MakeMyTrip Ltd

NASDAQ:MMYT

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by and welcome to the MakeMyTrip Limited Fiscal 2021 Q3 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Jonathan Huang. Thank you. Please go ahead.

[Jonathan Huang, Vice President of Investor Relations]

Thank you, Polly. Welcome everyone to MakeMyTrip Limited's Q3 fiscal 2021 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 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 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, our company's Founder and Group Executive Chairman; Rajesh Magow, Co-Founder and Group Chief Executive Officer; and Mohit Kabra, our Group Chief Financial Officer.

I'd like to turn the call over now to Deep to begin today's discussion.

[Deep Kalra, Founder and Group Executive Chairman]

Thank you, Jonathan. Welcome, everyone, to our fiscal third quarter earnings call. I'd like to wish all our listeners happy and more importantly, a healthy New Year. As we begin 2021, the world continues to deal with the ongoing COVID-19 pandemic, which has impacted most industries and the travel industry in particular. The good news is that since our last earnings call, we have seen vaccines being approved, as well as commencement of an effective phased rollout in India.

While the distribution is still in its early stages, we are optimistic that it will gather pace given India's strong mass vaccination history. I'm also encouraged to see India's recorded daily infection rates, which peaked in mid-September has continued to decline steadily thereafter. As the country continues to unlock or reopen, normalization of economic activity is broadening. As disruptive as this pandemic has been, we believe it has accelerated and transformed the way commerce will be conducted in India.

With social distancing needs greater than ever, the use of ecommerce has also been rapidly adopted by a country's half a billion plus digital citizens. In fact, some analysts are forecasting a three x increase in online ecommerce transaction values to reach over $180 billion by fiscal year 2025. While online travel as a category is still on its journey of recovery, we believe it's only a matter of time before we also start to accrue the benefits of such structural changes in booking behavior.

Now I'd like to share the latest reopening trends for the domestic travel industry, which remains the primary focus of our ongoing recovery today. We believe international outbound travel recovery will eventually gain momentum, but only once herd immunity takes hold across destination countries and the ease of cross border travel presumes. In the meantime, we will keep focusing our efforts on driving full recovery of our domestic business and maintaining strict cost discipline.

Beginning with domestic air, the market has already recovered 65% of its capacity in December when compared to the same period a year ago. As for hotels and alternative accommodations, recovery of room nights stayed is close to 59% with about 70% of overall capacity across our domestic network available for bookings now. More encouragingly, nearly all the room capacity at our key chain and independent partners' properties is also available to take bookings now.

Similarly, the interstate bus market has also seen a steady resumption of service as privately operated partners have increased seats available to be sold to more than 75% of pre-pandemic level so far.

Now turning to our company's performance for Q3, we continue to not only participate in the ongoing recovery in travel, but have also been able to gain market share during this time. Our gains during the market's recovery, coupled with highly disciplined cost management to drive greater efficiencies has allowed us to achieve positive adjusted operating cash flow during the quarter

During December, overall traffic to our brands has also recovered to more than 65% of pre-pandemic levels. More encouragingly, repeat customers made up more than three quarters of our transacting base, which is a testament to the effectiveness of our retention efforts and enduring brand strength.

During Q3, we leveraged social networks and other channels to inspire travel, and assure customers of safety and hygiene protocols available. We ran marketing campaigns that included short videos with food and travel influencers to highlight alternative accommodations, and other popular travel use cases. For example, our hashtag DriveUpGetAway campaign has helped nudge travel to nearby drivable getaways at premium properties like villas and homes.

These outreach campaigns are coupled with terrific deals to help customers take a much-needed break after a very stressful and cooped up year at home. To drive greater loyalty we also re-launched our refreshed MakeMyTrip BLACK program in September, giving members greater value and rewards while offering us the opportunity to directly reconnect and encourage travel with our loyal fans.

Similarly, goTribe brand Goibibo's new loyalty program has also been offering members more rewards since its mid-September launch. Today we have 920,000 MakeMyTrip BLACK and 580,000 goTribe members, whom collectively helped contribute roughly a third of total bookings during the quarter.

Our marketing team also optimized and improved the organic online marketing efforts further during Q3. As a result, we achieved all time high keyword share rankings and click through rates across our brands in India. We believe the comprehensive approach on optimizing and improving our organic traffic has allowed us to continue to recover faster than market while maintaining high marketing speed efficiencies.

