Thomas Cook (India) Ltd

NSE:THOMASCOOK

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and welcome to the Thomas Cook Q1 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vidit Shah from IIFL Securities Limited. Thank you, and over to you, Mr. Shah.

[Vidit Shah, analyst]

Thank you, Leo. Ladies and gentlemen, good afternoon, and thank you for joining us on the 1Q FY '24 earnings conference call of Thomas Cook India Limited. I invite the company's senior management team to discuss the results and business strategy. We will begin the call with opening remarks from Mr. Madhavan Menon. And thereafter, we will open the call for a Q&A session. I'd like to now hand over the call to Mr. Menon to take the proceedings forward. Over to you, sir.

[Madhavan Menon, executive]

Thank you, Vidit. Thank you [indiscernible]. Before I start, ladies and gentlemen, very good afternoon to you. Let me also introduce the other participants. You've got Mahesh Iyer, the Managing Director of Thomas Cook India Limited. You've got Vishal Suri, Managing Director of SOTC Limited. You've got Vikram Lalvani, Managing Director of Sterling Holiday Resorts. You've got Debasis Nandy, who is the Group CFO. You've got Brijesh Modi, who is the CFO of Thomas Cook India Limited. Have I missed anybody Mahesh? And Mr. Ramakrishnan, who is the MD of DEI.Ladies and gentlemen, this has been another good quarter for us. And instead of looking at it purely from a sequential point of view, let me say that there are several reasons why this quarter has looked very good. The first being that historically, this quarter is a quarter where all the travel businesses, especially the Leisure businesses, both across Thomas Cook India, SOTC and Sterling have very good volumes because they execute the holiday season. The second important point is that -- coming out of COVID, as we mentioned over the last couple of calls, we have restructured ourselves by managing our costs and as you will see that our costs are significantly down from what we were pre-COVID.And we believe that we've reached a level where it could be sustainable over a period of time. If you look at the margins, if you look at the cost-to-revenue ratio, if you look at the other costs in the business, you will note that these are -- that the margins are much higher and they have been for nearly a year now. If you look at the costs there down, if you look at productivity numbers, they have improved. So in reality, I think we are sitting at a point where the productivity of the businesses has improved significantly. Again, Thomas Cook, SOTC and Sterling have led the profitability drive in this quarter.And we expect that going forward, something that both Mahesh, Vishal and Vikram will explain -- our bookings look good. Let me just -- before I hand over, just make a couple of comments on the other businesses. The Foreign Exchange business had an exceptional quarter, and Mahesh will talk about this, where we've seen some record numbers. If you look at the MICE business across both Thomas Cook and SOTC, they've had a very, very good quarter. They've exceeded their budgets. They've exceeded the previous year. If you look at the Leisure business, despite recoveries from pre-COVID still being low, they've actually managed to book -- increase their profitability significantly.Look at Sterling Holiday results. They've had, as I mentioned earlier, a record quarter that they have record profits also. As far as DEI is concerned, we've seen from the news that China, the domestic markets in China are firing on all cylinders and Southeast Asia has reopened. It is a relatively low season in the Middle East where a lot of our businesses are concentrated. However, having said that, I think the group as a whole has done fairly well. A couple of businesses, especially the one that is TCI, and Asian Trails have been a little slow in recovering because they conduct long-haul business where most of their customers come in from Europe and the United States, and these have been slow to take off. Having said that, I expect the next couple of quarters to continue the trend that we are witnessing.I will hand over to Debasis now, who will explain the numbers and hand it over to Mahesh, Vishal and the others. Thank you.

[Debasis Nandy, executive]

Thank you, Madhavan. So I'll spend a few minutes of a time in working on -- mover on the balance sheet side because the P&L side, when Madhavan talked about it, and hear more about it from Mahesh, Vishal and Ram, I would like to spend some time on the consolidated balance sheet because that reflects the strength of the company. So on the debt side, between March and June we managed to reduce our debt by INR 78 crores. Our current debt balances is about INR 313 crores, out of which INR 143 crores in long-term debt and about INR 170 crores or short term. This represents a 20% reduction of debt in a matter of 3 months.For reference, against the INR 313 crores update that we have now, the debt position as of March '20 when the pandemic began was INR 508 crores. So we have gone down about INR 200 crores from our debt position that was there at the beginning of the pandemic. This is the same time in the last few months our equity portion improved by INR 81 crores, which is coming purely from profits. This is acquisition through profit after tax. And so our DTP position is now INR 1,794 crores, which represents a 5% increase over what it was in March of this year.Coming on to current assets and liabilities; on the current asset side, our current asset grew by 19% during the quarter. It increased by INR 465 crores from INR 2,395 crores to INR 2,860 crores and largely because of two factors. One is increasing receivables by INR 118 crores which represented 21% increase, which actually reflects the growing volumes that the business is seeing, particularly on the B2B side. On the -- and the guidance, our INR 382 crores increase came from increases in cash and investments, which are liquid investments, which are initial funds, et cetera.So this represents a 47% increase in the cash balances. It is interesting to note that the increase in cash as a percentage of the total increase in current assets is 82% so about INR 465 crores, INR 382 crores is the increase in cash balance. On the current liabilities side and this excludes the loans specifically. So it's just primary the trade payables is -- overall increase is about INR 458 crores from INR 2,746 crores to INR 3,204 crores, a 17% increase, largely guided by trade payables of INR 425 crores, which essentially reflects again, just like the receivables, and the cash balances reflects the increase in the volume of business.I will pause here and pass this on to Mahesh so that he can take you through the -- more on the business figures, particularly on foreign exchange and the travel-related items.

