MakeMyTrip Limited (NASDAQ:MMYT) Q3 2023 Earnings Call Transcript

MakeMyTrip Limited (NASDAQ:MMYT) Q3 2023 Earnings Call Transcript January 31, 2023

Vipul Garg: Good evening, everyone. We’ll just give a minute for everyone to join and then we will start. Hello, everyone. I’m Vipul Garg, Vice President of Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal 2023 Third Quarter Earnings webinar. Today’s event will be hosted by Deep Kalra, our company’s Founder and Chairman. Joining him is Rajesh Magow, our Co-Founder and Group Chief Executive Officer; and Mohit Kabra, our Group Chief Financial Officer. As a reminder, this live event is being recorded by the Company and will be made available for replay on our IR website shortly after the conclusion of today’s event. At the end of these prepared remarks, we will also be hosting a Q&A session. Furthermore, certain statements made during today’s event may be considered forward-looking statements within the meaning of Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995.

These statements are not guarantees of future performance, are subject to inherent uncertainties, and actual results may differ materially. Any forward-looking information relayed during this event speaks only as of this date, and the Company undertakes no obligation to update the information to reflect changed circumstances. Additional information concerning these statements are contained in the Risk Factors in Forward-Looking Statement section of the Company’s annual report on Form 20-F filed with the SEC on July 12, 2022. Copies of these filings are available from the SEC or from the Company’s investor relations department. I would like to now turn over the call over to Rajesh. Over to you, Rajesh.

Rajesh Magow: Thank you, Vipul. Happy New Year and welcome everyone to our third quarter earnings call of fiscal 2023 or the last quarter of 2022. ’22 started with a cautious optimism amid the Omicron third wave, but as the year progressed, we witnessed steady improvement in the COVID situation in India and most countries in the world, which helped demand led by leisure related travel. Indians increasingly took to traveling during the year and the demand recovery trends improved with each successive quarter. The reported quarter is the second high leisure travel season quarter of the year aided by winter and festival breaks and long weekends. We leveraged on this demand and executed our business strategies well to get back to full recovery over pre-pandemic levels in gross booking terms, while driving operating leverage from the cost optimization initiatives over the last few years.

As a result, this has been our highest ever quarterly performance, both in terms of gross bookings and adjusted operating profit. Gross bookings for Q3 stood at $1.74 billion witnessing an increase of 64.4% year-on-year and 15.9% quarter-on-quarter in constant currency terms. Adjusted operating profit stood at $19.7 million versus profit of $13.2 million in Q3 fiscal year 2022. As we enter 2023, consumer sentiment continues to stay positive for travel, while we watch the COVID situation with China opening its borders, global inflation, and other macro challenges in the world closely. Trends suggest that, travelers are back on all travel segments with leisure, business, pilgrimage and corporate events and will continue to drive the growth in the coming years as well.

While domestic travel led the recovery in 2022, we believe that full restoration of supply aided by some fair rationalization and easing of visa processes could help international travel recover to pre-pandemic levels soon with improved traveler’s sentiment. During this quarter, the industry witnessed strong recovery in domestic aviation traffic, which is good news for the airlines and the other partners. Government is committed to the growth of the sector. And it is projected that in the next five years, government and other private entities are going to spend up to $12 billion on the infrastructure development of the airports. As per plan, in near future, there will be capacity expansion in many of the existing airports and new greenfield and brownfield airports will be set up.

Recently, a second airport was operationalized in Goa with an annual capacity of 4.4 million passengers. Goa is among the most popular tourist destinations in the country and this will help drive tourism growth. A new terminal in Bangalore is now functional and expansion work in Delhi airport is underway. India is now the third largest aviation market globally, as per government data and initiatives are being taken to drive tourism and a traveler to smaller cities. In the last eight years, 72 new airports have come up in the country. In coming years, air travel growth will be driven by addition of new airports, infrastructure growth and increasing disposable income. All Indian Airlines place record orders of new aircrafts and this will help drive penetration further into smaller cities.

Outlook for aviation market is favorable, and we expect a prolonged period of sustained growth on the back of these initiatives. Another important pillar for domestic tourism growth is ground transport and world class highways are a prerequisite for fast and seamless movement. This has been a focus area of government. The length of national highways has gone up by more than 50% from 91,287 kilometer as on April 2014 to more than 140,000 kilometer in March 2022. Government has set an ambitious target to develop 200,000 kilometers of national highway network by 2025. Similarly, for accommodations, the outlook continues to be robust. Almost all hotel chains have announced expansion and increasing their footprint in India. In next couple of years, there is an estimated increase of 25% in the number of hotels for these hotel chains.

