MakeMyTrip Ltd

NASDAQ:MMYT

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the MakeMyTrip Q1 Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. [Operator Instructions]

I would now like to hand the call over to Jonathan Huang, Vice President, Investor Relations. Please go ahead.

[Jonathan Huang, Vice President, Investor Relations]

Thank you, and welcome, everyone, to MakeMyTrip Limited fiscal 2021 first quarter earnings call. I would like to remind everyone that certain statements made on today's call are 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 future performance, are subject to inherent uncertainties and actual results may differ materially.

Any forward-looking information relayed on this call 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 Statement section of the company's Annual Report on Form 20-F filed with the SEC on August 17, 2020. Copies of these filings are available from the SEC or from the company's Investor Relations department.

I’m joined today by Deep Kalra, MakeMyTrip’s Founder and Group Executive Chairman; Rajesh Magow, Co-Founder and Group CEO; and Mohit Kabra, our Group CFO.

Now, let me turn the call over to Deep to begin today's discussion.

[Deep Kalra, Founder & Group Executive Chairman]

Thank you, John. Welcome all. I hope everyone listening is staying safe and healthy during the ongoing global pandemic. Today, I'd like to share some of the actions we continue to take during these difficult times to ensure we remain in a position of strength to weather through this storm and begin our journey of recovery with a better financial trajectory than in recent past.

Since our last earnings call, we have begun to see some early signs of recovery within our domestic travel business. As a reminder, while domestic flights in India were allowed to resume from May 25th, albeit to a certain amount, most other travel services was significantly impacted throughout the reported quarter. As a result, our fiscal first quarter's performance reflected the bulk of the impact that the lockdown had on our business.

During the quarter, we took painful, but necessary fixed cost reductions and fully flexed our variable costs to ensure we have ample liquidity to reemerge stronger competitively. In addition, we have secured additional financings, which Mohit will discuss later to further bolster our balance sheet. We've also maintained strong cost discipline to manage our quarterly cash flow usage going forward.

These actions will allow us to manage our quarterly cash burn despite a material hit to our top line numbers. Lastly, we continue to invest in our technology platform for the long-term to ensure we have the opportunity to serve customers' needs via online channels even better going forward and achieve operational cost efficiencies through greater automation.

Recent developments of travel opening up gradually makes us believe that the worst of the pandemic impact might be behind us, and it should hopefully only continue to recover more gradually thereafter.

Domestic air, all other modes of ground transport, that is bus, rail and cabs, have resumed operations in late May with some restrictions, which are slowly being eased out ever since the first opening.

Domestic airlines today are allowed to fly up to capacity of 45%, for domestic flights. Similarly, intrastate and interstate bus and car travel, has been opened up in many states. Indian Railways has been running a couple of 100 special trains, and are likely to open up more soon.

Domestic hotels, on the other hand were also allowed to begin taking non-essential bookings in early June, but many states had initially imposed opening restrictions to control, the rate of infection. Since then, most states have lifted their restrictions to allow hotels to fully reopen or with limited capacity and with adherence to local health and safety guidelines.

In fact, the state of Delhi, just gave the go-ahead to reopen hotels, two days ago, last Wednesday. We are also encouraged to see international air travel restrictions, being lifted by the government, in mid-July, with the creation of country-specific travel bubbles.

Today, commercial flights between, India and the U.S., Germany, France, Canada, U.K., Qatar, the UAE and Maldives are allowed with certain category of visas, and subject to certain conditions, imposed by the respective governments.

There are also negotiations for 13 more air travel bubbles, currently underway with Australia and New Zealand, Japan, Italy, Nigeria, Bahrain, Israel, Kenya, Philippines, Russia, Singapore, South Korea and Thailand, which will only aid in the further recovery of cross-border travel over time.

Post lockdown, I'm encouraged by the level of customer activity, and the interest for travel seen on our platform so far. We've seen demand from certain travel segments like small businesses, from younger couples seeking getaways. And discretionary leisure travel to nearby places, after a prolonged lockdown.

Not surprisingly, we have also seen non-metro markets recovering faster, whereas COVID-19 is less widespread, than top metro locations. As a result, our marketing team has begun implementing a highly targeted marketing plan, to begin reaching out to customers.

As shared on our last earnings call, we've greatly leveraged social media to address customer concerns, as well as to keep customers highly engaged and inspired for future travel. To help customers feel safe, when travelling post lockdown, we had announced our safety and hygiene certification initiatives called My Safety and Go Safe, respectively, on our last earnings call.

We are currently showing self certification program from the hotel-backed, hotel photos, videos and user-generated content, which is showing good traction on the platforms. Around 5,500 hotels are live, with self certification and customers are showing clear preference for hotels, with higher level of safety.

