MakeMyTrip Ltd

NASDAQ:MMYT

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the MakeMyTrip Limited Fiscal 2020 Q3 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to VP of Investor Relations, Jonathan Huang. You may proceed, sir.

[Jonathan Huang, VP, IR]

Thank you. Greetings, and welcome everyone to MakeMyTrip Limited's fiscal 2020 third quarter earnings call.

I would like to remind everyone that certain statements made on today's call are considered forward-looking statements within the meeting of the 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 inherit uncertainties, and actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date. The company undertakes no obligation to update 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 23, 2019. Copies of these filings are available from the SEC or from the company's Investor Relations department.

Today, I'm joined by Deep Kalra, MakeMyTrip's Founder; Rajesh Magow, Co-Founder; and Mohit Kabra, our group's CFO. Now, I'd like to turn the call over to Deep to begin today's discussion.

[Deep Kalra, Founder, Group Chairman & Group CEO]

Thanks, Jon, and welcome, everyone, to our third quarter earnings call for fiscal year 2020. I'd like to begin by sharing some highlights from our government's recent budget announcement, which laid out initiatives to support long-term development and growth for the domestic travel industry. Then I'd like to provide an update of our operating environment, which remained a headwind in Q3. Lastly, I'd like to highlight our business accomplishments from the fiscal third quarter, even as we face challenges that were mainly beyond our control.

Earlier this month, the Finance Minister of India announced the annual budget for fiscal year 2021. We were happy to hear various initiatives to support long-term growth of domestic travel and tourism. This included the development of 100 more airports by 2024, aimed at enabling greater regional domestic air connectivity under the Iran program. The expansion will help to accommodate the rapid expansion of the country's domestic fleet capacity, which is expected to double to 1,200 planes in the next four to five years. The budget has also indicated the government's willingness to run as many as 160 high-speed trains to connect key tourist destinations via public private partnerships. Furthermore, the Ministry of Culture is expected to receive considerable financial resources to develop numerous museums at key archaeological sites across India. At the same time, the ministry will also be tasked with establishing an Institute of Heritage and Conservation to better preserve our country's rich cultural heritage and further boost tourism growth in the long run. These tourism focus proposals in the budget are in addition to the reduction of the goods and services tax or GST rates on hotels across India, which was effected last October.

While we are excited to hear of the various government initiatives to drive sustained domestic tourism growth, short-term headwinds continue. The IMF had recently reduced India's GDP growth forecast to 4.8% for the current fiscal year, a material deceleration from the 6.8% growth achieved in the last fiscal year. In fact, growth in the current fiscal is likely to be the lowest in over a decade for India. The rate of inflation, as measured by CPI, has been increasing throughout the year and stood at 7.4% for December for recent RBI estimates. In addition, the country's consumer confidence also reached a six-year low. This weak macro conditions had been impacting overall consumer sentiment all through the current fiscal year, and slowed discretionary spending. The good news, however, is that the IMF does anticipate the current fiscal year's economic slowdown to be temporary, and expect growth to reaccelerate in the next two years, aided by monetary and fiscal stimulus, in addition to subdued oil prices.

On another positive note, while the domestic air industry in the first half of the fiscal year was impacted by last seat capacity due to shutdown of Jet Airways, we saw a reacceleration of market growth to nearly 6% in Q3. We remain hopeful that the gradual rebound and growth will continue in the coming quarters. Furthermore, we are pleased that despite weak demand conditions, the MakeMyTrip growth not only outpaced market growth, but also accelerated the growth in standalone hotel room nights, and continued to achieve strong growth in other under-penetrated online travel segments during the quarter. At the same time, we were also able to further reduce operating losses by driving greater marketing and promotional spend efficiencies.