[Mahesh Iyer, executive]

Thank you, Debasis and thank you, Madhavan. As Madhavan just guided, I think it's an important thing to mention that it's traditionally a strong travel quarter that we are in. And across all [indiscernible] that we monitor internally and that the market looks at, we have performed very, very well. Noteworthy to mention here, income from operations grew by about 95% from about INR 89 crores to INR 1,922 crores year-on-year. And on a quarter-on-quarter, which is sequentially, it grew 68% from INR 1,324 crores to INR 1,898 crores. As a result, operating EBITDA improved 2.6x from INR 55 crores to INR 147 crores. These are some real record numbers that we are talking about here. And as a group, as Madhavan rightly mentioned, Thomas Cook, SOTP and Sterling has had a very good quarter as recovery in volumes, coupled with margins and cost prudence played to the bottom line that we reported in the current quarter.It's also important to mention one of the key drivers as far as the businesses are concerned, and I will begin with talking about foreign exchange. On the foreign exchange side, which has had a very good quarter in the current one were income from operations or revenue actually grew 91% from INR 47 crores to INR 91 crores. This increase in revenue led to an improvement in profitability that EBIT from INR 11 crores to INR 42 crores. The noteworthy things that led to this kind of a phenomenal growth is the growth in retail business where the recovery was close to 110% to the pre-pandemic level. If I look at the corporate business, a lot of the corporate volumes that were subdued in Q1 of -- Q4 of FY '23 came back in Q1 of FY '24, and we have close to about 90% recovery as far as the corporate CapEx is concerned.Also, the retail business was aided by the recovery in the travel volumes as our outbound travel started off that part of the business also fired very well for us. On the Education segment, our volumes grew by about 22% despite the fact that this is traditionally not a seasonal part of our education actually comes in the current quarter that we are in. But despite that, we had 22% growth in volumes year-on-year. Noteworthy thing is the prepaid card volumes. They grew 55% why year-on-year. And as we speak, we have a [ float ], which was about INR 880 crores of March currently stands at about INR 1,200 crores. During the quarter, we also launched the Study Buddy program, which is focused on the students.This road that on the prepaid card portfolio that we offer, the offers for student on this, and we believe we will kind of set ourselves for a larger market share on this business. As you would know, the Education business is about $3.5 billion, and we currently do about $150 million, $160 million out of that portfolio. Our expectation is to double that over the next three years. And this product that we've launched along with a set of offerings that associate along with this will actually put us into a close to about a 15% market share as far as the Education segment is concerned.During the quarter, we also collaborated with one of the largest banks in the country to manage the [indiscernible] movement, where there is a the large traffic where we supply currency notes across 300-plus locations of the bank, and that was one of [indiscernible] which also aided the performance in the current quarter. Also to mention here that we also acquired a large -- large number of marquee clients during the quarter both in the retail, telecom, consulting, infrastructure and manufacturing. I think all of this will add somewhere close to about $15 million to $18 million of annualized volumes to the corporate foreign exchange business.It's important to mention here that when I look at the recovery to 2019, we are -- in this quarter saw 106% recovery in terms of volume to 2019. And on a year-on-year basis, growth, we are at about 60%. If I look at that digital adoption on this business, we continue to be at about 21%, which is the ForEx contact center as well as the digital tool that we enable our customers to book through. Overall adoption is at 21%. And this 21% continues to be there despite an increase in the volume. So clearly, if you look at the overall business per se, we've had a very strong growth and getting into the current quarter and beyond we believe the tailwinds that are supporting the business will continue to rise for us.Moving over to the Travel segment, quickly to comment on the overall recovery as travel is concerned, we are about 78% overall recovery. And as you will recollect, when we guided the market previously, our expectation for the full year is anywhere between 75% to 85% recovery is what we expected. At this point in time, the recovery stands at 78% for the overall portfolio. And if I look at the growth from a year ago, the growth is at 76%. So the point that Madhavan initially made, we have seen some smart volumes coming back to us. The drive to travel is back -- both the domestic, international recovery has been strong. And I think you will hear from my colleague, Vikram, speak about the domestic traffic there too.But clearly, we've seen some smart recovery happening on the domestic and international side. As a result of this recovery, income from operations on the overall Travel segment improved from INR 675 crores to INR 1,468 crores, representing 118% growth. And consequently, the [indiscernible] from a loss of INR 17 crores moved to a profit of INR 50 crores. This was a broad highlight as far as the Travel business