Looking forward, I'm very optimistic of our mid to longer term prospects, as the online opportunity for travel remains large in our home market. I believe with the acceleration of online adoption as a result of COVID-19 our structural cost optimizations taken during the unprecedented lockdown last year and our strong brand and financial positioning relative to peers will only further bolster our business going forward.

Now I'd like to ask Rajesh to share more color on the recovery we've seen across our domestic business during the quarter.

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

Thank you, Deep and Happy New Year everyone. Let's all hope 2021 will be a much better year than 2020. Before I get into our operating performance and recovery trends for the quarter, I would like to congratulate our entire team who had worked relentlessly to achieve MakeMyTrip's near term goal as the industry continues to recover. With daily new infection rates on a steady decline since September, improving economic activities and now the rollout of effective vaccines in India, we hope to see 2021 be a much better year for all of us and the industry.

In Q3, we were encouraged to see a steady recovery continuing within our domestic business since the country's reopening in late May of last year. This trend has only increased our confidence level on domestic travel recovery, further gaining momentum in the coming quarters, while we wait for international travel to open up. It's also a good reflection on the resilience shown by the industry and our brand, and we hope to emerge even stronger post the pandemic.

While much of the recovery has been led by domestic travel demand, we are encouraged to see some strong demand for leisure travel to a couple of international destinations like Maldives and Dubai as well, which have reopened its borders to tourists with safety protocols. We continue to believe outbound travel will provide a long-term growth tailwind for us given the high fragmentation and offline nature of its distribution, but is expected to take a longer time to fully recover.

A few other countries have also opened their borders since like Thailand and Sri Lanka, but they are honoring quarantine requirements at present. We look forward to these being reduced going forward. Now I would like to share and highlight our achievements in the fiscal third quarter of 2021, which reflects the continued domestic travel industry recovery, market share gains and cost discipline, which helped deliver positive quarterly adjusted operating profits.

Starting with the hotel business first, were over 70% of the hotels within our domestic network is now back online. More importantly, near all of the room capacities at key partners properties are available to us for booking. During Q3, we saw pent up demand on the leisure segment. Our total reported number of domestic room nights stayed reached approximately 37% of the levels achieved a year ago with December ending at approximately 45% recovery versus the same period a year ago.

Furthermore, we have actually been able to deliver more volumes across our premium hotel brands, helping to surpass pre-pandemic volume level, with multiple supply partners. In addition, our hotel bookings in multiple leisure cities across India, have also fully recovered in December versus prior year's period, with a few destinations surpassing volume levels achieved pre-pandemic. Helping drive this demand recovery is the desire by the customers to begin venturing out and driving to nearby locations for a holiday, a trend which has continued from Q2.

During the quarter, you also saw the return of travelers willing to drive a bit further away or even take a flight to leisure destinations like Goa and the Maldives, indicating there is a strong pent-up demand for leisure travel. Furthermore, customers have also discovered new leisure cities and destinations in the in the northern and the north eastern parts of the country, as outbound international travel remained constrained. Lastly, also helping drive the quarterly - quarter's hotels demand has been premium and ultra-premium hotels providing great value for money deals as they work to recover their pre-pandemic occupancy rates.

Similarly, our alternative accommodation business has also seen robust recovery. Today, over 60% of the properties have now resumed operations and have been popular with travelers due to social distancing requirements. During Q3, we launched our Star Host program and a new pre-bookings chat function, both of which have further eased concerns of staying at alternative accommodation.

Now, I would like to share the pace of recovery within our air ticketing business where capacity recovery within the domestic market has reached nearly 55% on average for the quarter. During Q3, our domestic passenger segment flown had recovered to over 47% of the levels achieved a year ago. This has also led to our brand's combined market share improving incrementally further since September, and by 300 basis points in January 2020.

Leisure only detonation had been one of the main drivers of the recovery as our business volumes actually surpassed pre-pandemic levels in places like Goa, Chandigarh and Srinagar. As for business and leisure focus destinations like Surat and Vizag, the recovery scene has also been swift and has continued to grow well into January. Lastly, key business heavy destinations like top metros of Delhi, Mumbai, Pune and Trivandrum has also been recovering albeit at a slower pace with recoveries of close to 60%.

