MakeMyTrip Limited (NASDAQ:MMYT) Q4 2023 Earnings Call Transcript May 16, 2023
MakeMyTrip Limited misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $0.05.
Vipul Garg: Hello, everyone. I’m Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited and welcome to our Fiscal 2023 Fourth Quarter and Full Year 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 maybe considered forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995.
These statements are not guarantees of the 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 and forward-looking statements 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 SEC or from the company’s Investor Relations department. I would like to now turn the call over to Rajesh. Over to you, Rajesh.
Rajesh Magow: Thank you, Vipul. Welcome everyone to our fourth quarter and full year earnings call of fiscal 2023. Fiscal 2023 has been a robust recovery year for the Indian travel industry. We witnessed consumer sentiment to travel improving with each successive quarter throughout fiscal year 2023. Travel industry was quite relieved to see demand for each of the travel segment with leisure business, VFR that is visiting friends and relatives, students, pilgrimage, mice, etcetera, recovering nicely during the year despite macroeconomic headwinds in the recent quarters. We at MakeMyTrip also saw robust recovery of all our business segments, barring outbound travel recovering nicely to pre-pandemic levels. In fact, some of the categories like premium segment of hotels, domestic flights, homestays and domestic packages have already crossed pre-pandemic levels.
This demand momentum, coupled with our optimized cost structure, helped us deliver strong performance for the quarter and full year. We achieved our highest ever annual gross booking value and adjusted operating profit during the reported fiscal year ‘23. Gross booking value for the year was $6.6 billion, growth of 122% on constant currency basis, while adjusted operating profit for the year was $70.3 million, growing to over 3x as compared to fiscal 2022. As per WTTC report, over the next decade, global travel and tourism GDP is forecasted to grow at about 5.8% outpacing the overall economy growth to reach $14.6 trillion by 2032, thus contributing 11.3% to total global economy. India’s tourism sector is expected to grow faster, owing to growing demand from the middle class, higher disposable incomes, favorable demographics and higher investments in travel-related infrastructure.
Emerging technologies will be at the forefront in driving online travel penetration with new innovations to make online travel booking extremely simple and convenient, helping push adoption from smaller cities. We at MakeMyTrip will continue to drive this change and capitalize on the opportunity that lies ahead. Our tech platforms built over the years are very robust, reliable and scalable provide secure and delightful experience for the customers on our B2C offerings. More recently, leveraging our core tech capabilities, we have built new platforms like myBiz, myPartner, to cater to B2B corporate and B2B2C demand segments respectively. Our platform mindset in building our tech stack has helped us launch all these new offerings over the last few years with amazing efficiency and agility.
These investments will help us drive future growth and profitability. Besides building new platforms and launching MakeMyTrip.ae which is our GCC platform, we have now built almost fully automated, fully self-serve model of our post sales interface. As a result, we now offer the best in industry or sales capability across our entire line of businesses, thus improving customer experience for core sales use cases. Our data science and engineering capabilities have enabled us to deliver delightful, personalized and contextualized experience to our customers. Leveraging these capabilities with insights-driven mindset enabled us to launch several industry-first features for our consumers. Most of our new offerings are backed by rich data science capabilities, which we employ cutting-edge AI/ML models to bring value-added differentiated features.
Consumer-focused products like zero cancellation, fair lock, trip guarantee, hotel ranking, etcetera, and supplier-focused products like REVMAX, a paid yield management tool for bus operators demonstrate our superior capabilities in data sciences, AI and ML. A key part of our growth strategy to drive digital penetration of travel services deeper into the country beyond Tier 1 and Tier 2 cities. We recently collaborated with Microsoft to make travel planning more inclusive and accessible by introducing voice-assisted booking in Indian languages. The new conversational flow powered by Microsoft Azure AI and cognitive services will converge with the user to offer personalized travel recommendations based on their preferences, curate holiday packages based on variable inputs like occasion, budget, activity preferences, time of travel, etcetera and eventually, help book these holiday packages.
Similarly, it could help book flight tickets with a few simple conversational steps, including payment. This can drive adoption of online travel ecosystem for almost every strata and demography across the country. Currently, the beta version of this integration has been introduced in Hindi and English for flights and holiday customers. Apart from tech capabilities, one of our biggest trends is the brand – is the brands that we have created over the years. All three of our brands have the highest top of mind recall when it comes to travel services with a cumulative transacted consumer base of over 64 million users. Our engagement metrics and repeat rates are comparable with the global benchmarks, which is testimony of trust in our brands. As for business segments now, starting with air business, recovery momentum in aviation sector continued during the quarter despite the lower leisure season quarter.