is concerned. Moving on to some of the segments within the Travel, I'll talk about Corporate Travel, which is nothing but the B2B where we operate as travel management consultants for some of the large corporate houses in the country.We have 109% recovery to the pre-pandemic level. And from a quarter-on-quarter growth perspective, we're at 25%. I'd like to call out here that from a unit perspective, that's volume perspective, we still see our ticket growth at about 12% to pre-pandemic level. And from a volume point of view we are already tracking close to about 25%, aided by the higher ticket prices that prevail till June of 2023. There has been some softening of ticket rates in the month of July. And hopefully, in August, we will see some amount of softening, but this is something that we will continue to monitor over a long period in time.It's also important to mention here that we also acquired a large number of marquee customers in the automobile sector in apparel and manufacturing, banking and finance, and our adoption rate on the corporate booking tool moved up from roughly around 35% in the previous quarter to about 48%. It's important to mention about this adoption of corporate booking tools because this is where we bring the productivity benefits that Madhavan referred to. Increasingly, more and more customers using self-serve models, reduces the number of hands that are inquired to process, brings in efficiency in terms of collection, and that's a very important driver for the cash flow to the point that Debasis mentioned on the balance sheet.Moving on to the domestic holiday side of it and the international holiday -- domestic holiday recovery has been better, but got subdued post May. As you would remember, that it was on 3rd of May 2023 when Go Airways announced the withdrawal of its flight. That dented the demand on the domestic side because Go connected to some of the ports that used to be in the top 5 destination that we sold on the domestic side. So there was a lot of cancellations that we saw roughly about 35% cancellations came in because customers didn't want to travel by paying a higher price, and you will appreciate that one airline goes down, the overall price in the industry goes up. So clearly, the cost of operations for them was going up and customers chose to cancel some of those holidays.That impact was there. But despite that, the recovery on the domestic side was at 72% to the pre-pandemic level, and we remain almost flat in terms of our growth compared to the similar quarter of the previous year. It's important to mention here that we did a lot of initiatives in terms of the short breaks that people take, which involve domestic [indiscernible], vacations, we manage large travel groups to Europe between SOTC and Thomas Cook. We had roughly about 18,000 customers who traveled with us to Europe, and our expectation is for the end of the year, we'll be close to about 25,000 customers. The Cherry Blossom that we launched for a huge success.We had close to about 2,000 customers who booked with us on the Cherry Blossom tour. There are new destinations that we launched during this period, which included Azerbaijan, Georgia and Kazakhstan other than the domestic circuit, which included Orissa, Uttar Pradesh and Gujarat. We also had, as you will know, the Visa challenges continue to plague the long-distance straddle, the long haul, as we call it, more importantly, the Schengen Visa and the rejection rates were close to about 7% to 8% in our business, too. But despite that, our international holiday volume recovered about 50% to the pre-pandemic level.But as Madhavan said, despite this 50% recovery, our overall [indiscernible] on the business grew almost equal to what we used to do pre-pandemic. So as the tailwinds on the holiday comes and supports us, this will add to our bottom line, and we expect this trend. If I look at the forward bookings in the coming quarters, the holiday business is already trending at about 110% to the internal budgets that we have set for ourselves. That represents roughly about 80% to the pre-pandemic level. If I look at the MICE business, I think we've already surpassed our internal estimates for the business, but we expect the full year to close at about 20% to 25% higher than what we did for the pre-pandemic level.Coming back to speak about some of the major events on mine, G20, that's one of the events that we spoke about in the past. We acquired -- or we are one of the three vendors that services the government on this. We've completed close to about 37 events for G20 and there are about four or five more events that will happen until about September 2023, and we will record some high volumes on the government business. Apart from that, Khelo India an important sports even that the government is promoting. We are one of the principal partners there, and we've already done about four units of Khelo India, and there's one more on the [indiscernible] which we'll do in the last quarter of the current calendar year.Some large movements of customers have happened close to about 6,500 people on Khelo India. We had an inbound delegate group of about 325 delegates coming in. We also had large groups close to about 14,000 passengers between SOTP and Thomas Cook who travelled across the globe with us. Overall, if I look at the trend, the forward positions look very, very strong, and we remain very optimistic of the travel business in the coming quarters.Over to you, Vikram, for an update on Sterling. Thank you.