Another key development in this current quarter has been the outbreak of the novel coronavirus, which is impacting travel in various parts of the world. We are hopeful that with the significant measures being taken globally, the impact of this outbreak will be short lived for the entire global travel industry. As for MakeMyTrip, we believe our domestic business should remain fairly insulated. However, we have started seeing higher than normal cancellations in our outbound business, due to the outbreak. Bookings for destinations in Southeast Asia have begun to see cancellations greater than normal, and outbound travel to these destinations is likely to be impacted in the short term.

Now, I'd like to share a few bites on the progress made during the fiscal third quarter. On a life today transacted basis, we further widened our base to more than 46 million customers. Given that India is still largely an offline population of travel bookers, our team continued to drive greater brand awareness with both online and traditional media campaigns while optimizing for greater returns on marketing spend. As a result, direct traffic on our high-tier brands, MakeMyTrip and Goibibo, continues to account for more than half the traffic, which is aided further by the very high share of transactions taking place through our mobile apps and insights.

During Q3, we also achieved quarterly overall interest rates of 70% across our entire platform by leveraging our loyalty and retention programs. Our MakeMyTrip Black program now has over 1.1 million enrollees, and we have crossed more than 139,000 enrollees within the paid MakeMyTrip Double Black membership program. Both these programs have been successful in meaningfully increasing MakeMyTrip's transacting base over the year. Similarly, Goibibo's loyalty program, Go Rewards, has over 2.3 million high-tiered users helping to continuously improve our platform.

I'd also like to share a quick update on our corporate travel strategy, which continues to see very strong growth. During the quarter, our myBiz program continued to gain traction, as more than 715 mid-size corporates and over 4,000 SMEs are now registered to our platform. Our myBiz product and experience also continued to improve for registered users. For example, corporates can now track potential missed savings by the employees. Users can also seamlessly book multicity flights, both domestic and international, across desktop and mobile apps. As for our tech enabled managed travel solution for large corporates, Quest2Travel, we continue to win large corporate accounts, including TATA AIG Insurance and Thermo Fisher Scientific during the past quarter.

Lastly, we see strong opportunities for product innovation expansion over the medium and long-term in the travel market. Tapping these opportunities can allow MakeMyTrip to continue to grow and expand our market leading position. We believe that separating the roles of group CEO and executive chairman will allow us to focus more on long-term strategic opportunities within and outside India, while maintaining our market leading position in our existing businesses.

Consequently, I'm very pleased to announce that Rajesh Magow, MakeMyTrip's co-founder and chief executive officer for India business, has been elevated to the role of group CEO. Over the last six years, Rajesh has been credited with navigating our India business through varied competitive dynamics, and championing the growth of our diversified revenue streams. He has successfully integrated the Ibibo group, and helped to capitalize on significant synergies across the brands and teams. The board and I have utmost confidence in Rajesh's capabilities in this elevated role to drive the next phase of growth for the group through its three strong brands, MakeMyTrip, Goibibo, and Redbus. In this role, he will continue to work closely with me.

In conclusion, this transition will also allow me to devote full time and focus to strategic initiatives for MakeMyTrip, which will include product innovation and expansion, geographic growth, business model innovation, and corporate development.

With that, I'd like to turn the call over to the new group CEO.

[Rajesh Magow, Co-Founder, CEO, India & Director]

Thanks, Deep, and greetings, everyone. I'm pleased that even during the period of deep consumer sentiment, we have been able to deliver a good quarter with decent growth in domestic hotels, outbound hotels and flights, as well as in the bus booking business, while our domestic flights business continued to deliver the desired numbers. We have also been successful in achieving better efficiencies in customer acquisition costs by further rationalizing our sales promotional spends, which has led to a meaningful reduction in our adjusted operating losses.

