MakeMyTrip Ltd

NASDAQ:MMYT

Earnings Call Transcript 2023-Q3

[Vipul Garg, Vice President of Investor Relations]

Good evening, everyone. We'll just give a minute for everyone to join and then we will start. Hello, everyone. I'm Vipul Garg, Vice President of Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal 2023 Third Quarter Earnings webinar.

Today's event will be hosted by 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 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 during this event 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 in Forward-Looking Statement section of the Company's annual report on Form 20-F filed with the SEC on July 12, 2022. 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 over to Rajesh. Over to you, Rajesh.

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

Thank you, Vipul. Happy New Year and welcome everyone to our third quarter earnings call of fiscal 2023 or the last quarter of 2022. '22 started with a cautious optimism amid the Omicron third wave, but as the year progressed, we witnessed steady improvement in the COVID situation in India and most countries in the world, which helped demand led by leisure related travel. Indians increasingly took to traveling during the year and the demand recovery trends improved with each successive quarter.

The reported quarter is the second high leisure travel season quarter of the year aided by winter and festival breaks and long weekends. We leveraged on this demand and executed our business strategies well to get back to full recovery over pre-pandemic levels in gross booking terms, while driving operating leverage from the cost optimization initiatives over the last few years. As a result, this has been our highest ever quarterly performance, both in terms of gross bookings and adjusted operating profit.

Gross bookings for Q3 stood at $1.74 billion witnessing an increase of 64.4% year-on-year and 15.9% quarter-on-quarter in constant currency terms. Adjusted operating profit stood at $19.7 million versus profit of $13.2 million in Q3 fiscal year 2022. As we enter 2023, consumer sentiment continues to stay positive for travel, while we watch the COVID situation with China opening its borders, global inflation, and other macro challenges in the world closely.

Trends suggest that, travelers are back on all travel segments with leisure, business, pilgrimage and corporate events and will continue to drive the growth in the coming years as well. While domestic travel led the recovery in 2022, we believe that full restoration of supply aided by some fair rationalization and easing of visa processes could help international travel recover to pre-pandemic levels soon with improved traveler's sentiment.

During this quarter, the industry witnessed strong recovery in domestic aviation traffic, which is good news for the airlines and the other partners. Government is committed to the growth of the sector. And it is projected that in the next five years, government and other private entities are going to spend up to $12 billion on the infrastructure development of the airports.

As per plan, in near future, there will be capacity expansion in many of the existing airports and new greenfield and brownfield airports will be set up. Recently, a second airport was operationalized in Goa with an annual capacity of 4.4 million passengers. Goa is among the most popular tourist destinations in the country and this will help drive tourism growth. A new terminal in Bangalore is now functional and expansion work in Delhi airport is underway.

India is now the third largest aviation market globally, as per government data and initiatives are being taken to drive tourism and a traveler to smaller cities. In the last eight years, 72 new airports have come up in the country. In coming years, air travel growth will be driven by addition of new airports, infrastructure growth and increasing disposable income. All Indian Airlines place record orders of new aircrafts and this will help drive penetration further into smaller cities.

Outlook for aviation market is favorable, and we expect a prolonged period of sustained growth on the back of these initiatives. Another important pillar for domestic tourism growth is ground transport and world class highways are a prerequisite for fast and seamless movement. This has been a focus area of government. The length of national highways has gone up by more than 50% from 91,287 kilometer as on April 2014 to more than 140,000 kilometer in March 2022.

Government has set an ambitious target to develop 200,000 kilometers of national highway network by 2025. Similarly, for accommodations, the outlook continues to be robust. Almost all hotel chains have announced expansion and increasing their footprint in India. In next couple of years, there is an estimated increase of 25% in the number of hotels for these hotel chains.

Coming to highlights of the reported quarter now, we restarted our brand campaign both on TV and digital media platforms for both MakeMyTrip and Goibibo. After a gap of 2.5 years, we launched 360-degree campaign to capture large chunk of festive demand. That campaign focused on relevant value propositions such as enhanced flexibility, book hotels, with no upfront payment, and numerous choices best suited to varied customer needs.

For Goibibo, we ran a campaign promotion promoting daily steel deals on both hotels and flights a collection of deals unique to Goibibo. We deployed a digital focus campaign across platforms in order to target relevant consumer segments to drive efficient conversions. As for business segments now, starting with air business, we continue to add value for our customers through our industry first features.

QuickBook feature for frequent fliers which was launched last quarter has led to a reduction of 15% in time taken for bookings for these travelers. During the quarter, we strengthened our free cancellation flow within 24 hours of booking. This is again an industry first initial. All these innovations help us remain the first choice of customer. We continue to maintain our leadership position in our market share in domestic air ticketing this quarter stood at 30.3%.

We witnessed a jump in domestic air traffic during this high season quarter. Domestic a ticketing for us has gone beyond pre-pandemic levels while international air ticketing recovery is still lagging. Traffic to most of the domestic leisure destinations have now surpassed pre-pandemic levels and have started to grow.