Coming to highlights of the reported quarter now, we restarted our brand campaign both on TV and digital media platforms for both MakeMyTrip and Goibibo. After a gap of 2.5 years, we launched 360-degree campaign to capture large chunk of festive demand. That campaign focused on relevant value propositions such as enhanced flexibility, book hotels, with no upfront payment, and numerous choices best suited to varied customer needs. For Goibibo, we ran a campaign promotion promoting daily steel deals on both hotels and flights a collection of deals unique to Goibibo. We deployed a digital focus campaign across platforms in order to target relevant consumer segments to drive efficient conversions. As for business segments now, starting with air business, we continue to add value for our customers through our industry first features.

QuickBook feature for frequent fliers which was launched last quarter has led to a reduction of 15% in time taken for bookings for these travelers. During the quarter, we strengthened our free cancellation flow within 24 hours of booking. This is again an industry first initial. All these innovations help us remain the first choice of customer. We continue to maintain our leadership position in our market share in domestic air ticketing this quarter stood at 30.3%. We witnessed a jump in domestic air traffic during this high season quarter. Domestic a ticketing for us has gone beyond pre-pandemic levels while international air ticketing recovery is still lagging. Traffic to most of the domestic leisure destinations have now surpassed pre-pandemic levels and have started to grow.

For international destinations, we witnessed steady recovery for short haul tourist destinations across Southeast Asia of Maldives and Middle East due to tourism demand. Demand for international long haul destinations however improved in this quarter, but still face high fares and visa backlog headwinds to full recovery. We expect this to normalize during this year as stated earlier. Our accommodation business which includes hotels packages and Homestay segment, with continued focus on expanding accommodation offering on our platform, our inventory is now comparable to pre-COVID levels. This has also helped us now offers stay options over more than 2,000 cities. Aided with seasonality, this quarter, we sold more than 53,000 unique properties, which is at par to pre-COVID levels.

The recovery continues to be strong across all price points, barring the super budget segment of $20 or lower per room night stay. Overall gross booking for hotels has recovered to pre-pandemic levels on constant currency basis, on the back of strong growth in premium and medium premium segment, and partially aided by higher room tariffs. We continue to innovate and invest in our product. Book @Rs.1 launched last quarter that offered flexibility to the customers, which helped drive growth in longer advanced purchase bookings. goStays, which is our flagship program for certified budget hotels are now contributing to over 40% of the overall budget volume with much better customer experience and NPS. International outbound travel opened in March 22, 2022 and since then, we have been witnessing a steady recovery for short haul destinations.

Photo by Francesca Tirico on Unsplash

While we saw some slowdown in international travel bookings with COVID scare as China opened at the end of the quarter, but overall we witnessed good traction. And during 2023 we hope to see you travel to Europe and long haul destinations also returned fully. Homestays continue to lead recovery in overall accommodation category. 10,000 plus unique properties across 640 plus unique destinations have been sold during this quarter. During this quarter, we launched a new section of properties, called Hidden Gems, where every property in this set has unique USPs and are away from the center of the city. We also launched our brand campaigns specifically for Homestays to create more awareness among travelers that the campaign emphasized on the concept of state for every need and highlighted various day options, including pet friendly villas, pool villas, and villas best suited for large families.

Moving to packages business, you would recall that last quarter we talked about how we have scaled up this business with the addition of holiday experts and franchisees we are now reaping the dividends in the high season quarter total packages, bookings are now more than 150% of pre-pandemic volumes with online channel leading the growth. Domestic packages are now more than twice of the pre pandemic volume and for international packages the recovery is now picking up. Our bus ticketing business revenue recovery was at around 113% as compared to same quarter pre-pandemic on constant currency basis. This quarter saw growth in inventory compared to pre-COVID with both number of private bus operators and the number of schedules being higher. Recovery in southern market, which has been traditionally strong for buses slower-than-expected as large IT workforce is still working remotely.