[Vikram Lalvani]

Thanks, Mahesh. Good afternoon, ladies and gentlemen. My name is Vikram Lalvani and I represent Sterling Holiday Resorts as its Managing Director and Chief Executive Officer. I'm joined by Mr. L. Krishna Kumar, the Chief Financial Officer at Sterling Holiday Resorts Limited. It's a privilege to interact with all of you once again today. Q1 as we are all aware is traditionally a strong quarter for Leisure business. Post COVID years, Sterling has recorded a phenomenal turnaround last year Q1, with a turnover of approximately INR 103 crores on income and INR 28 crores PBT with an operating free cash flow of INR 33 crores.This year, Q1 of FY '24, we are delighted to announce that Sterling has recorded its highest PBT of any quarter ahead of Q1 FY '23 by 27% to close with INR 35.8 crores. It was supported by a healthy growth in total income by 13% to close at INR 116 crores approximately. Our operating free cash flow has been the highest in any quarter of the past, and we closed with INR 41 crores as an operating free cash flow, which is a growth or 24% over Q1 of FY '23. Our EBITDA margins are healthy at 36% growth also over last year by 16%. This is the 10th consecutive profitable quarter for Sterling. This reaffirms our approach towards becoming a leading leisure hospitality player in the country. The above growth was fueled primarily by the Resort business. Our Resort revenues grew by over 15% over Q1 of FY '23 to close at INR 100 crores for the first time ever this quarter.This was driven by sustained occupancy of 79%, a growth of 8% on average room rates to close at a high of INR 7,454 in average room rates and an increase in guest ratios from 55% in Q1 FY '23 to 62% in Q1 FY '24. Other critical lines of businesses like food and beverage grew healthy at 13% to close at approximately INR 25 crores for this quarter. We continued our thrust on increasing efficiencies in the membership business with variable on-site sales going up to 68% from 44% of last year and down payments at 73% in quarter one of FY '24 when compared to 47% of the of -- in Q1 FY '23. Given the thrust on growing Sterling as a hospitality brand with its Resort business, Sterling shall continue to focus only on short-term membership products and has progressively tapered down sales of long-term membership products.In Q1 FY '24, the mix of products sold reflects this change. Despite this, we have recorded the highest ever operating free cash flow as stated above, on account of growth in the Resort business. Our strategic approach on expansions has been primarily on the asset-light model. In Q1 FY '24, we had a full quarter impact of the six new resorts that we opened in FY '23. And additionally, we also launched two more results during this quarter, taking our overall strength to 42 resorts across 40 destinations and over 2,500 rooms. Our confirmed pipeline of new destinations and new resorts being added in the remaining part of FY '24 is very healthy, and we could be adding approximately six to eight resorts amounting to 400 rooms this year itself.Sterling's focused commitment to customer delight has also resulted in 22 of our resorts being awarded, the Tripadvisor Travelers Choice Awards, which is top -- that's recognized as top 10% of the accommodations globally and Sterling Kanha being awarded the Tripadvisor's Travelers Best of the Best Award that is up 1% of the accommodations globally. As a responsible hospitality brand, Sterling has also partnered with the government since 2019 on skill development programs to develop young talent for employability in the hospitality sector. We have centers in our resorts at Munnar, Missouri, Puri, Ooty and Kodagu.We are happy to also inform you that we have been conferred with a special recognition by THSC that is Tourism and Hospitality Skill Council of the government towards our efforts developing this talent pool last year. Sterling has taken steps towards strengthening its operations and building blocks for scalability through technology. Sterling continues to leverage from our proprietary distribution platform Sterling One that connects seamlessly real-time with our trade, corporate and association partners of business. The business materialized this year through Sterling One for this quarter, Sterling One, is approximately INR 23 crores which is about 4x of what it had happened in Q1 of FY '23.Back-end financial reporting has been strengthened with cloud-based single view platforms being introduced as of April of this financial year. This is scalable as and when we keep adding more and more resources to our portfolio as well. Our front-end property management systems of resorts are undergoing a change that focuses more on the hospitality metrics, transactions with a centralized cloud-based view. We have also introduced Net Promoter Score online platform to help us drive customer delights across all our results. Sterling continues to remain upbeat given the strong fundamentals in the domestic tourism business and the growing strength of brand Sterling. And we are confident of our continued sustained strong performance even in the coming quarters of this financial year.Thank you so much.

[Mahesh Iyer, executive]

Ram, if you can go in next, please.