For international destinations, we witnessed steady recovery for short haul tourist destinations across Southeast Asia of Maldives and Middle East due to tourism demand. Demand for international long haul destinations however improved in this quarter, but still face high fares and visa backlog headwinds to full recovery. We expect this to normalize during this year as stated earlier.

Our accommodation business which includes hotels packages and Homestay segment, with continued focus on expanding accommodation offering on our platform, our inventory is now comparable to pre-COVID levels. This has also helped us now offers stay options over more than 2,000 cities. Aided with seasonality, this quarter, we sold more than 53,000 unique properties, which is at par to pre-COVID levels.

The recovery continues to be strong across all price points, barring the super budget segment of $20 or lower per room night stay. Overall gross booking for hotels has recovered to pre-pandemic levels on constant currency basis, on the back of strong growth in premium and medium premium segment, and partially aided by higher room tariffs.

We continue to innovate and invest in our product. Book @Rs.1 launched last quarter that offered flexibility to the customers, which helped drive growth in longer advanced purchase bookings. goStays, which is our flagship program for certified budget hotels are now contributing to over 40% of the overall budget volume with much better customer experience and NPS.

International outbound travel opened in March 22, 2022 and since then, we have been witnessing a steady recovery for short haul destinations. While we saw some slowdown in international travel bookings with COVID scare as China opened at the end of the quarter, but overall we witnessed good traction. And during 2023 we hope to see you travel to Europe and long haul destinations also returned fully.

Homestays continue to lead recovery in overall accommodation category. 10,000 plus unique properties across 640 plus unique destinations have been sold during this quarter. During this quarter, we launched a new section of properties, called Hidden Gems, where every property in this set has unique USPs and are away from the center of the city. We also launched our brand campaigns specifically for Homestays to create more awareness among travelers that the campaign emphasized on the concept of state for every need and highlighted various day options, including pet friendly villas, pool villas, and villas best suited for large families.

Moving to packages business, you would recall that last quarter we talked about how we have scaled up this business with the addition of holiday experts and franchisees we are now reaping the dividends in the high season quarter total packages, bookings are now more than 150% of pre-pandemic volumes with online channel leading the growth. Domestic packages are now more than twice of the pre pandemic volume and for international packages the recovery is now picking up.

Our bus ticketing business revenue recovery was at around 113% as compared to same quarter pre-pandemic on constant currency basis. This quarter saw growth in inventory compared to pre-COVID with both number of private bus operators and the number of schedules being higher. Recovery in southern market, which has been traditionally strong for buses slower-than-expected as large IT workforce is still working remotely. This slowness has been made up by non-traditional markets in Central, North and East, which are witnessed growth and has an increasing number of bus operators are adopting online channels for their distribution in these regions.

Our initiatives to drive high revenue through value-added inputs to our customers and partners have gathered steam in Q3. RedBus assurance program that protects the customer from bus cancellation has also seen increased traction. Our other ground transport services such as intercity cabs, rail tickets, et cetera, continue to scale well and gross booking value touched an all time hiring. We have now opened up our trip guarantee product for non-bookers. Also, wherein a user who has a waitlisted train ticket booked from any channel outside of MakeMyTrip, can buy a trip guarantee product by paying a small fee, if the ticket remains wait listed at the time of charting, the user is eligible for 3X refund, which you can use to book an alternative mode of transport.

Business travel is now normalizing, and both our corporate platforms are growing at a robust pace. Active corporate count for myBiz has crossed 42,000 while on Q2T, which is our platform for large enterprises. Active customer count has reached 231 as compared to a 114 in December 2021. We have doubled the number of customers in last one year. On product side, on myBiz, we went live with enhanced workflows to support in-app approval and to support easy reconciliation we went live with our reporting module.

The new reporting module allows corporate to customize and schedule reports according to needs of different corporates and their departments. myPartner, our travel agent platform, added 2,892 agents during the quarter, taking the overall number to the 34,600 plus. Quarterly repeat rate for buying travel agents is at a healthy 80 %. Coming to international businesses, our OTA business in GCC growing slowly and steadily, gross booking value grew 29.6% quarter-on-quarter. We launched our first radio brand campaign in November to increase MakeMyTrip awareness amongst Emirates, Arab and Western Experts in the UAE. We reached about 780,000 audience with presence across English and Arabic radio stations.

Our RedBus international business is showing robust recovery in Malaysia. RedBus has more than doubled its business in Q3 as compared to the same period of pre-pandemic and emerged as a clear market leader with the 25% share of the overall market and running profitably. The same playbook is being replicated in other Big Bus markets in emerging countries in Southeast Asia and Latin America. With this, the contribution of international to overall bus business has now crossed double-digits in Q3.

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

[Mohit Kabra, Chief Financial Officer]

Thanks, Rajesh. Hello everyone and Happy New Year. With improved travel sentiment, we witnessed good uptake in this seasonally strong quarter and have delivered strong performance both in terms of business growth and profitability. Q3 gross bookings were at $1.74 billion witnessing a growth of 64.4% year-on-year and a 15.9% growth quarter-on-quarter in constant currency terms. Adjusted operating profit was at $19.7 million as compared to $20.2 million during the same quarter last year, an improvement of 48.6% year-on-year. As stated by Rajesh earlier, this is the highest level quarterly gross bookings and adjusted operating profit achieved by the Company.

