing Adjusted Revenues growth of 80% came in less than our expectations because of increased cancellations and hesitancy to book flights during the second wave of COVID-19. Air passengers bookings grew 170% year-over-year, but fell -62% sequentially from the March quarter.
Adjusted EBITDA was positive $0.5 million and nice to see again and similar to March quarter. We commend the company on its cost-savings and point out that positive EBITDA is a bit inflated or helped by the abnormally high Air Ticketing margins.
Air Ticketing net revenue margin 16.3% was abnormally high because of a very benign discounting and promotional environmental along with how cancellations help boost it. The CEO answered our question during their earnings call to remind investors of the margin eventually becoming a more normalized 6-7% in 12-18 months, but could be around 10% near-term. Hotel & Packages net revenue margin of 19.9% was impressive and likely helped by the mix.
Company's Response to Activist Shareholder Letter
Yatra issued a statement on August 3 to acknowledge the public shareholder letter and stated it would offer a detailed response in due time. We were impressed by Yatra's response and thoughtful recap of the most challenging time in travel history. Many items were outside of management's control. There is only so much the company can do to re-accelerate the topline until enough vaccinations occur and travel willingness returns.
We liked management's swift cost-cutting actions last year and the launch of a few new services including freight. We like their business travel market share and that tech platform to improve penetration of medium-sized companies.
We expect Yatra to hunt down and dip more into the 5,000+ SME companies in India, which are very under-penetrated not only by Yatra, but also by its major competitors.
We summarize our main takeaways below:
1. Yatra has enhanced its technology and expanded its offerings over the years.
2. The pandemic created unprecedented challenges in India and the rest of the world, but the company took several steps to navigate this highly unusual environment and to reduce expenses.
3. Travel industry is poised for recovery. India is recently vaccinating nearly 5 million people daily. Commercial travel had a nice spark and sizeable increase after the first wave ended. The company is seeing similar patterns in July and August so far after the wind-down of the second wave (Delta).
4. Corporate customer base is a great asset to leverage cross-selling. Corporate travel picked up strongly in July and early August versus June (Delta softness). Corporate gross bookings for July were up 268% over June and August was up 316% from June with August trending to be its best Corporate travel month since March 2020. We believe that travel in India could be a "coiled-spring" with acceleration underway since early July.
5. Technology platform, innovations and automation have made it more convenient for customers to cancel, rebook and apply for refunds during the pandemic. Upselling of ancillary products including seat booking, baggage, meals and priority check-in (post-booking). Bots, automated chat bots, have been introduced to help customers and also reduce costs. WhatsApp is directly linked for post-booking tasks. Book now, Pay Later has been launched to lure more customers.
6. Margins comparison versus a few selected peers. We reminder investors that YTRA has a higher mix exposure to Corporate travel than peers, which creates a margin drag when directly comparing. For example, we estimate that YTRA's Air Ticketing net revenue margins are 7.5% on the consumer leisure side, but 4.5-5.0% on the corporate air ticketing. Similarly, Yatra has a higher overall Air Ticketing revenue mix than the average peer. Some peers are over-indexed to Hotels, which are higher margin. Lastly, a few peers have large exposure to higher-margin United States. Therefore, not fully an apples-to-apples comparison.
7. Corporate Governance. The company stated its Cayman Islands regulation require in-person annual meetings and flexibility to not hold an annual meeting. We are aware of several companies which used video conferencing during the past year to hold annual meetings. Although, we are uncertain if any held in-person ones after becoming vaccinated. Our initiation report asked for an annual meeting in early calendar 2022 and to add a travel expert to the Board, similar to some of Tim Maguire's aspirations. The company stated today it plans to hold an annual meeting in the second half of 2022. Their last one was December 2018. The company will engage an international executive recruiting agency to add complementary expertise to their Board, which we look forward to.
EBIX Litigation Update
August 17th was an expected date (90 days after May 17th opening arguments) for a possible court ruling regarding the breach of the merger agreement and litigation damages. That date has passed with no update. The judge has until the end of August, which is also not a hard-stop for a ruling.
Catalysts and Attractive aspects (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 this Fiscal Year
4. Additional Services Could Become Meaningful in Calendar 2023
5. Activist Letter Raises Improvement Opportunities
6. Profitability Inflection Point Should Help Relative Valuation Discount Narrow
7. Herd Immunity Possibility for Late November in Metro Areas (if No Third Wave)
Valuation:
We value 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 3.1x EV/Sales 2022 & median of 3.3x.
The stock is trading at 1.1x our calendar 2022 Sales estimate, which represents a 65% discount to peer group. 9.4x EV/Adjusted EBITDA calendar 2022 is a 43% discount to peers. We expect a re-rating to narrow the relative valuation gap as travel picks up in India.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $40,000 annually for these services. Full Disclaimer HERE.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