Now, I would like to share some key highlights from our most recent operating results. Later, Mohit will share more color on our quarterly financial results. In fiscal Q3, the MakeMyTrip group achieved record quarterly gross bookings of over $1.7 billion, a constant currency growth of nearly 19%. This represents nearly $4.9 billion in gross bookings and constant currency growth of over 21% for the nine months of fiscal 2020. Q3 adjusted revenue also reached a new quarterly high of $206.7 million. For the nine months of this fiscal year, registered revenue reached $586.2 million, with a constant currency growth of over 16% year on year. We also achieved a new record of nearly 8.3 million room nights in our standalone online hotels business during Q3. This represents a year on year growth of over 21%, and the reacceleration in volume growth from the previous two quarters. The reacceleration was led by strong outbound hotels and alternative accommodations growth, as well as the acceleration of growth within our domestic hotels business. Concurrently, we sharply focused on marketing and promotional spends to drive greater operational efficiencies.

From a supply standpoint, we expanded our selection to over 72,000 accommodation properties, bookable within India, which included 19,000 alternative accommodation properties, During Q3, our platform continued to drive more business to our supply partners, as more than three-quarters of our lifted hotels received active bookings from our platform, underscoring the value added to the hotel partners who distribute through our platform. During this peak travel quarter, our ongoing investments in alternative accommodations continued, as we focused on driving awareness of this fast growing segment with our My Kind of Stay marketing campaign on both social and other high decibel traditional media channels.

Furthermore, we see an opportunity in partnership with state governments and tourism boards to promote local and community based travel. As a first step, we are partnered with state tourism boards of Madhya Pradesh, and Uttarakhand to promote our homestays product to broaden our reach across India. Encouragingly, we have seen very strong bookings and room nights growth from travelers so far, and we will keep investing to drive further adoption by our differentiated product experience for bookers and hosts. As for outbound travel, outgoing hotels, we now offer over 500,000 international properties, of which 13,000 have been directly contracted on our platform.

I am pleased to share that we have witnessed strong room nights and bookings within our hotels business, despite flattish growth in overall outbound traffic from India. In addition, our focus on marketing spend optimizations continue to improve the unit economics of the fast growth segment. Our holidays business had also seen a modest revival of growth during the quarter. This was led by shopper targeting of new and past customers, and better organization of products into relevant themes like pilgrimage, honeymoons, adventure, cruises, and millennial travel. I'm pleased to see revived growth to our legacy packages product, as these products are often the first touch point with future online self-serve bookers.

Now, I would like to share some highlights from our ongoing product enhancements that are helping to deliver a best-in-class customer experience. Within our domestic hotels and alternative accommodations business, we rolled out a new mobile listings page to make it faster and easier for MakeMyTrip shoppers to make the best selection possible. We also went live with a new guided search function, which prompts users with relevant questions to better filter within searches. As for brand Goibibo, we embedded new contextual tags within the funnel to assist shoppers in finding hotels that best suits their needs. As for our alternative accommodations business, we revamped our villas and apartments tab to drive greater visibility and discoverability as a viable alternative to traditional hotels. We also launched a verified stay initiative for alternative accommodations, supported by a money back guarantee to users. As for our international hotels product, we further expanded our relationship with Ctrip to offer our outbound customers an even wider selection of hotel options. In fact, we now have over 250,000 hotels integrated, and plan to meaningfully increase our mix of overseas hotels. Business is strong with Ctrip going forward.

Now I would like to share an update on another key pillar of our growth strategy, which is our superior full sales support. Our ongoing investments in multiple facets of full sales support continued to help us drive leverage as our business scales. For brand MakeMyTrip, our trip assist feature has been scaled up to cater to all domestic flight bookers. The feature can provide timely and relevant notifications to help users reach the proper check-in counter or right luggage belts effortlessly. Trip assist is also able to help customers pre-purchase airport needs before taking their flight. By scaling up our online date change feature to support over 30 airlines, we also managed to reduce call center contacts by international flight bookers meaningfully. We introduced a new live chat feature that directly connects potential customers with alternative accommodations hosts to make the shopping process easier, and provide a way to directly resolve concerns post-booking even faster.