We are also highlighting, the hygiene programs and practices, for the premium chains. We are further strengthening this program, for our hotel partners with a third-party check to verify the prescribed list of hygiene and safety protocols, in partnership with, Deloitte.

Our independent hotel partners have shown key interest to participate in this program, with 2,000 hotels, signed up for this already. During the quarter, we have increased efforts on revamping our loyalty programs, on both brands and expect to reintroduce them in the final -- second -- the fiscal -- sorry, in the fiscal second quarter.

We've also extended the membership expiration dates, for the MakeMyTrip Black program to the end of July, reflecting the time value lost, due to the lockdown. In addition, our marketing team has been leveraging key insights, on travel patterns, post lockdown, to help with cross and up selling communications.

We believe, these marketing efforts will allow us to drive reengagement with our loyal customers' base, to aid in our recovery, while maintaining a disciplined approach to marketing and customer acquisition spends.

We're also encouraged by the ongoing positive development on the vaccines and effective treatments front globally as well as the relatively low mortality and higher recovery rate in India compared to the rest of the world, despite rising infection rates. We believe positive developments on vaccines would be the ultimate key to instilling confidence in carefree leisure travel and providing increasing tailwinds for our business recovery going forward.

During this time of great uncertainty, I'm also happy to share that our team has continued to maintain very high morale and engagement, even as we continue to operate partially remotely today to ensure the health and safety of our colleagues. What's more encouraging is that productivity remains high, and our team has not lost sight of the longer-term vision of the company.

I want to take this opportunity to thank every one of our colleagues for their patience, dedication and commitment to our mission, despite having to suffer many inconveniences and take short-term sacrifices to ensure we have a strong balance sheet to allow us to reemerge stronger than before.

Lastly, I want to remind everyone that India's travel market still offers many compelling growth segments, which are largely booked offline. According to a recent research report from Goldman Sachs, India's online travel market is expected to grow at a CAGR of 14% to reach $31 billion in bookings by fiscal-year 2025.

Online hotels growth is expected to reach 20% per year, given its relatively low penetration. Furthermore, growth in online air and bus is forecasted to reach mid-teens per year. With a continuously rising number of internet users, plus the drive towards contactless travel engagement forced by this pandemic, we believe online booking adoption should accelerate even faster going forward.

As a company, we will continue to prudently invest for the long term to make sure our brand, technology and service platforms are ready to scale and support the innovative rebound in demand. We firmly believe our renowned level of service and customer trust within the industry will allow us to rebound quicker, gain further market share and strengthen our market leadership position.

Now I'd like to turn the call over to Rajesh to share more detail on what we are seeing in the early days of recovery in travel as well as more color on actions we've been taking to manage through this crisis as a company.

[Rajesh Magow, Co-Founder & Group Chief Executive Officer]

Thank you, Deep. Hello, everyone. I sincerely hope you are all staying healthy and well during this pandemic. I would like to start by sharing a quick overview of the first fiscal quarter of 2021, which reflected the bulk of the impact that the nationwide COVID-19 lockdown had on travel and our business specifically.

As we had shared on the last earnings call with the lockdown spanning all of April and most of May, our business only really resumed, albeit in a very restricted manner for the month of June.

While various segments of travel had resumed in late May and early June, the travel industry was still met with a myriad of capacity limitations and travel restrictions imposed on a state-by-state level, making the resumption of travel initially challenging.

As a result, while the top line was impacted, we were able to control our operating cash burn with our timely and aggressive efforts to manage the costs. The good news, however, is that we do not anticipate another prolonged and nationwide lockdown, and expect the business to continue on its path of gradual recovery, with volumes improving quarterly as demand improves.

Now I would like to share color on trends. We have been seeing within each of our main lines of business. I will then share some details of the various technology projects, accomplished during the quarter, which are aimed at helping us reduce fixed costs going forward.

In our domestic hotels business, more than a quarter of the 77,000 total available properties on our platform are now currently open to take bookings. While domestic hotel bookings were allowed in early June, the low availability is tied to the fact that local, regional and state-wide lockdowns were implemented, making it hard of hoteliers to smoothly ramp up their operations and hampering travel demand.

As such, many of the open properties were initially running at a very low occupancy rates and were primarily taking bookings related to COVID-19 needs for quarantine or medical staff needs. Since then, as Deep said, most states have removed such restrictions. As a result, we are hopeful of more supply opening up in the near future. We have also started to see demand coming back for certain travel use cases.

For example, we've recently seen demand for Weekend Getaways at premium hotels, resort style properties and premium villas, many of which are within driving distances of metro locations. While our aggregate room night stayed in June were single-digit percent of pre-COVID levels, as shared on our last earnings call, we have since seen month-on-month room nights growth in July with the momentum that continued into August month-to-date.

Furthermore, most of the bookings taking place today are booked with a very narrow advanced purchase window with bookers continuing to embrace our free cancellation and Book Now, Pay Later option.