This slowness has been made up by non-traditional markets in Central, North and East, which are witnessed growth and has an increasing number of bus operators are adopting online channels for their distribution in these regions. Our initiatives to drive high revenue through value-added inputs to our customers and partners have gathered steam in Q3. RedBus assurance program that protects the customer from bus cancellation has also seen increased traction. Our other ground transport services such as intercity cabs, rail tickets, et cetera, continue to scale well and gross booking value touched an all time hiring. We have now opened up our trip guarantee product for non-bookers. Also, wherein a user who has a waitlisted train ticket booked from any channel outside of MakeMyTrip, can buy a trip guarantee product by paying a small fee, if the ticket remains wait listed at the time of charting, the user is eligible for 3X refund, which you can use to book an alternative mode of transport.

Business travel is now normalizing, and both our corporate platforms are growing at a robust pace. Active corporate count for myBiz has crossed 42,000 while on Q2T, which is our platform for large enterprises. Active customer count has reached 231 as compared to a 114 in December 2021. We have doubled the number of customers in last one year. On product side, on myBiz, we went live with enhanced workflows to support in-app approval and to support easy reconciliation we went live with our reporting module. The new reporting module allows corporate to customize and schedule reports according to needs of different corporates and their departments. myPartner, our travel agent platform, added 2,892 agents during the quarter, taking the overall number to the 34,600 plus.

Quarterly repeat rate for buying travel agents is at a healthy 80 %. Coming to international businesses, our OTA business in GCC growing slowly and steadily, gross booking value grew 29.6% quarter-on-quarter. We launched our first radio brand campaign in November to increase MakeMyTrip awareness amongst Emirates, Arab and Western Experts in the UAE. We reached about 780,000 audience with presence across English and Arabic radio stations. Our RedBus international business is showing robust recovery in Malaysia. RedBus has more than doubled its business in Q3 as compared to the same period of pre-pandemic and emerged as a clear market leader with the 25% share of the overall market and running profitably. The same playbook is being replicated in other Big Bus markets in emerging countries in Southeast Asia and Latin America.

With this, the contribution of international to overall bus business has now crossed double-digits in Q3. With this, let me now hand over the call to Mohit for financial highlights of the quarter.

Mohit Kabra: Thanks, Rajesh. Hello everyone and Happy New Year. With improved travel sentiment, we witnessed good uptake in this seasonally strong quarter and have delivered strong performance both in terms of business growth and profitability. Q3 gross bookings were at $1.74 billion witnessing a growth of 64.4% year-on-year and a 15.9% growth quarter-on-quarter in constant currency terms. Adjusted operating profit was at $19.7 million as compared to $20.2 million during the same quarter last year, an improvement of 48.6% year-on-year. As stated by Rajesh earlier, this is the highest level quarterly gross bookings and adjusted operating profit achieved by the Company. For the nine months ended 31st December ’22 YTD gross bookings grew by 141% in constant currency terms and came in at $4.9 billion, while our YTD adjusted operating profit came in at about $51.3 million as compared to $11.2 million for the same quarter last year, witnessing a jump of over 4.6 times.

Our air ticketing gross bookings for the quarter were at $1.1 billion, witnessing a growth of 71.6% year-on-year and 7.5% quarter-on-quarter on constant currency basis. As this was a high season quarter on expected lines that take rates normalized to about 6.6% compared to about 7.4% in the previous quarter. As a result, adjusted margin stood at about 70.2 million, registering strong 45.2% year-on-year growth in constant currency terms. Gross bookings for the hotels and packages segment were at $445.7 million, witnessing a strong growth of 55.4% year-on-year and 36.9% quarter-on-quarter on constant currency basis. Q3 is a seasonally strong quarter for tourism and travel. And we recorded a strong growth of over 150% year-on-year in our packages business due to the increase mix coming in from the packages business margins or take rates from this segment is stood at about 16.2% as compared to 17.2% in the previous quarter.

Adjusted margin for our hotels and packages business is stood at $72 million in Q3 witnessing a growth of 45.3% year-on-year and 28.8% growth quarter-on-quarter in constant currency terms. In our bus ticketing business, gross bookings for the quarter were at $227.1 million growing at about 51.9% year-on-year and 24.1% on a quarter-on-quarter basis on constant currency terms. Take rates were at about 9%, which is in line with the previous quarters. Adjusted margin stood at $20.3 million were extremely strong year-on-year growth of 57.6% and a quarter-on-quarter growth of about 24% in constant currency terms. Our existent margin in all the other businesses in Q3 was at $9.6 million which is 79.1% growth on a year-on-year basis and 30.6% growth on a quarter-on-quarter basis in constant currency terms.