In Q3, or chat bot, GIA, had been enhanced for an even better experience by leveraging the latest advancements in artificial intelligence and the natural language processing. We added more full sales use cases for our international flight products. For example GIA can help answer questions like flight status, terminal information, cancellation and refund queries, much faster and more effortlessly than a human call operator. Lastly, we also expanded GIA's role to help all cap customers with post-sales queries, which is much faster and more convenient than using the call center. Similarly, our Redbus business also integrated a customer support platform with suppliers to directly connect customers and operators for faster resolution of any issues. Furthermore, we improved the content on our apps by adding more relevant details, including nearby landmarks and GPS coordinates to help pinpoint precise bus pickup and drop off locations. Our team also improved the sign-in experience for mobile web users, and offer greater personalization.

Now, I would like to discuss highlights from our flight business, which continued to outpace overall market growth to expand our domestic air market share to about 27% in December. As for our international flights business, I am pleased to share that during Q3, growth continued to be very healthy, even as overall market for outbound flight remain flattish on a year on year basis. Lastly, our bus business continued to grow well, with nearly a 32% increase in tickets sold year over year, driven by the strength of the brand and our continued efforts to enhance users' experience.

Let me now hand it over to Mohit, who will share more financial details of the quarter.

[Mohit Kabra, Group CFO]

Thanks, Rajesh, and hello, everyone. It's important that during Q3, we crossed the $200 million milestone; iimportantly, adjusted revenue. Our adjusted revenue stood at $206.7 million, representing a 13.4% year on year growth in constant currency terms. It would be relevant to call out that our transaction growth was much stronger than the revenue growth. Talking about transactions growth, we saw an overall acceleration on expected lines. This was the result of an overall rebound in domestic volumes growth, facilitated by the restoration of domestic air capacity. Even outbond growth continued to be strong, although it has seen some impact on the deep consumer sentiment that Deep talked about in his part of this call.

Within our air-ticketing business, segments grew 15.3% year on year, up from 13.5% growth in the first half of the current fiscal year. Similarly, a standalone hotel room night grew 21.1% year on year, up from about 13% growth achieved during the first half of this fiscal year. The bus ticketing business continued to grow strongly at 31.6%, and almost in line with the first half of the fiscal year. I'm also pleased to call out that our efforts to drive meaningful customer acquisition and mobile app engagement with a plethora of other travel services has allowed us to grow our integrating transactions by over 150% on a year on year basis, and car bookings by over 147% on a year on year basis.

Let me now share some key financial highlights by business segment, beginning with the air ticketing business. By the domestic air industry, the market grew at about 6% in the reported quarter, compared to about 3% in the first half of this fiscal year. Our domestic ticketing segments growth at nearly 13% far outweighs the markets growth. We continue to gain share in the international air ticketing business as well, with segments growth of nearly 27%, while the market for outbound tickets was roughly flat on a year on year basis. Overall, our air ticketing segment's growth of 15.3% also resulted in adjusted air ticketing revenue growth of 15.3%, and the modest 20 basis points reduction in net revenue margin was offset by better average selling prices as a result of the improving mix of international air tickets.

In the hotels and packages business, we saw an acceleration of overall room nights growth during the quarter. The 20.7% year on year room night growth was partly offset by a drop of 1.2% or 120 basis points in margins, resulting in a district revenue growth 9.8% in constant currency terms. The margin drop in the standalone hotel business was in line with our plan, and was more than offset in gains by reduction of marketing and promotional spend. The key highlights in this segment have been the reacceleration of room night growth to about 19% in domestic hotels, and the continued strong growth at about 48% international hotels.

Lastly, bus ticketing units grew by 32% with nearly 21.3 million bus tickets traveled during the quarter. This business also generated over $20.8 million in registered revenue during the quarter, a growth of over 36% year on year in constant currency terms. During the reported quarter, apart from acceleration in segments and room nights growth, we were also able to significantly reduce our adjusted operating losses, which came in at about $11 million, compared to a loss of $22.2 million during the same quarter of the last fiscal year, and $19.3 million in the previous quarter. The reduction in losses largely came from our continued focus on driving incremental efficiency gains in marketing and sale promotional expense, particularly in the budget segment of hotels.