For the nine months ended 31st December '22 YTD gross bookings grew by 141% in constant currency terms and came in at $4.9 billion, while our YTD adjusted operating profit came in at about $51.3 million as compared to $11.2 million for the same quarter last year, witnessing a jump of over 4.6 times. Our air ticketing gross bookings for the quarter were at $1.1 billion, witnessing a growth of 71.6% year-on-year and 7.5% quarter-on-quarter on constant currency basis.

As this was a high season quarter on expected lines that take rates normalized to about 6.6% compared to about 7.4% in the previous quarter. As a result, adjusted margin stood at about 70.2 million, registering strong 45.2% year-on-year growth in constant currency terms. Gross bookings for the hotels and packages segment were at $445.7 million, witnessing a strong growth of 55.4% year-on-year and 36.9% quarter-on-quarter on constant currency basis.

Q3 is a seasonally strong quarter for tourism and travel. And we recorded a strong growth of over 150% year-on-year in our packages business due to the increase mix coming in from the packages business margins or take rates from this segment is stood at about 16.2% as compared to 17.2% in the previous quarter. Adjusted margin for our hotels and packages business is stood at $72 million in Q3 witnessing a growth of 45.3% year-on-year and 28.8% growth quarter-on-quarter in constant currency terms.

In our bus ticketing business, gross bookings for the quarter were at $227.1 million growing at about 51.9% year-on-year and 24.1% on a quarter-on-quarter basis on constant currency terms. Take rates were at about 9%, which is in line with the previous quarters. Adjusted margin stood at $20.3 million were extremely strong year-on-year growth of 57.6% and a quarter-on-quarter growth of about 24% in constant currency terms.

Our existent margin in all the other businesses in Q3 was at $9.6 million which is 79.1% growth on a year-on-year basis and 30.6% growth on a quarter-on-quarter basis in constant currency terms. In terms of operating expenses, the operating leverage in terms of rationalized fixed costs during the last few years and more efficient customer equation spends are helping us drive bottom-line gains with improving skill. The high season quarter also saw as we started our brand campaigns across the brands after a gap of over 2.5 years.

Also the higher brand marketing expenses were more than offset by efficiencies in other marketing and promotional costs. Accordingly, overall marketing and sales promotion costs for the quarter came in at about 5.2% of gross bookings lower than the 5.4% in the previous quarter and lower than 5.6% in the same quarter last year. This has helped us achieve the highest level quarterly gross bookings surpassing the pre-pandemic peak and at the same time as your highest ever quarterly adjusted operating profit of $19.7 million.

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

[Vipul Garg, Vice President of Investor Relations]

Thanks, Mohit. Anyone who wish to ask the questions now can click on the raise hand icon on their application and we will take the questions. We'll just wait for a minute for queue to assemble. The first question is from the line of Sachin Salgaonkar of Bank of America. Sachin, your line has been unmuted. You may unmute yourself and ask your question now please.

[Sachin Salgaonkar, Bank of America]

Thanks Vipul. Good evening everyone. I have three questions. First question Mohit more as a follow-up to the comments what you made. Looking at the take rate at both at air ticking and hotels and packages, clearly, it looks like this time around as compared to historical 3Q, the decline was slightly higher. So, I just wanted to check apart from seasonality, is there anything else which is impacting these margins? And how should ideally one look at going ahead, should we see normalization now that the seasonality gets behind us?

[Mohit Kabra, Chief Financial Officer]

Sure, Sachin. If you like, like I was mentioning, particularly if you look at the hotels and packages business, overall, due to the high seasonality, packages kind of came in much stronger in terms of the overall mix, and packages, as you know is a low margin business. And that contributed significantly to a little bit of a dropping of margins for the segment as a whole.

The other thing that we have been calling out is, if you will recollect that in the entire recovery process, the mix of the budget segment of hotels has been coming down, and therefore to some extent that's also kind of keeping the overall margins on the hotel side, on the lower end of our range.

There is a good kind of probability of the overall margins improving on two cons, one, as the mix kind of gets restored more in favor of hotels, as we get to kind of regular seasonality. And the second is, as the mix from budget segment kind of in a keeps improving. So, I would say, possibly, there remains an upside of about a percentage point or so, for the margins to improve in the hotels and package segment, overall, compared to this particular quarter for the reasons that I've just explained.

On the air ticking side, again, if you look at on a normalized basis, possibly we have been guided and the 6% plus kind of margins is where we see longer term kind of air ticking margin stabilizing, and tactically or kind of based on a quarter-on-quarter basis, depending upon how the load factors are and what is the kind of promotional activity that the airlines want to try in terms of driving load factors through our platforms, that will kind of marginally tweak the overall take rates for the domestic air ticking business.

But otherwise, air ticking business longer term, I think this is a healthy margin to kind of remain at, and we believe, unless there is a significant kind of drop in the load factors, our margin should largely remain in line with this with a plus or minus kind of half a percentage point range. So, very broadly, this is how I would put it.