There was an uptick in both domestic and international air traffic, especially in the month of March. We have been growing faster than the market on the back of our innovative product and brand strength. Also for two quarters in a row, our domestic loan passenger traffic is above pre-pandemic levels. International air bookings have seen an expectedly slow recovery throughout the year. The recovery is now in the 90s and we expect to get back to pre-pandemic volumes in the new fiscal year. We continue to innovate product features. For instance, we have not only scaled up our fair lock feature to cover 95% of domestic flights, but also launched this feature for international itineraries with about 95% coverage. While according to Center of Aviation, CAPA next year outlook for Indian domestic aviation sector is quite positive with a projected growth of about 20% year-on-year.
Photo by Hilmi Can Taşkıran on Unsplash
Recently, Go First Airlines having a small market share of about 6% filed for voluntary insolvency resolution proceedings before the National Company Law Tribunal, NCLT, in India, seeking interim relief citing failure of the global engine supplier to replace the 40 engines from time to time, resulting into grounding off half of their fleet and consequent operational and financial issues. Interim relief was granted by NCLT and the airline is making all possible efforts to resume the operations. In the short-term, this event has affected the supply although we expect it to be temporary as the other airlines in the market have started to fill the supply gap with additional deployment of planes on key routes. Our accommodation business, which includes hotels, packages and homestays segment, continues to shape up well.
Leisure travel has gone beyond pre-pandemic levels and corporate travel has recovered strongly on the back of conferences, exhibitions and events. With our continuous focus on supply expansion, we have surpassed our pre-COVID supply with more than 71,000 salable accommodations listed on our platform. This has helped us increase our market share and further strengthen our supply mode. With international outbound travel picking up, we have now started to expand our direct contracting for destinations where Indian tourists travel frequently. Vietnam is one such example of a new emerging destination where we are now building inventory through direct supply contracts to deliver better value to our customers. Gross booking for accommodation business has surpassed the pre-pandemic levels on the back of strong growth in premium and medium – mid-premium category of hotels.
Our endeavor has been to build a platform that is innovative, intuitive, simple and delivers the best value to the customer. During this quarter, we launched Book at Zero, which is an industry-first initiative where customers can now reserve their preferred property without worrying about upfront payments and pay closer to the travel date. They are solving for any anxiety related to uncertain travel plans and offering huge flexibility to the customers. This feature is now available for all properties across India and outside India. This is helping us change the consumer behavior to book in advance, which will help better yield management for our partners. We continue to scale our homestays business with later destinations contributing to most bookings.
To discover and promote properties at drivable distance, we launched Hidden Gems. This feature has been built on interactive maps to improve the discoverability. To make decision-making informed and seamless for homestays, we introduced some other features showcasing information related to food and dining at the property. Our holiday packages business has also continued to scale up and has already surpassed pre-pandemic levels. Coming to our bus ticketing business continues to deliver strong results we are now starting to see some buoyancy in the supply ecosystem with multiple large operators confirming new fleet orders to OEMs and addition of new EV intercity buses by newer players. A few large bus operators who had paused or shrunk their operations post the COVID lockdown have restarted during the quarter with an effort to get the full fleet back on the roads.
With favorable macro environment like new expressways and highway expansion, demand growth due to more in-office working, especially in IT companies in the South India and easing of the supply constraints in motor vehicles production, we expect capacity expansion in intercity buses during this financial year. Product-related initiatives continue to focus on driving online penetration for the category and enhancing customer experience. The regional transport corporation bus booking experience has been further improved and customized to each RTC. This has improved the conversion rates for RTC bookings, leading to an increase in the rate of new customer acquisition. Further, in non-traditional bus markets like Central and East India, we have added significant inventory to drive the penetration.
We intend to double down on these efforts to make Redbus truly pan-national with meaningful business contributions coming from every region in the country. International markets are maintaining their growth momentum and now contribute upwards of 10% of our overall bus revenue. Our other ground transport services, such as intercity cabs, rail tickets, etcetera, continue to scale well. This segment is helping us acquire new users on the platform. We are investing in this business as we foresee an opportunity to disrupt this segment through technology interventions – innovating offerings and supply consolidation. We opened our trip guarantee offering for users who haven’t booked their train ticket from MMT platform to further expand our reach to rail users.