In terms of operating expenses, the operating leverage in terms of rationalized fixed costs during the last few years and more efficient customer equation spends are helping us drive bottom-line gains with improving skill. The high season quarter also saw as we started our brand campaigns across the brands after a gap of over 2.5 years. Also the higher brand marketing expenses were more than offset by efficiencies in other marketing and promotional costs. Accordingly, overall marketing and sales promotion costs for the quarter came in at about 5.2% of gross bookings lower than the 5.4% in the previous quarter and lower than 5.6% in the same quarter last year. This has helped us achieve the highest level quarterly gross bookings surpassing the pre-pandemic peak and at the same time as your highest ever quarterly adjusted operating profit of $19.7 million.

With that, I’d like to turn the call back to Vipul for Q&A.

A – Vipul Garg: Thanks, Mohit. Anyone who wish to ask the questions now can click on the raise hand icon on their application and we will take the questions. We’ll just wait for a minute for queue to assemble. The first question is from the line of Sachin Salgaonkar of Bank of America. Sachin, your line has been unmuted. You may unmute yourself and ask your question now please.

Sachin Salgaonkar: Thanks Vipul. Good evening everyone. I have three questions. First question Mohit more as a follow-up to the comments what you made. Looking at the take rate at both at air ticking and hotels and packages, clearly, it looks like this time around as compared to historical 3Q, the decline was slightly higher. So, I just wanted to check apart from seasonality, is there anything else which is impacting these margins? And how should ideally one look at going ahead, should we see normalization now that the seasonality gets behind us?

See also 10 Most Undervalued Solar Stocks to Buy and 12 Most Undervalued Travel Stocks To Buy .

Q&A Session

Mohit Kabra: Sure, Sachin. If you like, like I was mentioning, particularly if you look at the hotels and packages business, overall, due to the high seasonality, packages kind of came in much stronger in terms of the overall mix, and packages, as you know is a low margin business. And that contributed significantly to a little bit of a dropping of margins for the segment as a whole. The other thing that we have been calling out is, if you will recollect that in the entire recovery process, the mix of the budget segment of hotels has been coming down, and therefore to some extent that’s also kind of keeping the overall margins on the hotel side, on the lower end of our range. There is a good kind of probability of the overall margins improving on two cons, one, as the mix kind of gets restored more in favor of hotels, as we get to kind of regular seasonality.

And the second is, as the mix from budget segment kind of in a keeps improving. So, I would say, possibly, there remains an upside of about a percentage point or so, for the margins to improve in the hotels and package segment, overall, compared to this particular quarter for the reasons that I’ve just explained. On the air ticking side, again, if you look at on a normalized basis, possibly we have been guided and the 6% plus kind of margins is where we see longer term kind of air ticking margin stabilizing, and tactically or kind of based on a quarter-on-quarter basis, depending upon how the load factors are and what is the kind of promotional activity that the airlines want to try in terms of driving load factors through our platforms, that will kind of marginally tweak the overall take rates for the domestic air ticking business.

But otherwise, air ticking business longer term, I think this is a healthy margin to kind of remain at, and we believe, unless there is a significant kind of drop in the load factors, our margin should largely remain in line with this with a plus or minus kind of half a percentage point range. So, very broadly, this is how I would put it.

Sachin Salgaonkar: Thanks Mohit. Second question, clearly this, as you rightly indicated was a seasonally stronger quarter and despite that, we did see the air ticketing revenues being down Q-o-Q, I did see the bookings are up. So just wanted to understand what happened and why was air ticketing revenue down?

Mohit Kabra: Yes, exactly the same thing. The link to the previous one, because the gross margins on the air ticking business have kind come down. That’s how you see their revenue on kind of volume adjusted margin coming down a little bit. But the growth overall in terms of segments and gross bookings is higher. So — and similarly, you would see, even on the marketing and promotional expenses, they have come lower than even the previous quarter for matter despite the marketing investment. So like I said, some of these promotional expenses as the kind of coming from the airlines can optically look at kind of, take the margin also higher, and take the overall marketing and promotional expense also higher. In this quarter because the incremental kind of promotional incentives provided by the airlines were on the lower end, that’s how we are seeing that effect coming through, both in terms of the adjusted margin coming down and also the promotional and marketing expenses coming down.

Sachin Salgaonkar: So, Mohit, thanks for that. I did look at that, obviously, there is a margin dip that’s happened last quarter, 3Q and so on and so forth. How there, the airline revenues did not dip despite the take rate going down? So this time around, it has more to do with the promotional expenses, what you mentioned.