[Sachin Salgaonkar, Bank of America]

Thanks Mohit. Second question, clearly this, as you rightly indicated was a seasonally stronger quarter and despite that, we did see the air ticketing revenues being down Q-o-Q, I did see the bookings are up. So just wanted to understand what happened and why was air ticketing revenue down?

[Mohit Kabra, Chief Financial Officer]

Yes, exactly the same thing. The link to the previous one, because the gross margins on the air ticking business have kind come down. That's how you see their revenue on kind of volume adjusted margin coming down a little bit. But the growth overall in terms of segments and gross bookings is higher. So -- and similarly, you would see, even on the marketing and promotional expenses, they have come lower than even the previous quarter for matter despite the marketing investment.

So like I said, some of these promotional expenses as the kind of coming from the airlines can optically look at kind of, take the margin also higher, and take the overall marketing and promotional expense also higher. In this quarter because the incremental kind of promotional incentives provided by the airlines were on the lower end, that's how we are seeing that effect coming through, both in terms of the adjusted margin coming down and also the promotional and marketing expenses coming down.

[Sachin Salgaonkar, Bank of America]

So, Mohit, thanks for that. I did look at that, obviously, there is a margin dip that's happened last quarter, 3Q and so on and so forth. How there, the airline revenues did not dip despite the take rate going down? So this time around, it has more to do with the promotional expenses, what you mentioned.

[Mohit Kabra, Chief Financial Officer]

No. See, promotional expenses don't come. I mean, look at overall adjusted margin, the promotional expenses don't make a difference. It is purely, the overall delta, if you look at it on a quarter-on-quarter basis it's gone down even compared to the previous quarter. So that's what's kind of causing the delta change on the margin side.

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

And maybe if I can just add an additional point, Sachin, if you look at the numbers on as Mohit was explaining on gross bookings side and the air segments growth, it is positive. It's not a decline. It's like on a constant currency basis. It's 7%, 7.5%. The only additional point that I will make to what Mohit has already said. As I was indicating it earlier as part of my script as well, that the while domestic flights have recovered or domestic traffic has recovered, actually more than recovered to the pre-pandemic levels, international is still lagging behind.

So, international bookings, international, especially long-haul flight bookings have not necessarily fully recovered. And in fact, towards the end of the quarter, second half of December because of the China opening up, there was a bit of a scare on COVID as well. Thankfully after one week, it sort of died down and things got started to get back to normal. But, all things considered because of the high fares with fuel prices going up or the overall focus, being on yield by all the airlines and the backlog of operational issues like backlog of visa clearance, et cetera.

It continued to sort of play in terms of just putting international bookings under pressure. And that's really, just one more additional factor on just overall air despite being the high season, while the consumer sentiment made positive and people want to travel. But, if you if you continue to see high fares on the international side, then sort of plans get pushed if they are not necessarily essential travel related and stuff. So, I think that's the additional point you should keep in mind.

[Sachin Salgaonkar, Bank of America]

Thanks, Rajesh. And last question is now that you guys got the incentive approval for MakeMyTrip ibibo, looks like, the key regulatory hurdle for a potential India listing is behind. So any thoughts in terms of timeline and how you guys are thinking about it?

[Mohit Kabra, Chief Financial Officer]

So from a regularly hurdle point of view, I think, this is kind of incrementally good step to kind of taking in the direction. But, like we have been calling out, tapping into the Indian capital market and is probably there on the agenda, but not necessarily in the near future. So, we are going to remain open to it. And we'll kind of clearly come back and update as and when we kind of are able to crystallize our plans around it.

[Vipul Garg, Vice President of Investor Relations]

Thanks Sachin. The next question is from the line of Gaurav Rateria of Morgan Stanley. Gaurav, you may unmute yourself and ask the question.

[Gaurav Rateria, Morgan Stanley]

Thanks Vipul for giving me the opportunity. So, I have couple of questions. Firstly, when I look at the volumes in each of the individual segments, they haven't reached the pre-COVID levels compared to the same quarter during the pre-COVID. So, somehow, the recovery has been a little slower than expected. So, is it largely because of international in each of the segments? Or there is other some other phenomena going on?

[Mohit Kabra, Chief Financial Officer]

Two reasons, Guarav, if I could call it out. You will look at it overall, in terms of the market recovery. So if you look at even domestic air, the overall market recovery is at about 90%, whereas our recovery, it's kind of close to about 100% plus. So therefore, while we are growing ahead of the market, but the market recovery itself is at an industry level is lagging, the pre-pandemic segmented volumes.

So that's one reason, and secondly, if you look at it in terms of the overall, air ticketing kind of a pace, like Rajesh was calling out international hasn't really kind of bounced back as strongly. So that's the other reason for the lag in the overall recovery for the air ticketing business as a whole.

[Gaurav Rateria, Morgan Stanley]

Second question, how should one look at the lower customer inducement charge as percentage of the gross booking? Is it that the competition or the competitive activity has subsided in the market? And hence, there is no need for that high customer inducement charge? Is it more tactical, like shift between branding versus customer inducement charge? How should one think about like overall ad and promotion spend, you have always been saying 5% to 6%. But it's kind of come out the lower end. So how should one think about it on a sustainable basis?

