MakeMyTrip Ltd

NASDAQ:MMYT

Earnings Call Transcript 2024-Q1

[Vipul Garg, Vice President-Investor Relations]

Hello everyone. I'm Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited and welcome to our fiscal 2024 First Quarter earnings webinar. Today's event will be hosted by company's leadership team comprising of 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 may be considered forward-looking statements within the meaning of safe harbor provision of the US 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 during this event speaks only as of this date and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, 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 25th July 2023. Copies of these filings are available from the SEC or from the company's Investor Relations department.

I would like to now turn over the call to Rajesh. Over to you Rajesh.

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

Thank you, Vipul. Welcome everyone to our first quarter call of fiscal 2024. We have started this financial year on a strong footing, as evident from our Q1 results. Travel demand was robust in the leisure-heavy seasonal quarter despite high fares due to short-term supply side challenges in the aviation market. We witnessed strong traction in leisure travel during the quarter, aided by seasonality, coinciding with summer holidays, while business travel continued its recovery trajectory. All segments have now grown beyond pre-pandemic levels, as a result of which we have posted our strongest ever quarter, both in terms of gross bookings and profitability.

Gross bookings for the quarter reached an all-time high mark of approximately $2 billion, growing at a faster pace than market growth rate. Our adjusted profit, operating profit or adjusted EBIT of $30.1 million and GAAP profit after tax of $18.6 million were also record milestones for us. India is still an underpenetrated travel market and is well poised for long-term growth.

Despite the challenges posed by the pandemic, the sector has demonstrated remarkable resilience and adaptability. Other macro factors in India like strong GDP growth, growing earnings in the hands of middle class population, increasing propensity to travel and improving transport infrastructure and last mile connectivity will help fuel travel sector growth in India. Consumer preferences are evolving and experiencing travel is now increasingly emerging as one of the preferred areas to spend from the growing disposable income in the hands of consumers.

As a result, both domestic tourism and international outbound travel are expected to grow at a faster pace in the next 10 years compared to the last 10 years prior to the pandemic. Infrastructure investments are adding domestic tourism growth, while the aspirational Indians are looking to travel to various international destinations. As per the IPK World Travel Monitor, India generated Asia's highest outbound travel volume for the first time in 2022, exceeding those of China, South Korea and Japan, partially aided by lagged recovery of outbound travel in China. All major Indian airlines have placed record number of orders for new planes to cater to this demand. Similarly, all hotel chains have announced expansion plans, that's increasing the supply over time.

We continue to stay excited about the future opportunity and geared up fully with focus on leveraging new technologies to provide more convenient and personalized experiences for travel planning and booking. Our depth of travel-related offerings, quality customer experience powered by robust tech and product innovations, along with strong brand strength are helping us cater to the evolving consumer preferences and stay ahead of the market.

As for business segments now, starting with air business, we witnessed strong growth in air ticketing driven by leisure travel during this high season quarter and continue to record 30% plus share in the domestic flown passenger market. Domestic supply was affected during the quarter due to go-first issue leading to higher airfares. The supply gap was partially offset on account of higher load factors and additional supply deployed by other airlines.

With the DGC approval granted to go-first for the resumption plan and additional aircraft expected to arrive for other airlines, we hope to see supply situation improving in the coming quarters

Seasonal demand also helped our outbound travel segment finally recovered to pre-pandemic levels after almost three years. While long-haul destinations still haven't recovered fully due to supply constraints and visa-related issues. Short-haul international travel has surpassed the pre-pandemic levels. We expect the overall international air ticketing segment to keep growing as the supply situation eases further.

We continue to innovate our product to cater to a larger variety of use cases. During the quarter we launched an inspirational travel discovery product called Incredible India At Incredible Prices, which offers results to leisure travelers about the most economical airfare to multiple destinations in India from their chosen origin destination.

The early results are encouraging as we have observed a significant increase in searches for leisure destinations on the Incredible India funnel. During the quarter, we also launched an industry-first student festival for international flights in June offering special relevant benefits to students traveling to international destinations for their college studies coinciding with commencement of academic session during the period. This was highly appreciated and helped us increase our student-led contribution to overall business.

Our accommodation business, which includes hotels, home stays and packages witnessed strong growth this quarter aided by robust demand in both leisure and corporate travel. We continue to focus on supply expansion and improve discovery.

As a result during this quarter, we sold 56,000-plus unique properties in more than 1,700 cities, which is the widest spread achieved in the business. This supply expansion with improved personalization in search results has helped us in improving online buying behavior in an underpenetrated category.

While our gross booking value cross pre-pandemic levels a few quarters back. During this quarter room nights have also recovered to pre-pandemic levels. We've also seen good momentum in our international hotel business in line with the recovery in outbound travel.

