The three-day initial public offer (IPO) by Easy Trip Planners (ETP), an online travel agency, is slated to open on March 8. The issue has been priced in the band of Rs 186-187 per share and is entirely an offer for sale (OFS). At the upper price band, the total issue size stands at Rs 510 crore.
The company will not receive any proceeds from this offer as the prime purpose of the issue is to enhance visibility, brand, provide liquidity to existing shareholders and achieve benefits of listing shares on exchanges.
Easy Trip has no listed peers in the domestic market, having a similar operating model although it faces competition from private players like Cleartrip, MakeMyTrip and Yatra Online.
The issue that's available at P/E of 49x (annualised basis on FY21E EPS of Rs 3.8) is fairly priced, according to Geojit Financial Services.
Easy Trip is the only profitable company among the key OTAs with a positive return on equity (RoE) and returns on capital employed (RoCE) of 36 per cent and 19 per cent, respectively over FY18-FY20. The company has not used any outside capital infusion to date to finance its working capital requirements and business expansion.
On the back of rapid growth in the travel and tourism sector over FY17-20, ETP has reported a consistent track record of business growth but there is huge volatility in the operating profitability, notes Choice Broking.
During FY17-20 standalone operating revenue increased by 11.1 per cent CAGR. In FY20, the company posted standalone Ebitda loss at Rs 12.58 crore. In two out of four years, the company has reported an Ebitda loss.
The company's profit grew from Rs 7 crore in FY18 to Rs 35 crore in FY20, driven by recurring other income, mainly comprising of claims written back recovered during the period. The revenue grew at a CAGR of 19 per cent over FY18 to FY20. In FY20, the revenue stood at Rs 141 crore but slipped to Rs 49 crore for the 9MFY21. However, analysts expect it to revive back to pre-Covid levels.
"Rising digitalisation, adoption of latest technology and implementation of cost reduction initiatives will aid better margins going ahead," said Geojit Financial.
The company has been providing customers with the option of a no-convenience fee, such that customers are not required to pay any service fee in instances where there are no alternate discount or promotion coupon being availed. This has helped ETP record a repeat transaction rate of 85.7 per cent in FY20, which depicts customer stickiness to use their services again and again, said Geojit Financial.
Besides, the company has developed a streamlined, efficient and lean organisation structure relative to the size of its business that has helped drive profitability in the past few years, said Devang Bhatt, research analyst at ICICI Securities.
The company had the lowest number of employees among key OTAs as of March 31, 2020.
In order to tap into the online penetration of hotels, which is expected to grow from 21-26 per cent in FY20 to 29-31 per cent in FY23E, ETP intends to focus on direct tie-ups with hotels, hotel suppliers and expand its presence outside India. The margin in the hotel business is higher compared to airline ticketing. Currently, hotels and holiday packages make 5 per cent of Easy Trip's revenues while airline tickets contribute 94 per cent.
Further, it also aims to utilise the services of traditional travel agents to tap corporates and Tier II and Tier III cities.
Analysts see Covid-19 related air travel restrictions, subdued macro-economic environment and intense competition in the online travel segment as some of the key risks.
Should you subscribe?
Taking cognisance of the huge growth opportunities for EaseMyTrip and a lean cost of operations that would aid the flow of profitability to the bottom line, we recommend Subscribe rating to the issue.
With no listed peers and as the travel business is expected to pick up its charm going forward, we assign a Subscribe rating for the issue on a long-term basis considering the wide distribution network, rising digitalization, negligible debt and asset-light business model of the company.
We like the strong fundamentals as it being the only profitable OTA with the highest CAGR growth because of lean and cost-efficient operations. Also with the ongoing vaccination drive, we believe that in the coming months the airline industry will be back to normalcy and volume will surge which largely benefits the company. We recommend investor to subscribe to the issue for the short and long-term.
Even though Easy Trip's financial performance on the operating level is inconsistent, considering its market positioning among the key OTAs, we feel the company has advantages like a scalable business model, business growth in excess of the sector, cash generation ability etc. Thus, we assign a Subscribe rating.