[K.S. Ramakrishnan]

Hi. This is Ramakrishnan, if you can all hear me clearly. So we had a -- DEI had a fairly good quarter. It's a tough quarter for us in the Middle East, but our Far East business has grown pretty rapidly. Like Madhavan mentioned, China has literally doubled our budgeted numbers and actually, we probably 5x over our last year's numbers in China. We have both the resorts, Universal and Disney doing Full Monty and giving top performance numbers that have never been seen by that market ever in the past. Pre-pandemic, our past operators who are operating resorts have done probably half of what we are doing. So we see a very bright future in China for us going forward.The Rest of the World, in the Middle East, we've had a fairly good year, a very good quarter. Of course, we had Ramadan and summer, which probably -- it's one of our lowest quarters normally in the year that had been affected as we had a resounding numbers for the whole global business of ours in the quarter. Looking forward, I think, yes, another thing was balloon. We started the balloon this quarter. And obviously, we had some [indiscernible] issues, some uptime issues. All of that has got sorted as of last month. We started by clocking a 35% uptime. In three months, we've gone to already 90% uptime, which shows us a brighter future for the coming quarters. Revenues will start trickling in.This quarter, we were affected a bit by the balloons revenue and the profits being the first quarter and in first half. But all-in-all, three months is fairly a reasonable time for catch-up. And I think we've done a good job on that. The good news is as of July month, we are doing a 94% uptime. So the numbers look very good, and the coming quarter will be much more exciting overall. From an overall perspective, we also are invested and have just getting ready to launch our new platform, Hummingbird, which is a complete new digital platform that will deliver photos and images to people through cloud. It will be a real-time online display of images and memories that one can get as soon as the image is clicked. Also, it is getting some interesting features, like facial recognition, et cetera.This is all going to go live by the last quarter of this year. So that would definitely change both our profit margins and our operating efficiencies multifold. Overall, the future for DEI is very strong. I mean the next two quarters definitely are our three quarters, the last quarter being the largest one. When I say the last word I'm talking about the October to December that is one of the most important ones for DEI. We literally do more than 60% of our profits in that quarter. So we are very excited about the year by itself. It will be way better than 2022, we posted a good year, probably one of the best years post-COVID.'23, I think we're poised to bring that number as we go along. Other than that, on the brighter side, as I said about Hummingbird, the other idea of Hummingbird putting the new platforms also into -- going into non-operating models, where we'll be doing a SaaS model of our solution. This is the first time we'll be entering into that zone. So '24 looks extremely exciting for us with the balloon going on full time and the SaaS model for our non-operating model coming up. So we see fairly overall a very good future for DEI, the post -- being acquired by Thomas Cook, I think we've not had any better year than last year. And going forward this year looks even better than that. The next three years are very exciting for us. So we are all excited about all that. Thank you very much from my side.

[Mahesh Iyer, executive]

Thank you, Ram, Debasis once again. So before we start the question-and-answer, just spend a couple of minutes on the international travel business, what you call the destination management businesses. So I will go region-by-region instead of giving an overall outlook and that will help us understand the region better. So I'll start off with the Asian phase, which is the -- which covers the Indio-Pacific regions, primarily Southeast Asia as well as Australia. So this region was one of the last to get out of the COVID-related restrictions and it started recovering. If I compare the current year sales as compared to the same quarter last year, we have seen an increase in sales from $4.4 million to [indiscernible], which is an increase of 2.4x.Moving on to Middle East; Middle East, as Madhavan has said and Ram also mentioned, it is the summer in Dubai, in the UAE and therefore, the movement of traffic is restricted. Overall, it increased its sales by about 1%. [Indiscernible] that we had [indiscernible] adventures went up from $20.8 million or 20.9%. Obviously, with the -- as summer goes away and the [indiscernible], this is going to do well from about October onward in the next two quarters. East Africa; East Africa continued to do well. Increase in sales was 63% from about $1.5 million last year to $2.3 million. South Africa recovered from COVID and moved up in sales by about 137% from about $1.2 million or $2.9 million.And to end with Horizon Travel U.S.A., although this is just onset of the season, it moved our sales about 29% from $9.7 million to $11.5 million. In terms of -- just to give you a little more brief on this. As I said, in Asian Trails, the recovery has started. And certain countries like Thailand, Indonesia, Malaysia and Vietnam are recovering very well. Some of them are actually ahead of what it did in the pre-COVID times. We have seen slower recovery in other countries, notably Australia and China, China for obvious reasons. Australia because of the high EFS that are prevalent and that has reduced the traffic in that country. Of course, the political situation in cases like Myanmar, et cetera, is restricted to tourist traffic.In case of East Africa, the traffic is largely coming in from its traditional markets, which is U.S.A., U.K., Germany. But we have also coming in traffic coming in from places -- newer places like, for example, Romania and Hungary and also a large number of Indians that are way in. And probably this will grow with the onset of new flight connections, et cetera. In Desert Adventures, primarily in the summer months, we saw people coming to -- tourists coming in from the CIS countries as well as also from India. U.S. is traditionally fed by European tourists. At the overall level, the DMS business saw a growth of 43% in turnover from our $37.5 million last year to about $53.5 million this year.That sort of updates that are current discussion, and we will open this up for question and answer. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Akshay from Flutura.