Many countries like UAE, Indonesia, Vietnam, Maldives have already surpassed pre-pandemic volumes. We introduced a few industry-leading features in hotels to continue our journey of ensuring delightful and high-quality experience for the end consumer.

Book with zero payment was launched last quarter, which received a fantastic response from our users with no upfront payments required, customers can now confidently plan their trips in advance benefiting from exclusive deals and avoiding price fluctuations. This innovative feature has particularly helped to improve adoption rates in Tier 2 and Tier 3 cities.

We continue to scale our homestays business with increasing coverage of leisure destinations. Learning from consumers insights we have enhanced our offerings for consumers to get final details around meal options such as availability of chef at the property, meal options, kids meals, extended cooking kitchen amenities at one place before booking. This is helping us to specifically target mid to meal premium segment of stays.

Our packages business witnessed strong growth this quarter. We successfully conducted three campaigns during the quarter and thus helping us scale the business significantly. We have partnered with Europamundo, a leading global player in tourism and travel industry for bringing the latest international holiday packages to India online.

With this partnership over 600 new itineraries will be added to MakeMyTrip's existing catalog of nearly 5,000 holiday package options. The partnership further strengthens our portfolio and bolsters our capability to unlock global destinations and new combinations to cater to every traveler's preference.

Our bus ticketing business continues to deliver strong results. Q1 saw a significant addition of supply across the country. Our daily life schedules or supply for private bus operators has increased significantly owing to high occupancy across most regions. During April and May, we expect fleet additions to be strong in the second half of the year.

Our other ground transfer services such as intercity cabs, rail tickets, et cetera continue to scale well. This segment is helping us acquire new users for the platform. We are gaining market share in the rail ticketing business, organic downloads for standalone redRail app with an app rating at 4.5 continues to be high on both iOS and Android.

Now a quick update on myPartner and Corporate Travel business. Our myPartner B2B2C platform where we offer both flight and accommodation booking is gaining positive traction from our partners. Our travel partner count is now 38,000-plus and expanding every quarter. We recently launched myPartner in GCC. And we already have more than 1000 partners live on the platform.

Our Corporate Travel business is scaling up. Our active customer count on myBiz is now 49,000-plus. And for Q2T active customer count has reached 271 with strong addition every quarter.

We continue to add more capabilities on our both myBiz and Q2T platforms. We completed automated integration to multiple HRMS and Expense Management platforms, thus reducing onboarding time for corporates and simplifying overall travel and expense management for employees.

Our OTA business in GCC is growing steadily. Gross booking value doubled over the same quarter last year. Strong momentum in the last quarter was driven by significant progress in building key product features, supply richness and building new growth avenues.

Along with revenue growth we have been working on improving efficiency in acquisition and pricing management, driving significant improvement in unit economics, while overall contribution of GCC remains small, but showing good traction organically.

With this, let me now hand over the call to Mohit, for financial highlights of the quarter.

[Mohit Kabra, Group Chief Financial Officer]

Thanks, Rajesh and hello everyone. The strong business performance in the first quarter of the new fiscal year 2024 indicates, that the pandemic is now well and truly behind us. Albeit, we continue to leverage the cost rationalization initiatives we had rolled out during the pandemic-impacted period.

During this period, taking a longer-term view we have also invested behind three or four key strategies or areas which are as follows. Firstly, technology upgrades on the supply side to drive synergies across brands, while enhancing the stability and scalability of the underlying platforms.

On the customer-facing side made significant enhancements to deliver highly personalized customer experience, driven by Data Science and machine learning abilities and on the Tech back-end and providing online resolution for a wider variety of post sales service requirements.

Secondly, increase the travel and travel-related service offerings on our platforms, to be the One Stop shop or Travel Super-App for Indians to explore book and manage all their travel needs.

Thirdly, supply side expansion, particularly the Accommodation space which involved getting more and more hotels and alternative accommodations, across price points and across the lengthen breadth of the country, so that our customers can have more options to choose from.

Lastly, a sharper targeting of various customer segments by leveraging new generative Artificial Intelligence tools and scaling up new demand segments by our curated platforms to target after bookings as well as increase our outreach particularly beyond the Tier 1 cities through offline agents and other online affiliates.

As a result of the above, the business is well positioned to leverage demand recovery and outpace market growth, while improving profitability. We are therefore pleased, to report a strong quarter as we begin the new fiscal year 2024, both in terms of business growth and profitability.

While there were certain supply side hiccups during the quarter, demand for travel continues to be robust backed by seasonality and positive consumer sentiment. We have witnessed strong year-on-year growth across all segments, which has helped us achieve milestone numbers in terms of gross bookings as well as profitability and this has turned out to be one of our best quarters till date.