And similar to drive the air recovery to date has been continued customer centric investments and enhancements. For example, we revamped the flight funnel on app to give booker's a faster checkout experience and added travel add-ons to better up sell and cross sell ancillary products. We also launched double seats and student rates to aid in social distancing, as well as offer better pricing flexibility. In addition, we offered a best fare finder tool to help shoppers achieve the best rate possibility by leveraging our multiple supply sources. Lastly, our introduction of a price lock feature has helped drive greater advance bookings and customer retention.

Now I would like to share a quick update on our redBus business, which has seen seat capacity recovery in the private bus operator market getting up to about 75% of pre-COVID days. For the third quarter the number of seats sold on our platform was just about 50% versus the same period a year ago. The recovery seen so far has been mixed by region as the demand for the bus services was positively impacted due to continued rail service disruptions.

As an example, in December, regions like eastern India our recovery has actually exceeded pre-pandemic levels by 25%. In other states of India, we have been able to achieve a near full recovery of seat bookings relative to a year ago in December. In Q3, we launched a highly targeted marketing campaign in select geographies, to help drive app download from users who had previously only booked train travel.

Now, I would like to share a quick update on our other ground transportation business, which includes cabs and Metro or train ticketing. As you may recall, this business was launched during the beginning of the pandemic last spring, catering to travelers who wanted to travel, but were vary of crowded buses, trains or planes. During Q3, our ground business continued to register very strong quarter-on-quarter growth as we made the mobile web experience even better for users with lower end and slower speed devices. We believe this segment of the travel market should help us gain more users over time. In fact users from this segment is also contributing nearly a quarter of all new users to our platforms up from a fifth of total new users only a quarter ago.

While leisure demand has been leading the recovery, I'm also encouraged to see our corporate business has shown early signs of recovery. Exiting December, the overall air and hotel volumes booked through our SME focus program had exceeded 40% versus pre-COVID level. Our enterprise grade Q2T business has also witnessed similar levels of recovery during the quarter. Furthermore, traffic across our corporate platforms ended up quarter with 36% of January 2020's level. During Q3 we also saw a significant jump in new traffic coming to platform while we onboard more than 250 new midsized accounts.

And lastly, I would like to share a quick update on our GCC or Middle East presence, which is ramping up gradually as well. In the quarter, we launched the Arabic language for light searches for the Saudi market and plan to launch the Arabic language for our hotels products in the coming quarter. As the region continued to open its borders to our citizens for travel, we believe we are well placed to capture this increased travel demand going forward.

With that, I would like to hand the call over to Mohit to share more color on our financial recovery and performance in Q3.

[Mohit Kabra, Group Chief Financial Officer]

Thanks Rajesh and Happy New Year everyone. Since the outbreak of COVID pandemic, followed by complete lockdown in India until late May 2020. Our focus has been to optimize costs, with the objective of minimizing losses during this fiscal year, which has seen business being very significantly impacted by the pandemic.

Our relentless focus on cost optimization, coupled with continued recovery in the domestic travel demand has helped us achieve adjusted operating profits during the reported quarter, which is ahead of our expectations we had when we entered this fiscal year.

Our overall business recovery compared to same quarter last year, which was pre-pandemic in terms of gross bookings in constant currency terms is nearly 37%. Considering that this number was about 15% in the last reported quarter, it is also reflective of the gradual pace of quarter-on-quarter business recovery that we are seeing led by restoration of domestic travel demand.

Moving on to the main business segments, our air ticketing adjusted margin stood at $26 million, which is over 38% recovery in constant currency terms versus pre-COVID levels during the same quarter of last fiscal year and more than double the adjusted margin of $11.9 million achieved in Q2.

The adjusted margin in our hotels and packages business stood at $25.2 million, which is about 25% recovery in constant currency terms versus pre-COVID levels during the same quarter of last fiscal year and about four and a half times the adjusted margin of $5.6 million achieved in the previous quarter.

As for our bus ticketing business, the adjusted margin stood at about $9 million and represented over 45% year-on-year recovery in constant currency terms and was about three and a half times the adjusted margin of $2.5 million achieved in the previous Quarter.

Lastly, on our other businesses, the adjusted margin of $4.1 million during the quarter represented a year-on-year recovery of about 50% in constant currency terms.