[Akshay Madalgi, analyst]

I have a couple of them. So my first question is on the cash plan. So we are sitting at around INR 1,400-odd crores of cash. So what are we planning to do about it? The next question is on the tax collected at source sites. So if I'm not wrong, it has increased by -- from 5% to 20%. So how will it impact our business? And my third question is on the cost of services like it has increased substantially. So any guidance on that?

[Debasis Nandy, executive]

Debasis here, I'll try to answer your questions one by one. Your first question is what will be the cash. So the cash that we have, obviously reflects operating cash as well as any cash [indiscernible] that maybe -- that any of the companies including Thomas Cook stand-alone may have. A part of the cash obviously pertains to our -- the flow that we have on our prepaid ForEx card, which Mahesh had talked about. In terms of any surplus and what will be the surplus or what do you do with the cash in future? So obviously, our first priority is to pay off our loans.As I mentioned a few minutes ago, we have been repaying our loans. We brought down our loans by INR 78 crores during the quarter, but it's still at a level of about INR 300 crores. The priority is to bring down the debt to as close to 0 as possible, and therefore, reduce our finance charges to obviously to the 1 year 0 level, which will obviously improve the profitability. It will take -- obviously, take a couple of years to do that. The business has just started earning cash in terms of free cash flow, et cetera, so it will take us a couple of years. And once the cash start accumulating, we'll see how to go about it. If your question pertains to -- indirectly pertains to whether we are looking for acquisitions, et cetera, I think we are not looking for acquisition at this point of time. Till such time we -- our cash curation get much better. We'll then see what to do with the cash. That's a question about one.The second question pertains to TCS. So a bit of an update out here, you might have missed it. But while the government initially increased the rate from 5% to 20%, there have been several corrections on that later, thanks to the industry, industry coming in together and presenting to the government. On the -- at the end of it, to sum up, I'll get into a couple of details, but to sum up, there has been little or no changes as far as we are concerned. On the foreign exchange side, the rate continues to be 5% for any remittance that goes beyond INR 7 lakhs. So up to INR 7 lakhs, this is for certain purposes, et cetera. I'll not get into that much of detail, but it remains at 5%. There's the summary level, and I can send you one pager to just explain what are the changes.In case of travel, which was a big concern for the industry, where the rate was -- the existing rate of 5% was staged to 20%, so the government has given us a good leeway so to say. So any travel up to INR 7 lakhs per passenger earlier, we charged at 5%. If somebody exceeds the INR 7 lakh cap in a particular year, the rate for the incremental amount will grow to 20%. Now we can safely say that about 95%, 98% of our travel business or the customers that travel with us keep their travel expenses at less than INR 7 lakhs per person per year. So the business is largely unaffected. I mean largely in the sense, virtually unaffected, this 97%, 98% is within that cap. So we do not see the increase in TCS as any threat for us. For us life remains where it was.The third question was about the cost of services, which is basically the cost of sales for us. And the cost of sales reflects the increasing volume of business. So as sales go up, our cost of sales will also go up. I hope you are referring to that. So if I look at overall competitive numbers and I compare it to what it was in April, June '22, our total revenue has gone up to INR 1,922 crores as compared to INR 990 crores. Corresponding the sales, the cost of sales has gone up by INR 664 crores up to INR 1,400 crores. So this purely reflects an increase in the -- due to the volume of business is largely variable. We are not really what matters really is the margin at the end of the day. If you look at our EBITDA margin, it has gone up from 5.6% to about 7.7% in the same period. I think that is the metric that we are more interested in.Does that answer your question?

[Akshay Madalgi, analyst]

Yes. That was helpful. And just if I can squeeze a small one right here. So do you have any DTAs for FY '24? And can you give us guidance for FY '24?

[Debasis Nandy, executive]

Yes, we have DTA, because we lost money during the COVID period for the years '21, '22 as -- '20-'21 and '21-'22, we lost money, and therefore, we created a deferred test asset on that. I'm happy to state that the deferred tax assets will -- we are using it right now and the deferred tax asset that we have ahead will certainly get wiped out by next year by FY '24-'25 will certainly get wiped out.

[Akshay Madalgi, analyst]

Okay. So any tax guidance for the year?

[Debasis Nandy, executive]

What exactly do you mean, how much tax will end up paying?

[Akshay Madalgi, analyst]

Yes, consolidated FY '24.

[Debasis Nandy, executive]

Okay. So it will depend. See we are [indiscernible], right? There are multiple countries, not only in India, all the India consumes a larger part of the business, but there are obviously the overseas tax rates and tax structures, et cetera, change. At the India level, we'll be paying little or no taxes because we'll be taking advantage of the DTA that we have created for the multi tax losses. Overseas, some countries have taxes and some don't, and the profit picture is different. So overseas has been different, it is more difficult to give a guidance.

[Operator]

[Operator Instructions] The next question is from the line of Mithun Aswath from Kivah Advisors.