During the reported first quarter gross bookings came in at approximately $2 billion or $1987 million to be precise, witnessing a growth of over 31.4% year-on-year in constant currency terms.

We delivered, GAAP EBITDA of $25.9 million for the quarter witnessing a growth of around 31.7% year-on-year. EBITDA margin was at 13.2% for the quarter which is an expansion of about 530 basis points, as compared to the same quarter last year.

Adjusted operating profit or adjusted EBIT stands at about $30.1 million, as compared to $16.5 million during the same quarter last year an improvement of almost 83% year-on-year. As already called out by Rajesh, these are our highest ever quarterly numbers during the business.

While a sharper focus on profitable growth, we are glad to achieve our medium-term margin targets ahead of our expectations on the back of strong business growth and our continued focus on cost efficiencies.

Our air ticketing gross bookings for the quarter stood at $1.2 billion witnessing a growth of 30.9% year-on-year on a constant currency basis. Adjusted margin stood at about $74.5 million registering a strong growth of 30.4% year-on-year on a constant currency basis. Take rates for margins for the quarter stood at about 6.1%. This was lower optically due to the higher ASPs on account of Q1 being a seasonally strong quarter and contraction in margins in line with the supply constraints as a result of the shutdown of operations by one of the low-cost airlines in the country.

Gross bookings for the quarter in the hotels and packages segment stood at about $498 million witnessing a strong growth of 36.5% year-on-year on constant currency basis in line with the demand trends. Adjusted margin for H&P business stood at $85.6 million during the quarter, witnessing a growth of over 36% year-on-year in constant currency terms. Margins for the quarter were 17.2%, an expansion of almost 90 bps over the previous quarter.

In our bus ticketing business, gross bookings for the quarter were at $276.8 million growing at 24.7% year-on-year on a constant currency basis. Adjusted margin stood at about $27.3 million registering a strong growth of over 39.7% in constant currency terms. Margins in our bus ticketing business stood at about 9.9% for the quarter. We continue to be prudent and efficient with our expenses specifically our customer regulation costs as reflected under the marketing and sales promotions.

During the reported quarter, we went live with our brand campaign to drive top-of-mind recall and accelerate call to action in a seasonally strong quarter. Overall marketing and sales promotion costs for the quarter including the brand campaign came in at about 4.6% of gross bookings as compared to 5.1% in the same quarter last year and 5% during the previous quarter. Most of the other operating expenses continue to be in line with the previous quarters.

As at the end of this quarter, our cash and cash equivalents stand at about $522 million. Potential deployment of the free cash in the future could be in pursuit of growth opportunities or towards capital restructuring via share repurchases. During the last quarter, we had also notified that we have widened our share repurchase plan to include repurchase of convertible bonds.

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

[Vipul Garg, Vice President-Investor Relations]

Thank you, Mohit. [Operator Instructions]. The first question is from the line of Sachin Salgaonkar of Bank of America. Sachin, please ask your question now.

[Sachin Salgaonkar, Bank of America]

Thanks, Vipul. Congratulations for a great set of numbers. I have three questions. First question, clearly one sees in this quarter a strong growth in hotel and slightly subdued growth in air. And because of the mix shift in favor of hotels, perhaps the margins also have improved. So the question out here is how should one look at the sustainability of these EBITDA and EBIT margins going ahead. To Mohit your point that you achieved your medium-term margin targets in this quarter. Let me pause here.

[Mohit Kabra, Group Chief Financial Officer]

I think from a -- if you look at it from a mix point of view, the H&P business is now kind of into the early 40s. If you look at historically even in the pre-pandemic kind of period, we have seen H&P contributing to kind of almost close to 50% of the mix. So I think there is still further potential for holidays & packages as not going to have improved in the mix. While we could see better growth coming in from air ticketing in the coming quarters as some of the short-term supply constraints get lifted. We believe blended margins should continue to kind of be in the range that we've kind of posted. We have seen slight marginal improvements coming through over the last few quarters that should potentially sustain.

[Sachin Salgaonkar, Bank of America]

Got it. Mohit pretty clear actually at that. Second question just wanted to understand the -- how should one look at the industry growth for the next six to nine months. And it comes from a context that last year was clearly more like a low base kind of an year, but this year in the first quarter you guys are more like a 27% growth. So is the 25% plus growth for industry sustainable?