Our myPartner, B2B2C platform, where we offer both flight and accommodation booking is gaining positive traction from our affiliate partners. Engagement levels from existing partners are improving as we continue to ramp up onboarding new partners every quarter. Business travel is gradually normalizing and we continue to add more capabilities on our both myBiz and Q2T platforms. We recently completed end-to-end integration flow with Darwinbox giving complete solution to the corporates from travel request to expense management. Our revamped portal of Q2T has now gone live and our myBiz platform is now ranked as second best travel management software globally and first for small business segments, SME, by G2, which is a global peer-to-peer review platform.
With the scaling up of our corporate and B2B2C platforms, we are now able to target all customer demand segments directly and more effectively. With this, let me now hand over the call to Mohit for financial highlights of the quarter.
Mohit Kabra: Thank you, Rajesh and hello everyone. We are pleased to report another strong quarter both in terms of business growth and profitability. As mentioned by Rajesh, despite the few macroeconomic headwinds, demand for travel continues to be resilient and robust. We are seeing an improved trend across all our segments and we believe fiscal year 2024 will be the year of growth over pre-pandemic levels. Through the pandemic impacted years, we have been investing in the areas of future growth and this should strengthen our modes and help us stay ahead of the market. During reported quarter four of fiscal year ‘23, gross bookings came in at about $1.7 billion witnessing a growth of over 80% year-on-year in constant currency terms on the back of strong travel demand.
Adjusted operating profit or adjusted EBIT was about $19 million as compared to about $12 million during the same quarter last year, an improvement of over 58% year-on-year. Through the last few years, our strategic focus has been towards driving profitable growth and we are pleased with the results delivered through FY ‘23. While Rajesh has called out that we have achieved our highest annual gross bookings and adjusted operating profit in fiscal year ‘23 I’d like to add that we have now been consistently EBITDA positive on a GAAP basis for the last five quarters in a row. During fiscal year ‘23, we delivered GAAP EBITDA of $51 million with a margin of 8.6% as compared to an EBITDA loss of just below $1 million in the previous fiscal year.
During the last couple of years, we have made efforts to optimize our cost structure and from here on, there will be gradual improvements in profitability on the back of operating leverage as we build scale. Our air ticketing gross bookings for the quarter stood at $1.1 billion, witnessing a growth of 84% year-on-year on constant currency terms. Air ticketing segments grew by 10.3% sequentially despite weak seasonality on the back of strong growth in air traffic. Adjusted margin stood at about $74.3 million, registering a growth of 81% year-on-year on a constant currency basis. Gross bookings for the quarter for Hotels and Packages segment came in at $388.6 million witnessing a strong growth of over 78% year-on-year in constant currency terms in line with demand trends.
Adjusted margin for our Hotels and Packages business stood at $63.5 million during the quarter, witnessing a growth of over 64% year-on-year in constant currency terms. In our bus ticketing business, gross bookings for the quarter were at $213.5 million growing at over 66% year-on-year on constant currency basis. Adjusted margin stood at about $19.3 million, registering a strong year-on-year growth of about 70% in constant currency terms. The take rates or margins for all these three reported segments that is air ticketing, hotels and packages and bus ticketing continue to be in line with the previous quarter. Adjusted margin for the other businesses in the reported quarter of Q4 came in at about $9 million, witnessing a growth of almost 73% year-on-year in constant currency terms.
Operating leverage built over the years is now clearly visible and we continue to be efficient with our marketing and customer acquisition-related expense. Our overall marketing and sales promotion expense for the quarter came in at about 5% of gross bookings as compared to 5.2% in the previous quarter. Most of the other expenses continue to be in line with the previous quarter. At the end of this quarter, our cash and cash equivalents were about $487 million as compared to $449 million at the end of the previous quarter. That’s an addition of about $38 million during the quarter. The cash addition was stronger than the profitability linked cash generation due to working capital releases in a seasonally weaker quarter. Our balance sheet strength gives us the flexibility to invest and pursue new growth opportunities, both organically and inorganically.
And lastly, in the recent past, there have been some media reports about our India IPO plans. I would like to take this opportunity to share our view on the matter. We are an Indian company with a strong India brand and a predominantly India business. So, why there could be valid reasons or arguments for us to list in India, we currently have no plans to pursue this thought at this stage given the strong cash passion on our balance sheet. With that, I’d like to turn the call to Vipul for Q&A.
A – Vipul Garg: Thanks, Mohit. [Operator Instructions] The first question is from the line of Manish Adukia, Goldman Sachs. Manish, your line has bee unmuted, you can talk, while you can ask a question.
Rajesh Magow: Yes. Thank you, Vipul and thank you everyone for your time. Thank you for your patience and we will stay in touch. Thanks.
Vipul Garg: Thank you everyone. You may please disconnect now.
Mohit Kabra: Thank you so much.
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