[Mithun Aswath, analyst]

My question pertains to the travel-related business. Despite the improvement in the top line, EBIT continues to be subdued on that part. Obviously, ForEx has delivered very good numbers. So just wanted to understand, is it because of the mix? And what sort of EBIT can the travel-related business do once you scale back to pre-COVID top line in the travel-related business?

[Mahesh Iyer, executive]

Mithun, this is Mahesh here. Let me take that question on and you rightly pointed to that one. It's because of the mix because the travel segment that you see here getting reported has got outbound holidays, domestic holidays, B2B holiday, which is [indiscernible] corporate travel, which is the corporate management part of it that we do. And we also have inbound India and DMS businesses. So all of this [indiscernible] and if you heard the commentary from Debasis, very clearly mentioned that the inbound into India and the DMSs are not in the peak of the season. This is our [indiscernible] for them. So essentially, we aren't seeing any profitability addition from them, whereas the revenue as I believe calculated on the top line, but the profit numbers are not so. So clearly, when the time turns and the quarter, which is essentially quarter 3 and quarter 4 or FY '24, when they start showing those numbers, those margins will start looking better.But even on a comparative basis, if you compare to April, June '22 and compared to April, June 2023, our EBIT margins have improved from a negative 3% to a positive 3%. The swing is about 6% in that sense. If you ask me for our guidance, we expect that to be close to about 7% to 8%. That's our indication at this point in time.

[Mithun Aswath, analyst]

On the travel-related business itself EBIT around 7% to 8%?

[Mahesh Iyer, executive]

Yes, I'm talking about travel and related services, which is a mix of multiple businesses that I just mentioned.

[Mithun Aswath, analyst]

So you could look at an EBIT of 7% to 8% from that business.

[Mahesh Iyer, executive]

Yes.

[Mithun Aswath, analyst]

Okay. I just wanted to understand when do you think you will get back to pre-COVID, I'm talking about like FY '19 sort of numbers on the travel-related business? Do you think that month-on-month things are improving now? Or it would still take some time to get to those levels?

[Mahesh Iyer, executive]

So Mithun, 2 ways to look at it. If you look at it from profitability point of view, we are already talking pre-COVID. So I don't see that as a challenge. But if you ask me from a volume perspective, I think most part of our business, close to about 70% of our business in India are already tracking pre-COVID. It's the international holiday side of it, which is slow to recover. And there are challenges which are outside our control. But as we guided and I mentioned this in my opening statement also, our full year guidance is about 75% to 80% recovery in the current fiscal to be frank. We may actually end up be slightly higher than that. But currently, we still remain guided to that 75% to 80% recovery to the pre-pandemic in the current fiscal.

[Operator]

The next question is from the line of Abhishek Jain from Arihant Capital.

[Abhishek Jain, analyst]

So yes, just one question. On the Digiphoto side, we have seen margins improve sequentially and can you give some light on how can we expect this going forward?

[Madhavan Menon, executive]

Debasis, would you like to answer that question?

[Debasis Nandy, executive]

Yes. So yes, if I get you right, you said you've seen the revenue increasing consistently and how do I see it going forward? Am I right?

[Abhishek Jain, analyst]

No. The EBIT margins going forward.

[Debasis Nandy, executive]

Yes. The EBIT margins will get better. Don't forget the last 2 quarters, 3 quarters we've been spending on our technology development with bringing in new technology, the cost levels have gone high. Our markets have opened China, et cetera. So a joint joinery in our business when the market opens up, the cost of labor goes higher in the beginning and they get saline. So obviously, the EBIT margins going forward in the next 2 quarters will be way better than this one than the last quarter, if I've answered you on that front, purely because of some of the cost structures and also on the fact that the business is coming back to full volume. So our business still, we don't come to 80% of our numbers, we don't make profit. Then what we make on the INR 1,900 crores and the 110% increase of our business where we make the larger margin. So that definitely is getting better and will increase. We have aimed and targeted to make nearly about 8% to 9% of EBITDA at the end of the year, and we are quite on track to do that.

[Abhishek Jain, analyst]

Okay. And will we be able to sustain those margins?

[Debasis Nandy, executive]

Yes, these are all long-term contracts. So sustainability is definitely -- these are -- all these contracts run for 3 to 5 years. And we've had -- as a company we've had an average renewal rate from the time we start of 97%. So it is sustainable in that front. In fact, it's going to get better with our technology part because these margins will get better with the new technology coming in. Our new technologies be seen to full line but January 2024. We are implementing it in the last quarter. So we definitely see not only sustainability, but even betterment of these margins as we go ahead. So for DI, it looks pretty interesting as well as earnings growth in the coming years.

[Operator]

[Operator Instructions] The next question is from the line of Sakshi Chhabra from Swan Investments.

[Sakshi Chhabra, analyst]

Yes. So I have 2 questions. One on the ForEx side, if we see, our margins have shot up considerably to 47%. So is that only because of the volume? Or is this number sustainable going forward?