[Mohit Kabra, Group Chief Financial Officer]

Growth is a factor of one the industry, growth plus the kind of incremental growth that we get in by increasing online penetration, right? And we are kind of pretty much representative of the growth on the online side, particularly on the travel spaces. So, I think we continue to leverage on the trend of increasingly consumers getting comfortable with online buying behavior and particularly in the underpenetrated segments like accommodation, et cetera, so that should continue to fuel better-than-industry growth for us in the coming years.

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

And maybe, Mohit, if I can just add to what Sachin was saying. Sachin as historically, we've seen the thumb rule typically, is that the overall industry growth online/offline put together, let's say, if it is like 10% CAGR, then the online typically will be 2x. And we have always sort of at least historically, even in this quarter we called out, our growth rate typically has been faster than the industry overall growth rate as well. So, some sort of additional points for that. But that's the way to sort of directionally think about the growth.

[Sachin Salgaonkar, Bank of America]

Okay. Thanks, Rajesh and Mohit. And last question, I just wanted to understand a bit more on the book with zero payment, what you guys launched last quarter. How should one look at the impact of this on your numbers, i.e. what kind of a balance sheet risk or are you taking or anything to explain the economics of that would be helpful.

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

Sachin, there is – okay, let me just take this. There is no balance sheet risk on this for sure, because this is just a feature of back-to-back sort of work with the partners where it offers more flexibility to the consumers, the travelers just basically working on the insight, that if you are not necessarily 100% certain and at some level it will also over time drive the behavior of booking in advance, was really the thought behind. So, give the flexibility to the consumer, you can -- you just started to let's say, plan for your trip, you can just go ahead and book it, because there is a feature available that you don't have to upfront commit any money. And then as you make up your mind, you can just make the final payment, but your booking will be guaranteed.

So, that's really the focus here. There's no balance sheet risk. There's a back-to-back arrangement here. Overall, from an impact standpoint, the way we are looking at it, that -- and as it has become popular in consumers' minds already, good feedback coming back from the customers that they're finding it really useful, is that it effectively mouth of the funnel will increase significantly there will be more users, more people who would be wanting to come and let's say, block or reserve their booking. And if they end up just canceling it, the net impact of increase in the more new users coming or even the existing users coming and booking.

And let's say, even the cancellation rate is a little higher, because there's flexibility offer the net-net impact is only going to be growth, in the number of room nights. So that's the way, we are looking at it, but there's no balance sheet risk involved in this.

[Sachin Salgaonkar, Bank of America]

And then Rajesh, who faces the risk, let's say to your point of when the consumer cancels perhaps, at the last minute and doesn't make any payment. It's a loss to someone, right? So who bears this loss?

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

No, Sachin, it's actually -- it's an auto cancellation and that's the way we have plugged it. So it's an auto cancellation that happens let's say, if the payment does not happen, where back-to-back arrangement with the partner is that the free cancellation is available for let's say, 48 hours in advance or 72 hours in advance, that the time lines are set accordingly. So, if the payment is not received from the customer, the cancellation happens automatically.

[Sachin Salgaonkar, Bank of America]

Got it. Thank you and all the best for future.

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

Thank you.

[Vipul Garg, Vice President-Investor Relations]

Thank you, Sachin. The next question is from the line of Vijit Jain from Citi. Vijit, you may please ask your question now

[Vijit Jain, Citi]

Thanks, Vipul. Hi, guys. Congratulations, on a great set of numbers. Just two questions from my side. One, is I know you mentioned targets with free cash of buyback and I know you have that convertible debt that you would want to buy back. But aside from that $136 million authorization, have you settled on the use of cash between buybacks and dividends in favor of buyback? Is that how I should understand it?

[Mohit Kabra, Group Chief Financial Officer]

So, I think Vijit, what we have called out currently is the share repurchase plan and it kind of widened the share repurchase plan, as I've mentioned, to include the convertible bonds. We haven't kind of made any comment around any dividends as such. And even on the share repurchase plan, see this is an existing plan, which has been kind of carried -- which has been carried forward for quite a few years wherein the balance is about $136 million. We should kind of be open to increasing the overall plan outlay once we are kind of closer to exhausting the available within the plan. So, I think the -- one should not feel that the plan is kind of restricted to only $136 million.

[Vijit Jain, Citi]

Okay.

[Mohit Kabra, Group Chief Financial Officer]

It could be a much larger outplay, depending upon how much are we able to kind of repurchase.

[Vijit Jain, Citi]

Got it. So, Mohit if I can ask is there any specific driver for the choice between a dividend and a buyback. I'm just curious about that, because obviously there's a reason for something like that in India but just for US listed, I'm wondering if there's any rationale.