[Mohit Kabra, Chief Financial Officer]

No, I think on a sustained basis, like we've been saying possibly the range would be more like 5% to 6%, and a couple of things going in over there. One clearly is the extent of competitive activity that we're seeing in the market. And as you have seen that kind of makes a difference.

Secondly and more importantly, I think it is also about building a certain amount of base of volumes, in each of the relevant or important segments, particularly including the hotels and kind of packages segment or in overall accommodation segment. There, if you see over the last, almost like six, seven years, we have gradually built -- robustly built volumes over there.

And as is kind of inherent in the e-commerce models or the online models, as you build volume, customer acquisition costs start kind of panning out much better. So, I think there is about getting to a threshold pace. And therefore, you see why there has consistently been a decline in the marketing sales promotional expenses. Over the last, I would say, six, seven years, that reduction has kind of become sharper over the last few years as we've kind of crossed that threshold.

Pretty much almost just kind of pre-COVID is what I would put it around. So, that's another factor apart from the fact that there is much lower competitive intensity particularly in the hotel segment.

[Gaurav Rateria, Morgan Stanley]

Last question, the cash balance if I compare versus last quarter, I think has come down from 466 to 449. Is there something missing? You have generated lots of like large EBIT during the quarter should have cash flow and should have gone up. So, how should one read the decline in cash?

[Mohit Kabra, Chief Financial Officer]

You are right. This being a seasonally high quarter, you know, usually we do see deployment and working capital during peak seasonality. And then you also see releases happening, as you kind of move into the lower seasonality quarter of quarters. So it's kind of largely linked to seasonality per se and nothing else over there.

[Vipul Garg, Vice President of Investor Relations]

Thanks, Gaurav. Just to remind the participants, anyone who wishes to ask a question can click on the raise hand option. Next question is from the line of Aditya Suresh from Macquarie. Aditya, you can please unmute your line and ask the question now.

[Aditya Suresh, Macquarie]

Thank you, Vipul. I have a few questions. First question was just on the competitive dynamics which you mentioned. Can you elaborate a bit about kind of what's happening in the air segment in particular with Tier 3 getting kind of a new lease of life perhaps? So can you maybe speak about that a little bit and I do kind of note that your customer inducing cost, it could have marketing spent that it's kind of come down, but in absolute terms is still a fairly chunky number, in particularly in an environment where somebody competitors maybe kind of challenge for funding, at least the conditions are a bit tighter. So can you speak a little bit about that? One is the competitive intensity in Air or Cleartrip, et cetera? And two is, I think, part fiscal '24 fiscal '25, are you sticking with this 5% to 6% as growth of gross bookings as a guide? Or is there any kind of absolute kind of numbers I think about this as well?

[Mohit Kabra, Chief Financial Officer]

Aditya maybe I'll take the second part. And I'll invite Rajesh to kind of share more color on the first one. But on the second one, it may not be kind of, in the kind of growth situation that we are, it may not be kind of relevant to kind of look at absolute number per se, and therefore, looking at it in terms of a percentage of spend might be a better way to kind of look at it? And yes, we do kind of expect this to remain in the 5% to 6% range going forward as well.

I just invite Rajesh for the first one.

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

Yes, sure. Happy to happy to Mohit. Aditya to your first question, I think couple of first, important points, I just wanted to remind you and everyone. I think we should always keep in mind that our market share on domestic flights, as we've been sort of reporting out, is pretty healthy, we are at about 30% market share of the total market. And also the fact that for whatever it's worth the flight product for us has been fairly matured.

And we continue to keep innovating, as I was also trying to highlight some of those unique features, that pretty much every quarter, we will end up sort of launching and that helps the customer confidence, that helps us becoming the first choice in the market and has been the case for a while. And that's precisely the reason no matter what the competitive dynamics might be in the market, we've been either gaining share or has been able to stabilize right around 30%. I think these are important points because I think they get lost in the noise often ideally.

From our point of view, we've seen they actually work beautifully well, when it comes to the repeat rate over a period of time, the stickiness really come to your platform, if you continue to keep delivering the promise on the product side. Now as far as the sort of specific dynamics on every quarter of who's doing what and all that, frankly, I'm not sure that sort of you know, we've watched the competition. We obviously look at the competition very, very closely, et cetera, but we are not necessarily obsessed by of what's happening, specifically for a particular -- on a particular day of what kind of discounting that is happening and so on.

I think our strategy has been very clear that, we have to continuously keep improving our product experience and eventually that sort of helps to get more and more customers and more and more market share, and keep managing your P&L or the unit economics accordingly, basis, whatever might be the dynamics in the marketplace. So -- and if you see the history for the last few quarters going into specifically on, let's say, domestic air market, there might be volatility. There may be specific quarters. You will see some more you competitive action, et cetera.

But over a period of time, it sort of still stabilizes because never is -- that sort of deep discounting, et cetera, is never stable or never sustainable rather. So, you have to just sort of deal with that on a quarter-to-quarter basis. But from a long-term standpoint, we haven't really been shifting or moving or even have plans to shift or move our strategy in the domestic flight market for that matter or any of the products and services that we offer.

