RateGain Travel Technologies IPO: Brokerages recommend to 'Subscribe'

The IPO will be open for subscription from December 07 to December 09, in the price band of Rs 405 to Rs 425

RateGain Travel Technologies Limited is among the leading distribution technology companies globally and is the largest Software as a Service (SaaS) company in the hospitality and travel industry in India. They offer travel and hospitality solutions across a wide spectrum of verticals including hotels, airlines, online travel agents, meta-search companies, vacation rentals etc.

The company plans to raise up to Rs 1,336 crore by way of fresh issue of shares worth Rs 375 crore and offer for sale of 2.26 crore shares.

The issue has opened for subscription today (December 07) and closes on December 09. The price band for the IPO is Rs 405 to Rs 425.

Here’s what the brokerages have to say about the RateGain public issue:

Prabhudas Lilladher

Rating: Subscribe

Positives:

• Comprehensive, inter-operable, innovative industry specific solutions
• Globally diverse, marquee, long-standing clientele
• Strong operational performance and successful track-record of M&A

Concerns:

• Revenue dependent on hospitality and travel industry
• High revenue concentration from top clients
• The company has contingent liabilities that have not been provided in financial statements

The price band of Rs 405 – Rs 425 implies P/S of 18x on FY21 sales of Rs 2.5 billion. Global vertical SaaS peers are trading at P/S of around 14x FY21 sales. The brokerage firm believes that the premium valuations are justified and recommend a ‘SUBSCRIBE’ rating.

Religare Broking

Rating: Not Rated

Positives:

• Third party travel and hospitality technology is estimated to grow at a 18% CAGR to $11.5 bn by 2025
• To benefit from industry tailwinds given its niche presence in the segment
• Long standing relationship with global and diverse customer base

Concerns:

• Has posted net losses for the last two years
• Revenue has been impacted due to travel related restrictions

The brokerage firm, says investors can consider investing for long-term growth perspective.

Aditya Birla Capital

Rating: Subscribe

Positives:

• One of the largest aggregators of travel related data in the world
• Company has 1,462 customers, including 8 Fortune-500 companies
• 7 of its top 10 customers have been associated for over 10 years
• Has delivered 90 per cent Gross Revenue Retention (GRR) since FY19

Concerns:

• Growth could be stiffed if there are subsequent Covid-19 waves
• Inability to integrate and drive synergies from acquisitions

At the issue price, RateGain will trade at 18.1x FY21 P/S, indicating a valuation broadly in line with global SaaS companies with similar growth prospects. The brokerage firm recommends to ‘SUBSCRIBE’ for the IPO for long-term gains.

Arihant Capital

Rating: Subscribe

Positives:

• Diverse and expanding customer base with long standing relationships
• Solutions offered by company are industry specific with growth and monetization capabilities
• Innovative products have helped companies maximize revenue while saving costs
• Has a track record of successful inorganic growth

Conerns:

• Reliability on third-party data centres and cloud computing providers
• Inability to modify pricing models
• History of net losses, and anticipates increase in expenses in the future

At the upper end of the IPO, the company is valued at a P/BV multiple of 16x based off it’s FY21 NAV per share of Rs 26. The brokerage recommends a ‘SUBSCRIBE’ rating for aggressive investors looking for listing gains.

Axis Capital

Rating: Subscribe

Positives:

• Covid has accelerated digitalization of customer interactions with hospitality and travel companies
• Marquee global customers with long-term relationships
• Innovative AI driven industry relevant SaaS solutions
• Track record of successful acceleration post acquistions

Concerns:

• Unable to predict acquisition patterns due to demand volatility
• Inability to drive customer delight to increase retention
• No inter-operability increases acquisition costs

The brokerage firm on the basis of the high growth potential for the industry, unique business propositions with minimal competition and valuation comfort recommends to ‘SUBSCRIBE’ with a long-term perspective.

Choice

Rating: Subscribe with Caution

Positives:

• Marquee global customers with long standing relationships
• Innovative AI driven SaaS solutions
• Diverse and comprehensive portfolio of revenue maximization and business critical solutions
• Track record of successful acceleration post acquisitions
• Global and diverse management team with relevant technology and domain expertise

Concerns:

• Ongoing pandemic impacting worldwide hospitality and travel industry
• Emergence of new Covid variant Omicron can further impact business prospect
• Lower margin profile
• Uncertainty over business growth

The brokerage firm recommends a ‘SUBSCRIBE WITH CAUTION’ rating for the IPO.