[Mohit Kabra, Group Chief Financial Officer]

So, a couple of things driving the rationale for us. If you look at it like, I've said our preference would be while we have a convertible bond which has certain put triggers end of year three and year five, our preference would be to kind of repurchase the convertible bonds, provided they're available at a meaningful discount. However, like I've said, it's been difficult to kind of get them at a discount. They're trading pretty strong about almost 99% to 100%. So the first preference would lie in terms of repurchasing the convertible bonds. And thereafter, we could kind of look at the repurchases on the share side. So this is the preferred prioritization at our end.

[Vijit Jain, Citi]

Got it. Sure Mohit. But my second question is, just on the quarter I see that the other expenses this quarter is somewhere around 2.4% of GBV quite a bit of a jump there. I know you mentioned areas where you're investing behind but if you can give more color on beyond the payment gateways related fees and those kinds of things where this increase is coming from that will be great.

And in addition to that just a follow-up on your adjusted EBIT margin number, you've obviously hit the top end of the target of 1% to 1.5%. I just wanted to clarify if you're revising that target to 1.5% plus. Is that how I should interpret your earlier comment?

[Mohit Kabra, Group Chief Financial Officer]

On the first one, this is also a result of a little bit of a reclassification of certain expenses which were earlier coming in as cost of -- other cost of services and have now been reclassified as distribution expenses under the other operating expenses category. So, we made a disclosure in the 6-K around the same. It's largely coming in from the bus ticketing business and also from our overall affiliates business. So this is a little bit of an optical thing coming in from the reclassification as explained in the 6-K.

On the second one, if you really look at it, we have been guiding that we're gradually scaling up on profitability and you would recollect that over the last few quarters, we have been mentioning that we would like to get to about teens of adjusted operating margin as a percentage of adjusted margin and get to about 1.5% of gross bookings in terms of percentage of gross bookings.

I think we've kind of hit that level during this seasonally strong quarter, which is also backed with the fact that we were able to significantly optimize on our customer acquisition costs during this particular quarter. So, the quarter had certain amount of supply constraints. As a result of which, we have kind of tweaked our strategy or kind of tactically made sure that we're spending more on say brand building kind of expenses rather than short-term-ish transaction driving spends like promotional expense. And therefore, the overall marketing and sales promotion came in at about 4.6%.

For the full year, I believe we could look at these expenses coming in at around the 5%, 5.5% mark. However, for the full year also, we have seen like last year we were pretty much able to maintain the momentum that we had kind of generated on profitability in the first quarter. Even during this year, we would like to kind of maintain the momentum and try and keep the profitability around the first quarter levels.

[Vijit Jain, Citi]

Got it. Mohit, one last question if I can sandwich in. The Cricket World Cup in November, is that a significant business driver in general. I don't know, if you had any experience around that at the last time India hosted World Cup. We have seen news around bookings in certain places going to high levels already. So I just thought, I'd get your two bits on that one.

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

Well, maybe Vijit, I can take that. Yes, I know and there's a lot of hype and noise around it already, so I'm not surprised that you're asking this question. Listen, given that there is so much of interest in watching cricket in India, there is definitely bound to be some sort of excitement around traveling to the destination, where the matches are going to happen and therefore by virtue of that there is -- definitely it could act as a booster for the travel industry, overall domestic travel, right? And as you can perhaps already see fares have started to go up specifically to those dates and even the hotel rooms et cetera, the rates have gone up, because everyone is obviously -- I mean there is hype. There is potential. Potentially there's going to be hike in demand and therefore, accordingly the prices are also going up.

So clearly there will be some upside. Now how much will that be, we'll see. From a preparation standpoint from -- at our end, we are doing everything possible for us to be able to be ready to tap into this opportunity as well. Now, be it on the accommodation side, not necessarily on the hotels, making sure that we have a lot of the inventory in place, but also additionally, actually it's a great opportunity for homestays as well for some of these locations. So -- and not to say obviously the travel that might happen along with it. So overall, whether it is air travel or ground transport or overall accommodation during that period, there definitely will be some growth, the additional growth or the incremental growth that we would witness.

[Vijit Jain, Citi]

All right. Thanks, Rajesh. Those were my questions. Thank you, so much.

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

Thank you, Vijit.

[Vipul Garg, Vice President-Investor Relations]

Thanks, Vijit. The next question is from the line of Manish Adukia from Goldman Sachs. Manish, please ask your question now.

[Manish Adukia, Goldman Sachs]

Yes, hi. Thanks, Vipul for taking my question. Sir, my question is actually a follow-up to Vijit's previous question. Now, when we look at your marketing spend Mohit, I mean, let's say a couple of years back, you were guiding to about 6% to 7% of gross bookings, then the guidance was lower to 5% to 6% and now you're saying 5% to 5.5%. And of course the numbers come at 4.6%. So, is there actually like a downside risk to marketing spend, meaning in terms of what you see in the market in competition, do you think structurally marketing spend has room to come down even further? Because when you look at let's say global markets, I think the marketing spend for some of the travel OT is there is still lower than what you have reported. So your thoughts on that would be great.