As for our outbound hotels business, we are also encouraged to see a recent pickup in bookings in places like Dubai and Abu Dhabi as international flights gradually resume for certain visa holders and entry restrictions are relaxed. From a supply standpoint, we continue to work very closely with partners on our network as they gradually reopen their hotels and seek to drive new bookings.

Next, I would like to share some color on our domestic air ticketing business, since air travel was allowed in late May. In June, the industry operated at roughly a quarter of pre-COVID seat capacity, with roughly 16% of pre-COVID total passengers flying, indicating that load factors were relatively low.

That said it has seen improving trends continuing into the current quarter. In addition, the July data also suggests that there had been a material acceleration towards online bookings as the recovery began, as online ticket sales gained 10 percentage points of share since February, and as a result, we continue to gain share in this business.

Furthermore, with the establishment of air bubbles, international flights have also finally resumed in mid-July as well. In fact, most Indian carriers have opened up their international routes to the UAE region, along with resumption of service by regional international carriers inbound into India, other carriers for long-haul travel to and from North America and Europe have also resumed operations.

During the quarter, our team has stayed focused on meeting the immediate need of the customers in the highly dynamic environment of frequent changes in travel guidelines. We have implemented simplified yet comprehensive step-by-step instructions on how to navigate the multitude or travel requirements now in place post-lockdown. This includes real-time updated content on state and country level travel guidelines, simplified options for mandatory web check-ins and baggage restrictions etcetera.

Now moving on to our bus business. During the quarter, the business was also affected by the prolonged lockdown to help customers avoid booking and canceling their travel plans due to uncertainty of when restrictions will be lifted. We launched a feature to allow bookers to register their desired bus route. Once travel was allowed, our systems proactively informed those who registered that bookings can safely take place.

During the lockdown period, we have also improved redBus self-serve customer support platform by introducing Hindi and Tamil in addition to English to better serve this segment's user base. Today, we are seeing early signs of recovery in the business, as about 1/4 of bus suppliers and their services are now back online.

In June, we had seen roughly mid-single-digit recovery in daily seats sold as compared to February of this year, however, starting in August, we have seen daily seats sold continue to trend higher, reaching nearly 10% of pre-COVID levels during the second full week of August, driven by demand for festival travel and a gradual increase in migration from smaller towns into bigger metro locations.

In addition, as India exits the lockdown, we have seen many consumers preferring to use intercity cabs as they feel that this mode of travel is relatively safe. Customers are hailing cabs for essential one-way trips, as well as road trip holidays. In fact, we have been witnessing very strong demand in current quarter when compared to the reported first quarter as bookings for intercity cabs have grown 3x month-on-month.

I would also like to share some color on our corporate business, which is seeing some green shoots of recovery from small business travelers. In fact, we have seen a material month-on-month improvement from June into July from our myBiz brand, though total booking level remain less than 10% of pre-COVID levels. With small business travel leading the recovery in travel, we anticipate that our myBiz should be well positioned to continue to capture new accounts going forward.

Furthermore, we have now begun offering chartered flights to our corporate clients. We have seen strong flow of queries for chartered flights, once we made it available and have already sold a handful of dedicated flights to our corporate lines. During Q1, we also did a soft launch of MakeMyTrip brand in the GCC market, we are currently live in the UAE with relevant tour offerings across our mobile and online channels.

While travel has been impacted by COVID-19 in the region, we are encouraged to see some green shoots of growth with hotel staycations as a travel preference. Going forward, as travel restrictions further relax, we do anticipate increases in cross-border leisure travel to short-haul destinations and have already begun to position our offerings to capture this demand. Our team has also started building support for the Arabic language to cater to local demands and to help support our expansion efforts further in the region into Saudi Arabia.

Lastly, during the lockdown, we continue to invest behind our tech platforms, aimed at continuous improvement in end-to-end user journey, across all brands and all platforms. We've also invested in automation to drive greater cost efficiencies. These projects should allow our business to return to scale without having to significantly ramp-up our costs and further drive digital adoption in travel. Some of these projects would also allow more seamless integration of our call center operations, help reduce platform development and rollout time, making us more nimble and cost-efficient for changes and updates going forward.

As you can see, we have continued to make the right investments for our brands and our platform with a continued focus on making customers lives easier when booking with us. We believe with these investments, our focus on continuous improvement in customer experience, our three strong brands and our cash resources, including the latest financing arrangement would strengthen our competitive positioning, exiting the lockdown. At the same time, we have restructured our costs such that we will be able to continue on our desired path of achieving operating breakeven.