[Aditya Suresh, Macquarie]

Thanks, Rajesh. That's clear. I guess the second question was me trying to think about incremental EBITDA margins or incremental profit. You did kind of mention that was quite a few growth levers across different products. Now overtime, I think your employee expense has been a fairly large part of the at least as a proportion of revenue. Can you maybe touch on two things? One is, in terms of incrementally, how are you thinking about kind of staff expenses? That's one. And two is, therefore, do you have any guide in terms of incremental EBITDA margin, let's say, add $100 million next year, incrementing. I think it should be much more than that. But let's say, you did add 100. How much of that do you think is EBITDA?

[Mohit Kabra, Chief Financial Officer]

Hi, Aditya, maybe I'll take that. If you are looking in terms of fixed cost overall and growing kind of people cost in particular, they are kind of now despite, like, almost, three rounds of inflationary increases going through. They are still kind of below the prepayment levels in that manner of sorts and almost getting closer to that. But it's still kind of slightly behind the same quarter numbers for pre-pandemic.

So that way, I think we have kind of done a significant amount of rationalization on the fixed cost. Clearly, it's not that they'll remain completely constant. They'll kind of possibly increase at a lower proportion than the growth in the volumes of the business. And secondly, large part of the increase is going to come in more in terms of inflationary increases because we don't really kind of planning any significant headcount increases per se in the business in the quarters or years to come. So, that's one part of the question that you asked. The other is, what is the margin expansion opportunity?

Again, would kind of refrain from getting into shorter term kind of margin gain opportunities. But the longer-term, opportunity, clearly, that we kind of looking at is this is clearly an opportunity to take this business to at least possibly getting to about 1.5 percentage points of adjusted operating margin on a gross booking basis. Now whether that happens in a few quarters or in a couple of years, and clearly, it will it depend on multiple factors.

But you can see this kind of, as in terms of the volume change that you see even on a year-on-year basis in terms of fiscal year '23 versus a fiscal year '22. And then the corresponding changes that you see playing out through an operating leverage on the bottom-line. That would be quite an indicative trend. I mean, I wouldn't necessarily say, the same trend would continue, but it would be indicative in nature.

[Vipul Garg, Vice President of Investor Relations]

Thanks Aditya. Next question is from the line of Puneet Saraogi of Hill Fort Capital. Puneet, you can unmute yourself and ask the question now.

[Unidentified Analyst]

This is Hari for Hill Fort Capital. I had couple of questions. My first question is on the working capital. But can you just double click on the working capital and why it's a higher in this quarter, seasonally? And how do we generally think about OCF in relation to EBITDA on an annual basis? My second question is whether an India listing is on the anvil at all or not?

[Mohit Kabra, Chief Financial Officer]

Puneet [ph], Maybe I'll take both and probably miss some of the earlier kinds of questions on this. But on the working capital side, like I said, this seasonality involved in the business and generally we do see kind of deployment happening in working capital during high season quarters and generally releases kind of coming through in the off seasonality. So, I think it's better to kind of look at it on a more like annual basis or a four quarter basis.

On an annualized basis, I would just kind of suggest that, you need to bake-in some amount of deployment on the working capital linked to volume. So, that's on the overall kind of working capital in and the trend lines over there. And when it comes to your second questions, yes, I mean, one of the India capital markets are kind of open to e-commerce platforms, clearly, and we have seen some of the e-commerce kind of companies kind of go and tap into the Indian capital market.

From our point of view, one of the key things is that, we not necessarily looking at any fundraising in the short-term, you're kind of sitting at a good amount of cash and cash equivalents on the balance sheet, including free cash, even if we were to kind of potentially look at setting aside certain amount for the convertible bonds that we had kind of raised two years back. Even setting, after setting that aside, we're kind of sitting on a healthy cash balance of close to over $250 million.

So from that point of view, a tapping into the capital markets on an immediate basis doesn't seem like a requirement. But from an overall kind of investor value creation and from kind of leveraging the brand and multiple other things, we would kind of keep an eye on kind of tapping into the Indian capital market at some point in time. But like I said, probably there is no immediacy to it, but in the longer run, from an opportunity to kind of tap into capital markets, I think India will be a more preferred market then tapping it or going into the U.S. market once again. So, that's how I will put it.

[Vipul Garg, Vice President of Investor Relations]

Thanks Hari. The next question is from the line of Vijit Jain of Citi. Vijit, you may please unmute yourself and ask your question now.

[Vijit Jain, Citi]

Thank you, Vipul. Congrats on a great set of numbers. I have three questions. First is within the hotel segment, would you say that barring that super budget category, you called out sub $20 and at every other category perhaps with the exception of international is now back to pre-pandemic levels? That's my first question.

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

Yes Vijit.

[Vijit Jain, Citi]

And what would be international now as a percentage of your GBP? I know, last quarter, you guys had mentioned something earlier double digits? How is that moved in last quarter?

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

Same, similar. I mean, it's not substantial change from what we shared earlier.