[Mohit Kabra, Group Chief Financial Officer]

Yes. I think, it's kind of evolving as you have seen over the last few years and quarters. Clearly, two or three trends that we had called out. One, there is definitely scope for improvement in the customer action costs linked to a few things. One, the overall pace of customers that we keep acquiring and how much of it -- how much of our transactions keep coming in from repeats, rather than new customer acquisition which is generally more expensive, right? And we've been calling that out that our repeat rates are actually kind of been increasing almost 70% plus of our transactions now or orders now are coming in from our existing customer base. And clearly there's an opportunity to keep expanding the customer base as well.

What we also need to keep in mind is, usually as we kind of keep increasing the mix on the accommodation side, accommodation being a larger margin business, also requires a little bit of a larger push on the marketing and sales promotion side. And therefore, the blended marketing and sales promotion could work a little bit as we see the mix improving towards hotels and packages. That said, this particular quarter, there was also a little bit of an anomaly where like I had called out, there have been certain supply-related constraints, which were impacting particularly the air ticketing side of demand, right and therefore overall travel.

Therefore, we've kind of gone tactically a lot more prudent in this particular quarter on some of these customer acquisition costs and therefore they have come in slightly lower than where we would have anticipated them to come in based on the previous few quarters trending. Should we be able to sustain it around these levels or the kind of cutting it back to the 5% levels will again depend upon how quickly particularly the air ticketing side of business or the industry recovers. That should pretty much kind of impact this in the coming quarters.

But like I said overall, if we can be around that range of 5% to 5.5% that should be a good range to be in. On the competitive side, yes, competitive dynamics have been easy. And like I said two factors that are kind of contributing to it is one is the increasing size and scale of our customer base increasing online penetration in each of the segments that we operate in, and thirdly, increasing kind of easing of competitive pressures.

[Manish Adukia, Goldman Sachs]

Thank you so much for that. My second question is on the reclassification that talked about. The take rate increase that we've seen in the bus segment of about 80 basis points quarter-on-quarter and hotels about 100 basis point on quarter-on-quarter. Is a large part of that due to that service cost reclassification?

[Mohit Kabra, Group Chief Financial Officer]

Not in hotels. Actually hotels and here there's hardly any kind of impact coming in from the reclassification. The reclassification is largely coming and making an impact on the bus ticketing margins. And therefore, I was clarifying that -- that is something that we have specifically mentioned as an explanation in the MD&A section of the 6-K. So, yes, large part of the bus ticketing upside that you see going in from about 8.8% to 9.9% is coming in from the reclassification.

[Manish Adukia, Goldman Sachs]

Got it. And my last question is on the budget segment in the hotel -- budget hotels and recovery there. So in the past you've called out as the recovery there has lagged the mid to premium end has the recovery dynamic there improved meaningfully in the last quarter? And is that driving the take rate expansion on a quarter-on-quarter basis?

[Mohit Kabra, Group Chief Financial Officer]

Yes it is. It is. It is. And therefore you do see some impact of that coming through to the improved margins as well. And we are now close to about 80%, 85% recovery on the budget segment as well or the super budget segment.

[Manish Adukia, Goldman Sachs]

Thank you so much for taking my question and all the best.

[Vipul Garg, Vice President-Investor Relations]

Thank you, Manish. Next question is from the line Aditya Suresh from Macquarie. Aditya, you may please ask your question now.

[Mohit Kabra, Group Chief Financial Officer]

Aditya, you will have to unmute your line. Yes. Please go ahead.

[Aditya Suresh, Macquarie]

Yes. Great. Thank you. Thank you very much, Vipul. I have one big picture question and then two specific questions. So it's obviously great to see the operating leverage come through. So beyond market dynamics I'm really curious to understand what's really changed in terms of how you're managing the business whether that be for Rajesh or Deep or Mohit. Could you just speak about that a bit in terms of what's really changed in the past one month -- one year in terms of how you're managing the business?

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

Yes. Maybe I can take that Aditya. I think actually two or three big changes. And I would actually just not say for the last one year I would say including the pandemic period. And sometimes the down cycle actually pushes you to think harder and it also throws opportunities. How could you possibly look at the opportunities and look at the businesses slightly differently.

So just to specifically call that out right? So the one big opportunity that we got was the availability of our technology and product folks and we decided to sort of focus on what could be the potential opportunities on the tech front or on the product front that we can possibly tap into for our existing business and we can -- and then in parallel can we think of new business segments and for that whatever development that we need to do what is that? Can we just, sort of, attack those areas and double down on those.