Let me now share some details around operating costs during the quarter, which continued to be an area of sharp focus and rationalization. Beginning with variable expenses, which largely comprise of marketing and sales promotional expenses, we continued with significant year-on-year improvement and as a percentage of gross bookings these expenses stood at 3.8% of gross bookings compared to 8.9% in the same quarter last year.

Our adjusted personnel and SG&A expenses came in at about $27.7 million, compared to about $45.6 million in the same quarter last year. These are slightly higher from the $24.4 million reported in the previous quarter on account of restoration of salary reductions during the quarter, as well as some incremental overhead costs which have been incurred in line with increasing business volumes.

Clearly, the highlight for the quarter has been the achievement of adjusted operating profit of about $5.2 million, which is an improvement of over $16 million on a year-on-year basis, and an improvement of over $18 million on a quarter-on-quarter basis.

Adjusted further for other non-cash depreciation and amortization expenses, the quarter's adjusted operating cash profit stood at about $9.5 million, compared to a loss of $7.6 million in the prior reported quarter of Q2, and a loss of $6.2 million reported in the same quarter a year ago.

This turnaround in the bottom line reinforces our belief in continuing to pursue the strategy of cost rationalization in comparison with pre-pandemic levels, along with a plethora of initiatives to aid business recovery, particularly in the domestic market over the next few quarters.

Lastly, we continue to focus on operational cash management. We started the quarter with cash and cash equivalents of about $198 million and aided by the positive operating cash flow of about $9.5 million during the quarter, we ended at about $228 million of cash and cash equivalents.

As previously reported, in addition to the cash balances, we also have credit and guarantee facilities of approximately $100 million. Our credit facilities remain undrawn at the end of the reported quarter.

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

[Operator]

Thank you. [Operator Instructions] And at this time, we do have a question from the line of Manish Adukia with Goldman Sachs.

[Manish Adukia, Goldman Sachs]

Yes, hi. Good afternoon. Thanks so much for taking my questions. This is Manish Adukia from Goldman Sachs. Just one question from my end, I wanted to get your sense and congratulations on achieving cash EBITDA breakeven. How sustainable is that number? Going forward, do you believe as demand recovery happens, you should at least be able to sustain this positive cash flow number? Or with demand recovery there might be a need for higher spend in selling and marketing, which could again, put the EBITDA number back in the date. So any thoughts around that will be helpful? Thank you.

[Mohit Kabra, Group Chief Financial Officer]

Hi, Manish, Mohit here. And let me tag that. Like we have been mentioning over the last few quarters, the intent has been to keep the operating losses down, and pretty much kind of get back to the plus or minus $10 million, kind of an operating cash profit or loss situation what we call it the breakeven range for ourselves to be in that range on a stable basis. I think the last quarter saw us being in that range, but with some losses, and we've seen this quarter with some incremental business recovery, we've kind of been able to breakeven and also post some positive operating numbers over there. We believe as the business recovery kind of continues to keep happening, the endeavor will be to kind of make sure that we continue to remain around the breakeven levels or in the breakeven range that we have called out.

As I said we see quarter-on-quarter seasonality changing in India, and also are kind of largely in a competitive in a situation where most players are in the private domain, and therefore, we want to - I mean, in a highly growth market. So, therefore we'd want to kind of keep that flexibility going of being in that operating range of plus or minus $10 million. But the fact that we've significantly rationalized our fixed cost structures particularly around people expenses, particularly around sales, general and administrative expenses, gives us an additional comfort that with business recovery, even if your variable expenses go up a bit in line with volume recovery, the significant pruning in these fixed costs should really help us kind of keep on the breakeven path.

[Manish Adukia, Goldman Sachs]

Thank you, that's helpful. Thank you and all the best.

[Mohit Kabra, Group Chief Financial Officer]

Most welcome.

[Operator]

[Operator Instructions] And at this time, there are no further audio questions. Are there any closing remarks?

[Jonathan Huang, Vice President of Investor Relations]

Yes, thank you so much for joining our call today. We certainly wish you all good health and look forward to speaking to you soon.

[Operator]

And thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.

[Jonathan Huang, Vice President of Investor Relations]

Thank you everyone.

[Deep Kalra, Founder and Group Executive Chairman]

Thank you.