[Vijit Jain, Citi]

And my last question is just you know, saying on this international theme, now, in the last two to three years, you've launched these programs, like my affiliate in myPartner, et cetera, you working with a lot of offline agents as well. I guess, my question is, how are you thinking about ramping up your international business in the next one to two years? What would be the focus areas there? And if you can shed more light on, how you're going to use even Ctrip partnership, et cetera to kind of ramp that business up? If you can talk a little bit more about that.

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

Yes, sure. Vijit, no, I think it's a great question, given that the recovery is lagging behind, but you know, are we really prepared for when the business comes back and future growth on top of it? And the answer is Vijit, it's absolutely all set from our side, so, when you look at the levers that you could use potentially to grow international business, given the fact that it is an under penetrated online under penetrated sort of segment, even pre-pandemic, our growth rate was much higher both for international flights and hotels.

We are almost sort of restless and waiting for that to sort of open up and from supply side multiple sources of supply on our platform, on the customer side whatever new features and innovation that we could sort of unlock in the international flights for example or for that matter for international hotel bookings. They're already. We all have been actually rolled out tested on the domestic side and we are expanding that to the international side.

In terms of customer acquisitions, like you rightly pointed out, we made investment in some of the other channels also besides our own core B2C platforms, and they will definitely be sort of helping us grow or get the incremental demand on the international segment, because international segment -- international travel market, like I mentioned, it is under penetrated, which effectively means that there is more market offline available as well.

So, we do have a channel which is myPartner, which is through the travel agents, we can reach out to that B2B2C sort of demand, coming our way as well. So, whether it is distribution channels or it is on the supply side, including, leveraging the international supply of trip.com and multiple sources of supply, and the product experience on our platform. So, on all fronts we have absolutely invested, and like I said, we are all set waiting for market to open up.

[Vijit Jain, Citi]

Thanks Rajesh. I guess just my final question to Mohit. The brand campaigns spends that you mentioned in this quarter for both Goibibo and MakeMyTrip. How should we think about that on a going forward basis? I know you have mentioned in the past that some of these expenses are fungible between here and the customer incentive spending, et cetera. But just trying to get a handle on, how to think about it on a quarter to quarter basis? And secondly, the fixed cost overall, which you mentioned is still below pre-pandemic levels. We're almost there. I think last, we have is an approximate $14 million $15 million a quarter -- sorry a month type of a figure in terms of your fixed cost base, is that now closer to $17 million, $18 million?

[Mohit Kabra, Chief Financial Officer]

Hi, Vijit. So, if you look at it, I mean, the first question was maybe more on going to be the brand marketing kind of expenses. And generally, if you see historically, you kind of usually have kind of had higher kind of expenses on the brand marketing side, particularly in the high season quarter. So that's typically Q1 and Q3 from our fiscal year point of view, which is a pretty large. So generally, that is the -- those are these quarters where you cannot typically would see higher spends on this particular side.

But overall, like I've always been calling out, see, overall customer acquisition cost is what is relevant. Some of it kind of possibly pays out with a shorter duration timeframe or some possibly have a longer kind of the lead time as well as a lag effect. But I think it's kind of relevant to look at it more in terms of a blended number.

And before, I would just say that's the reason that we kind of call out the marketing and sales promotion kind of expenses together because that gives you a better kind of overall understandings of how customer retention costs are trending. So kind of looking at it in isolation, it may not be a great idea, but you can kind of budget for a slightly higher mix coming in from brand marketing expenses, particularly in the seasonal quarters.

[Vijit Jain, Citi]

Got it. Thanks, Mohit. And my second question was just on the fixed cost base, where are we in terms of run rate?

[Mohit Kabra, Chief Financial Officer]

Yes. So if you look at it in terms of the run rate pre-COVID used to be almost like about $15 million to $16 million. We are is still just shared below $15 million in the reported quarter, that's what I was calling out that despite almost three inflationary business going through, we are slightly kind of below that run rate, so reasonably good on that.

[Vijit Jain, Citi]

Got it. Great. Thanks for it. Those are all my questions.

[Vipul Garg, Vice President of Investor Relations]

Thanks, Vijit. The next question is from the line of Aditya Chandrasekar of UBS. Aditya, you may please ask your question. Unmute by yourself and ask your question now.

[Aditya Chandrasekar, UBS]

Yes. Hi. Thanks, Vipul. I have a question on the air side. So this has been seasonally strong quarter, right? And we also saw the passenger data, et cetera, from DGCA, I mean, being quite healthy with record highs, et cetera. Just wanted to understand like, was there a potential of a better growth on the air side? I mean, even ignoring international because we saw 4% kind of Q-o-Q growth and air gross bookings. So could that have been higher considering the large at volumes? Have we lost -- I mean, I don't think we have lost any market share, but just wanted to get a sense of could the growth be better or should it have been better in Q3 considering the volumes as well as it being seasonally strong? And how should we look at that going forward?

[Mohit Kabra, Chief Financial Officer]

Sure, Aditya. Like I had called out, if you really look at it, in terms of recovery during the reported quarter, domestic air rate recovery, the industry recovery was more about 95%, whereas our recovery was close to about 100%. So, from that way, if you look at it, possibly our kind of market share, kind of gains continue to kind of help us. And we are kind of growing ahead of the market. Could the overall industry growth been higher? Yes. I mean, clearly, the potential is there for the overall domestic industry numbers to kind of keep increasing.