During the quarter, total marketing and promotional expense as a percentage of gross bookings, is stood at 8.9% of gross bookings compared to 10.4% during the same quarter last year. While building about another 50 basis points of efficiency in our marketing and sales and promotional expense, we have also had our hotel suppliers participate in the improved economics by reducing our variable incentives, as is reflected in the 50 basis points of reduction in our blended adjusted revenue margins, and over 100 basis points of reduction in the margins from our hotels and packages business. As a result, upon adding back depreciation and amortization expenses, our adjusted EBITDA loss is stood at about $6.2 million, compared to about $19 million in the same quarter last year, and $14.5 million dollars in the previous reported quarter.

With this, I'd like to thank all of you for joining, and now open up the call for Q&A. Operator, please?

[Operator]

[Operator Instructions] And our first question comes from Sachin Salgaonkar. You may proceed.

[Sachin Salgaonkar, Bank of America Merrill Lynch]

Yes, congratulations on [indiscernible] numbers. I have three questions. First question is predominantly on the coronavirus and impact. So guys, last few quarters, you guys did not have too much of an impact on air despite Jet Airways being not there, and predominately, that was in the back of international air picking up. Now, given that international air has been impacted from coronavirus, I just wanted to actually understand from you how should we look at the growth going forward. And, Deep, I clearly agree with your opening remarks in terms of you mentioning that there's not much impact domestically from coronavirus. But places like Kerala, which has sort of touristy places, are getting impacted. So I just wanted to understand your thoughts on that. Second question is on competition in the market. There's a lot of press of late, a bit on the negative side associated with the way your rental company laying off people and various other things. So just wanted to actually understand from you how should we look at the competition. And third, again, wanted to revisit your close to a bit of breakeven guidance you guys spoke about at around three, four quarters pack. How far are we away from a bit of breakeven?

[Deep Kalra, Founder, Group Chairman & Group CEO]

Okay, we'll take it in the same order, Sachin. Thanks. So I guess on the coronavirus, what we've been seeing largely right now is impact on outbound. But outbound across the spectrum, actually outbound flights, standalone outbound packages, as well as outbound standalone hotels. And as you would expect, most of it is flying eastwards from India, which is namely into Southeast Asia. And of course, plummeting when we get to China. So both impact actually doesn't impact on-like I called out, the cancellation rate is higher than what typically was as would be expected and the booking rate has also come down. So China, Hong Kong, and Macau are the most kind of hit and impacted. But if we look at even Southeast Asian markets like China - sorry, like Singapore, like Thailand, Malaysia, and even to some degree, Vietnam and Cambodia, which are smaller markets for us, there's definitely been an impact. And it's hard to right now completely assess it. We're obviously measuring it on a real time basis because some parts of this is deferment, some part of this is altogether cancellation. And then again, in cancellation, of course, I think most large hotel chains, large reputed hotels, as well as the airlines wherever there are advisories, they are all understanding that. So there's no dead loss or net loss to customers, but obviously the inconvenience is severe and servicing team is under a lot of pressure, et cetera. However, to your point on Kerala, while there were three suspected cases, of which now two have been actually cleared, we have actually not seen a significant impact there. Now, it's again, hard to say what would have been the exactly right number. Cancellations have been there, a few, but I wouldn't call them material still. So I think Indians are still continuing to travel. In fact, we had some unavoidable trips ourselves, and we noticed airports, full flights, full domestically. Of course, on most business routes, I think there is not much of an impact right now that we are seeing. So again, the situation is fairly fluid. I think it's really hard to say that this is what's going to stay or this is what's going to remain. But as of now, I think domestic is largely insulated, and that was my call that I had made.

[Sachin Salgaonkar, Bank of America Merrill Lynch]

Okay, got it. And in terms of the domestic international mix, any color on that?