So we leverage technologies all the latest technologies to focus on expanding the product offerings to make like literally a one-stop shop on the B2C side and then build multiple platforms as we've been calling out in those two years. I mean some of that was enhancement on the platform that was already there like myBiz the corporate segment platform was already built and we had started that journey pre-pandemic, but we just significantly, sort of, deployed resources and double down on improving not only the product experience, but also just significantly, sort of expanding the offerings there and fixing all the supply side front-end issues et cetera.

Similarly the myPartner platform, similarly TripMoney fintech platform, launching into the GCC market launching redRail and also building an affiliate platform that we can potentially power many of the horizontals out there for new user acquisitions. So I would say, that was one area just the product and the tech part of it.

The second, interesting opportunity that we saw, was in the Eco Space where we saw homestays category emerging very nicely, and we doubled down on building the supply strength on that. Today, we have about 28,000 properties and you also saw an opportunity in the budget hotel segment. There was churn happening, but then there was an opportunity on picking up the quality supply in the market and bringing on our platform as well. So, a lot of the work on the expansion of domestic hotel supply specifically, on homestays and then building home -- front-end capabilities and also building supply side or host application dedicated for the host and so on.

And third, I would say, just looking at the opportunities again, which could enhance productivity of course gives us agility at scale, and also helps in cost sort of rationalization and that was just building the self-service platforms for post sales customer service side, and we invested behind – again, deployed a lot of sources a lot of bandwidth went into it, and we significantly improved the customer experience on the post-sale side and thereby reducing the sort of the amount of outsourcing that we had to do pre-pandemic, at a scale.

So, all these areas that obviously, have helped us both on the profitability at the scale standpoint overall, sort of unit economics improving, but also more importantly adding new areas of growth. So, I'm saying all in all, it was basically an idea of just looking at the opportunities where it could potentially help you post-pandemic, while we were sort of weathering the strong as a separate track in terms of just how best to come out of the crisis. So, Aditya, these are the few things that are probably worth calling out.

[Aditya Suresh, Macquarie]

Great, Rajesh. Thank you so much for that response. I think the other call out, also is just how you improved your revenue line whilst your employee costs have been steady, and that's I guess speaks to your productivity comment, as well. But I'm really curious, to understand how this line shapes up in the next couple of years. You're kind of boosted productivity, per employee. Maybe some guidance here on how you're thinking about staff, salaries, ESOPs, as we continue to kind of grow the business.

[Mohit Kabra, Group Chief Financial Officer]

Maybe, I can take that, Aditya. When it comes to personnel costs, overall, I think this will largely be kind of seeing inflationary increases more around say the 15% mark. That is what we should be seeing, as we don't really kind of expect to have any significant increases on the headcount side.

When it comes to specific areas of costs like, share-based compensation, et cetera, or SBC costs there what you can kind of consider is, that the absolute number should largely remain in the same ballpark range and therefore, provide a lot of operating leverage going forward as well.

[Aditya Suresh, Macquarie]

Great. Thanks, Mohit. I had one additional question if that's okay. So just on working capital. Clearly, we see that international and hotels is coming back in the mix. And I typically would have think -- thought that you'd see a positive working capital impact as these two lines come back. Would you tend to agree with that comment? And how should we be thinking about the working capital release going forward?

[Mohit Kabra, Group Chief Financial Officer]

Usually, if you follow our kind of trending over the years, seasonally high quarters would generally see a deployment in working capital. However, this quarter essentially because we've been extremely focused on cash flow management as well, we have actually seen a release coming on the working capital side. So, that's actually a kind of a big positive for the quarter that we have reported, because usually otherwise in a peak seasonality, there is generally deployment that we see over the years.

[Aditya Suresh, Macquarie]

But Mohit, I guess the specific question was as you have more share of hotels in your mix, my understanding is that as I'm kind of booking in advance the kind of advances which I'm giving much as a platform stays with you. And so there's a positive working capital impact until the time I actually check in right? So I was wondering if as you see more hotels and more international travel come back, you should see a bit -- a stronger working capital impact which favors you?

[Mohit Kabra, Group Chief Financial Officer]

Not a lot, because you've also kind of see the whole campaign this quarter was around Book at Zero, right? So we're not necessarily trying to kind of build on positive working capital through the accommodation business. That's not really the intent. We're kind of using a variety of options and features such as Pay Later or kind of Book at Zero et cetera, whereby we don't really see there will be any significant kind of working capital possibility coming in with the increasing mix coming from hotels & packages.

[Aditya Suresh, Macquarie]

Thank you so much for these clarifications. Thank you.