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

[Mohit Kabra, Group Chief Financial Officer]

Thanks, Rajesh, and hello, everyone. I hope everyone is doing well and staying healthy. As Deep and Rajesh have both already provided a quick overview of how our first fiscal quarter transpired, I would like to share more details on cost optimization initiatives and steps being taken to ensure that we have sufficient liquidity to see us emerge stronger through this pandemic. As we begin this new fiscal year 2021, I would like to call out some changes in our segment reporting metrics or key performance indicators.

The key travel services that the company offers booking of air tickets, hotels and packages and bus tickets. Income from the sale of airline tickets, hotel room nights and bus tickets is recognized as an agent on a net commission basis as the company does not assume any performance obligation relating to the service.

In our packages business, the company acts as a primary obligor for such packages since the group controls these services before such services are transferred to the traveler and accordingly, the revenue for the packages business is accounted for on a gross basis.

As you can see, certain parts of our revenue are recognized on a net basis and other parts of our revenue are recognized on a gross basis, therefore, to better reflect the value addition of the travel services we provide to our customers, we have historically evaluated our financial performance in each of our reportable segments based on adjusted revenue or what we used to call revenue-less service cost until fiscal year 2018.

With a view to providing a more accurate representation of the margins achieved in each of our segment from our suppliers, this segment profitability measure will now be called adjusted margin. To reiterate, there is no change in the way the metric is calculated. And this change is only to reflect in a better way, the way we view our top-line.

As mentioned earlier, our focus during the reported quarter was to optimize costs with a view to minimize losses, and I am pleased to share that our adjusted operating losses at $21.3 million were quite low compared to the same quarter last year's loss of $29.3 million. Adding back for non-cash expenses like depreciation and amortization, the adjusted cash loss for the quarter stood at about $16.3 million compared to $24.7 million in the same quarter last year.

To begin with initiatives on the variable costs, which largely include marketing and sales promotion expenses, along with payment gateway costs, these were significantly pruned down to about 3.2% of gross bookings compared to being at 8.1% of gross bookings in the previous quarter and 10.5% of gross bookings in the same quarter last year. This is a reflection of us fully flexing down our variable costs of marketing and sales promotions during the quarter, as we remained under nationwide lockdown.

As we had shared on our last earnings call in late June, we have also taken cost actions on our fixed costs, which include company-wide salary reductions and headcount rightsizing in some of the offline channels. These actions taken early on during the fiscal quarter enabled us to reduce our absolute personnel expense by almost $6 million compared to the previous quarter.

As we had indicated earlier, we have begun restoring the salary reductions of the frontline staff and are planning to restore the reductions for the middle management staff starting in September, in line with our plans to do so, once the business gradually starts resuming and its momentum is assured.

While the restorations will increase our quarterly personnel expense from fiscal quarter one levels, we do anticipate some savings over fiscal-year 2020 Q4 levels as we have rightsized the headcount in a few offline channels.

We have also significantly reduced our selling, general and administrative expenses by nearly $17 million on a quarter-on-quarter basis. We have achieved much of this reduction by optimizing very significantly on the outsourced call center staff at the start of the nationwide lockdown.

We anticipate that as the business scales up, there will be some increases in the outsourced call center spend. However, the technology and automation initiatives, as highlighted by Rajesh, will help us yield longer-term cost efficiencies in this area going forward as well. We also achieved savings in our technology-related expense, including site hosting charges. We've also been able to further reduce our fixed cost by shutting down our company retail office expenses and move them over to franchisee networks.

We have also adopted work-from-home or remote working as a longer-term measure. So that a certain percentage of our workforce can work on a remote basis and accordingly have initiated steps to reduce the overall size of our office facilities, particularly in Gurgaon.

Lastly, with focused cash management, despite the cash burn during the quarter, we have been able to improve our cash and cash equivalents, which stood at approximately $174 million as at the end of June compared to nearly $168 million as at the end of March '20. Factoring in the restructured costs that I've just talked about, our current cash position gives us ample runaway for at least six to eight quarters based on the reported quarter's run rate.

We have also been working towards establishing additional lines of credit. Considering that we have zero debt, we believe it is prudent in current times to have additional facilities to dip into, particularly to capitalize on any growth opportunities that might come our way and to emerge stronger, post the current crisis.

With this view, we have secured multiple credit and guarantee facilities to the tune of approximately $100 million, this includes a revolving credit facility from an affiliate of our largest shareholder to the tune of $70 million. These facilities are over and above our cash and cash equivalents of $174 million as at the end of June 2020. I'd also like to reiterate that we do not anticipate any need to utilize any of these credit facilities at this stage, and this is to substantially enhance our liquidity profile for any unforeseen contingencies or investment in potential opportunities.

With that, I'd like to turn the call over to the operator for Q&A.

[Jonathan Huang, Vice President, Investor Relations]

Thank you, everyone, for joining our Fiscal 2021 First Quarter Earnings Call. We feel -- we look forward to speak with you very soon. And have a nice day.

[Operator]

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