[Deep Kalra, Founder, Group Chairman & Group CEO]

Well international, as I guess you're aware, is roughly about 20% of our business, and of that, the impact would be anywhere in the range of high teens going into even mid-20s of that. So right now, we would say middle single-digit kind of impact. But again, very hard to say how much of this actually is a deferment, how much of this is an altogether cancellation. A lot of people, wherever they were leisure trips, have also swapped in. So we've also found quite a few people now looking for alternative destinations, where it was purely a discretionary trip, a holiday, and people looking a lot more keenly at, you know, Central Asia, people looking at now also Eastern Europe, and people looking at Middle East, et cetera. So we are seeing a whole range of kind of people changing destination altogether or booking their travel in advance. So that's as best as an estimate we are able to give at this stage.

[Rajesh Magow, Co-Founder, CEO, India & Director]

Sorry, just to add one more comment on your domestic air market side that you mentioned; yes, that has been under pressure for the last couple of quarters, and we got a lot of support from the outbound [ph] business growth. But what's also true is that the capacity actually has come back in the domestic market. So we are back to the same level of capacity as it was pre-Jet went down. And so there is definitely now hope to see, and we are already seeing some signs of recovery in the domestic air market. And as you know, historically, from the overall category growth, we have always been growing at least the 2X of the category growth. So I think that support will - that's kind of coming back and likely to improve. We will keep watching the space on the international side, as Deep mentioned.

Now, just going to your second question on oil. So from our point of view, oil continues to be the strong partner in the budget segment. And yes, they've been kind of going through somewhat consolidation phase, if I may call that, where because of the feedback that they've been getting from the market, they would probably would have evaluated from their own point on business differently, et cetera. But from our point of view, the supply is rationalization that they have been probably trying to do somewhat, is not necessarily an impact because the sheer size of the supply is good enough. And then there are other alternatives on our platform, as you know, in the budget segment. So I think - and the other aspect of that could be that they from their point of view would also be working on rationalizing sales promotion, which is only better for the overall ecosystem. So from our point of view, no real negative impact of that. It's actually overall for the ecosystem, and it's only positive if there is more focused on quality, et cetera. So that's the way we look at it. I'm going to hand it over to Mohit for the breakeven question.

[Mohit Kabra, Group CFO]

Hi, Sachin. So like we've been saying, considering the seasonality that is involved in the India ecosystem, and also the changing competitive dynamics that we keep seeing, like around oil, you mentioned, and various other players in the past, I have generally been facing that you would want to get into a range of plus or minus $10 million as a EBITDA range. And I think probably this is the quarter where we at least kind of get into that kind of a range of numbers at an EBITDA loss level. So it kind of been in the plus or minus $10 million range. So I think we feel good to be over there. Wherever we can kind of, turn this around into a positive number, I think we kind of remain on the right course. And so long as we remain within this range that we kind of talked about, I think we'd be kind of reasonably fine with that, and would want to then kind of start focusing more and more on, driving growth, not only in the core line of businesses, but also into the limited lines of services that we have launched over the last few quarters.

[Sachin Salgaonkar, Bank of America Merrill Lynch]

Okay. So, Mohit, if I get it right; one should assume a range of minus $10 million to plus $10 million for a long time in the foreseeable future before EBITDA comes positive?

[Mohit Kabra, Group CFO]

For the immediate future, for the next, few quarters at least, that is where we would kind of want to kind of be so that we can kind of consolidate here on, and then I'm sure we'll have opportunities to kind of roll out further guidance in due course of time.

[Sachin Salgaonkar, Bank of America Merrill Lynch]

Okay, got it. Thank you.

[Operator]

[Operator Instructions] And we do not have any further questions in queue. I would now like to turn the call back over to Jonathan Huang.

[Jonathan Huang, VP, IR]

Thank you, Demetrius, and thank you everyone for joining our earnings call today. We look forward to speaking with each and every one of you very soon. Thanks again. Bye-bye.

[Deep Kalra, Founder, Group Chairman & Group CEO]

Thank you, everyone.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.