But quite a few challenges there in terms of the prevailing kind of inflationary pressures, et cetera, and the overall capacity and some of them are -- some amount of challenges being faced by the airlines also on the maintenance and spares availability, as a result of which, some of the kind of planes are also kind of right now grounded. So as all of this capacity comes back, hopefully in the coming quarters, we should see the industry expanding faster as well.

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

Sorry Aditya. I was just going to add one more point. I think the important point is, given what we all sort of get excited about at times, including us, is the peak numbers for certain days. But I think the important point will be just to look at the full quarter numbers, even from sort of overall the domestic market traffic. And you will realize that was sort of up and down and overall as more he pointed out, can only the trafficker would recovery was for the market, it was about 95%.

And if I can just give you additional data point on flight departures and given the fact that we just literally have every flight, and we sort of monitor that very, very closely as compared to what it used to be pre-pandemic was actually 92%. And then the reason for that was, is that, the load factors have been high, the airlines have been very, very careful in deploying more traffic, because they've all been and rightly so coming out of the tough period of pandemic focused on, higher load factors, more yield, per passenger, and thereby reducing the losses for them.

As we get into the steady state market and all the sort of the health, the financial health of the airlines starts to improve with some of these results. And we're getting some news from Air India that they might turn profitable, et cetera. Some of these things that happen, it'll further stabilize. We'll get more capacity for sure, and then because of that, the demand and the growth will also come back.

[Aditya Chandrasekar, UBS]

And just a very quick question on the marketing side again. So, next quarter, it came at 5.2%, even though we did TV campaigns, et cetera, after a while. I mean, you've mentioned multiple times that it probably stays in that 5%, 6% range. Do you think there's also a potential for it to come down also from these levels. Because going forward, if we kind of don't do some of these TV or ad campaigns, which we probably won't do quarter, right? And we are seeing efficiencies in the other side of the other marketing costs. So you think it could head to that 5% or be 4.8%, 4.9%, or you think largely 5% to 6% is where we should aim for?

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

Like I was calling out, Aditya, we should be kind of currently estimated to remain in the 5% to 6% range. I think it's good that at least in the peak seasonality in the reported quarter, we were able to kind of keep it more closer to the lower end of the range while reviving the brand campaign. So, let's see, as we kind of keep making progress, we'll keep sharing color, but the current estimate remains 5% to 6%.

[Vipul Garg, Vice President of Investor Relations]

Thanks Aditya. The next question is from the line of Tarbir Shahpuri of Nidara Capital. Tarbir, you may please unmute yourself and ask the question now.

[Tarbir Shahpuri, Nidara Capital]

Thanks Vipul. Actually, my question is for you. Vipul, when are you going to organize an investor day for us?

[Vipul Garg, Vice President of Investor Relations]

We were working on it. Give us some time. We are getting the structure ready. So hopefully soon we'll come back with the details.

[Tarbir Shahpuri, Nidara Capital]

[Foreign Language] Anyway congratulations guys. Good luck for the next question.

[Vipul Garg, Vice President of Investor Relations]

Thanks Tarbir. The next question is from the line and it will be the last question, we are out of time. It's with [Lester Poon] from Hong Kong. Lester, you may please unmute yourself and ask the question now.

[Unidentified Analyst]

In the past, the management gave guidance that the adjustment operating margins will not be lower than 1% of their gross booking revenue. And for Q3, I did a quick calculation is about 1%, 2%. And Q3 already is a peak season. So does it mean that the other non-peak seasons, the percentage may fall below 1%, or you are confident that you can maintain the 1% in the future?

[Mohit Kabra, Chief Financial Officer]

Lester, let me take that. We're guided for this full fiscal year. We would kind of you know look at close to about 1%. And if you look at on YTD basis, we are kind of slightly better than the 1% that we are guided for. And therefore, we do believe that for the full year also as a whole, we should be able to kind of maintain that 1% run rate or be slightly above that, and we should know in about a quarter's time. We will share more color about the subsequent years as we kind of get into the new fiscal year.

[Unidentified Analyst]

Okay, thank you very much. So see you soon in person in our conference.

[Mohit Kabra, Chief Financial Officer]

Surely, look forward.

[Vipul Garg, Vice President of Investor Relations]

Thank you, Lester. That was our last question. I'll just now hand over to Rajesh for his closing comments.

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

Yes, thank you, Vipul. And thank you, everyone. Thank you, everyone, for your patience, your time, and all the interesting questions. And then look forward to come back to you next quarter. Thanks a lot.

[Mohit Kabra, Chief Financial Officer]

I would just add that you know, in case we have not been able to take questions from any of your participants due to paucity of time, please feel free to you know writing to Vipul and we will try and get back to you as soon as we can.

[Vipul Garg, Vice President of Investor Relations]

Thank you, Rajesh. Thank you, Mohit. This brings us to the end of the call. You may please disconnect. Thank you.

[Mohit Kabra, Chief Financial Officer]

Thank you.

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

Thank you. Bye.