[Mohit Kabra, Group Chief Financial Officer]

Sure.

[Vipul Garg, Vice President-Investor Relations]

Thanks, Aditya. The next question is from the line of Gaurav Rateria of Morgan Stanley. Gaurav, you may please ask your question now.

[Gaurav Rateria, Morgan Stanley]

Hi. Am I audible?

[Vipul Garg, Vice President-Investor Relations]

Yes, please, go ahead.

[Gaurav Rateria, Morgan Stanley]

Hey, congratulations on almost a magical quarter on margins and cash flow. My first question is on your comment around the air ticketing business should see improving trends going forward with supply constraints easing. Is this more like a second half phenomena, or it should start happening from near term itself?

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

Yes, Gaurav. And thank you, firstly thank you for the generous comment. Yes, Gaurav. That's what I was just trying to say in my commentary as well, most likely second half onwards, because that is when I think the deliveries are scheduled to come in more planes are likely to come in for the Tata Group of airlines or Indigo for that matter. And even for Akasa and the others so -- and that would help. I don't think it's happening like in the immediate future like not in the running quarter. But from second half onwards it starts -- it will start to ease out.

[Gaurav Rateria, Morgan Stanley]

Got it. Very clear. Second question is again some comment that you made around you growing faster than market in H&P segment, how to understand the overall volume growth from an industry standpoint? And where have you got your market share gain from?

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

Yeah. No, I think the data that we have sort of looked at. I mean at an overall level, it's hard there is not really any structured third-party data that is available like you will get it in the air market like DGCA number is a very good number that comes out every day. So you know to the last sort of digit that what is your market share gain, et cetera. And that's not necessarily the case with the hotels market admittedly. But what we see and our comment is based on looking at that data that specifically on our platform, we've looked at every segment as compared to let's say pre-pandemic level or even year-on-year. From a pre-pandemic level, every segment our growth rate is more than 100% across the segments except the budget. Budget, as Mohit pointed out some time back, that is also recovering nicely now.

And then, basis that your conversation with the industry and the partners that you collect some data, there are some reports on the supply side, which are neutral on the occupancy. So, you bring in all of that into the calculation and based on your estimates that you think that we have actually gained share in some of the -- in majority of the segments of the hotels. So, that's really the basis of that comment and we can get into details offline but -- if you would want more color but that's the way we have sort of looked at it.

[Gaurav Rateria, Morgan Stanley]

Got it. My last question is around the generative AI. You alluded to certain efficiencies around there and personalization improving product features. But, how do you think about the overall risk of disruption from using this new technology, where the whole travel booking process of search selection becomes more conversational and completely disruption -- disruptive to the way it is being done currently. Just trying to understand on terms of product innovations that could be a possibility in this market?

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

No, there is huge possibility. I mean this technology per se is to our assessment, it's looking promising. And if I may say so, if there is any disruption that this technology is likely to cause, we would want to lead that disruption. And with that thought only we actually did soft launch of our conversation flow.

And right now, there are two or three use cases which are in the works, which we are working on with the focus that we want to improve the customer experience and more particularly, relying on the better and robust language models to also have a flow which is hybrid and that could help us reach to beyond 25 cities if you will, literally penetrate deep into India or Bharat, that's really the focus.

The next level to focus also is to leverage the technology to also bring in some efficiency and productivity gains in the system, because I think there are areas on software development or in some of the other areas that we are still doing some work on where prima facie you see a lot of potential, that if you do the deployment right then you should be able to get some gains.

But if I may just add an important sort of not caveat but maybe an additional comment, that it is going to be a journey. And as you sort of deploy this technology in every particular use case, you will learn. You will learn, you will get more insights and you will keep fine-tuning it. Until the time that you get to 100% accuracy, it is going to take some time. It's not -- and pretty much happens with every technology. It's not necessarily overnight.

Some gains you would be very visible to you really quick but for us to be able to see sustainable gains, whether it is overall customer experience improvement or a serious amount of innovation disrupting the status quo or productivity gains, right? In all areas, there is promise but it's going to be a journey.

[Gaurav Rateria, Morgan Stanley]

Got it. All the best for future. Thank you.

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

Thank you, Gaurav.

[Vipul Garg, Vice President-Investor Relations]

Thank you, Gaurav. This was the last question that we had in the queue. If we have no more questions, I'll hand over to Rajesh for his closing comments.

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

Well, thank you Vipul, and thank you everyone. Thank you for your time and thank you for your patience, and thank you for all the nice comments that you have made today. Thank you.

[Vipul Garg, Vice President-Investor Relations]

Thank you everyone for joining the call. You may please disconnect. Thank you.