[Mahesh Iyer, executive]

Okay. Again, I'll take that question, Mahesh here. I think we've been talking about it for some time. Our focus on this business has been on yield improvements. And I think we continue to see the benefits of that coming through. Also, if you look at our prepaid card portfolio that we've been talking about, this is a very sustainable business. On that, there are 2 streams of income that flow through. One is the revenue that we get through the back end and the other is the revenue that we get to the front end. So clearly, as volumes grow on the prepaid card side, and we move from currency to card, as you would appreciate that on the currency side, I only get one stream of revenue, which is the margin that I can charge the customer. When I sell a card, I have 2 streams of revenue that comes to play with. So the more the penetration of the card the stream of revenue actually grows. That's point number one.Point number two, in the current quarter also, as I mentioned, we did a transaction for one of the largest private sector -- largest bank in the country where we did a large movement of currency for them. That's a transaction that happened in the current quarter. It's more like a wholesale B2B transaction, but the margins that we made was equivalent to a retail business. So that also sits in the current thing. To your question, are these margins still, on a sustainable basis, the business operates at around 1.4% to 1.5% margin, and we tie that margin for the rest of the year 2.

[Sakshi Chhabra, analyst]

Okay. And my second question was on the DI side. So like the China business that you spoke about, if that was phenomena. So that is one of the reasons would have been because China just recently opened up to my one question was on that. Is that -- do you think that number is stable going forward? Or do you think that was like how -- is it a matter of fact that because people have not moved out and suddenly everything opened up, that is what led to shoot up in the revenue? And second question on the DI side was with so many new contracts that we have signed up, what sort of revenue growth traction do you see in the coming years?

[Madhavan Menon, executive]

Okay. I'll take the first one on China business. China business has come -- it is going to be sustainable. Yes, they've opened the internal China travel. So that's helped us a lot. It's not a onetime buzz that you are seeing. This has been consistent over the last 3 months, and we will be anticipated to be continuous because it's in alignment with the projections that both these parks have done on their attraction. The pre-pandemic order projections are -- they are sustaining the same numbers.Secondly, mind you, this business coming without international business into China. International travel into China is still not fully open. So that gives us more opportunity that these numbers is not only sustainable, but will get better. So as far as China goes, we are very confident that these numbers are going to be sustainable and will get better. As far as the new contract DI has been acquiring quite a few new contracts as we go along. And that is -- from a revenue perspective, we have been posting about 20% to 30% year-on-year growth. And that is, again, going to be continuous and sustainable because we have a lineup we're opening Saudi Arabia soon next year. That's going to be a huge opening. All of you have known that Saudi is going to become the next destination spot in the Middle East. So that we are very, very hopeful that Saudi will become another UAE for us in the next 3 to 5 years. So the growth is not only -- we are not only confident of being sustainable, but also want to be consistent.

[Sakshi Chhabra, analyst]

Okay. Just one more question I had on this Hummingbird. Can you just throw some more light as to what is going to be the revenue stream? And how do you see that adding to our overall top line?

[Madhavan Menon, executive]

So Hummingbird is our name to our software and our solutions that we currently have called as [indiscernible]. Hummingbird is -- it's a game-changer solution. Our current solution allows yes to take their pictures, get their pictures, transfer to them and enjoy those moments digitally post the experience. With Hummingbird coming in, that's one more instant, which means when you are on a roller roaster and your picture is taken, by the time you're out of the roller coaster, your phone receives the picture instantly. It is based on FR, so all you do is touch a button, show your face in front of your phone and all those pictures that were taken across the park comes over. That's not happening currently.Currently, it's a QR ticket given to you, you have to go and scan it. Sometimes it takes 5 minutes, 10 minutes, sometimes take about 2 hours to get their pictures downloaded. The new solution will do that instantly at the same moment. So we see a huge opportunity in growth of revenue itself or at least an amount of people taking pictures. You don't need to pull your phone out of your pocket anymore to take it. Our whole quest of making Hummingbird so easy and interesting is that eventually we want. We look at an opportunity of us allowing a guest not to take this phone anymore out to take his picture and take all the pictures through us, which is exactly what we're making it convenient to. That definitely will help us in growth. Currently, we capture about 4% to 5% of the total in revenue wise, there is only 4% to 5% of the people who come to a park actually take pictures, buy the pictures. With this, we see at least going to double digits. So we're very, very optimistic. Of course, it's going to be a -- it's going to process in time. It will take about 6 months to a year for full adoption and complete rollout. We are very optimistic of that.

[Sakshi Chhabra, analyst]

Okay. And have you decided any price point that we will be charging for this? Will it be...

[Madhavan Menon, executive]

Well, it will be more -- our price points in the digital delivery become more competitive than what we are currently giving. So that also is a benefit. Again, price is something that we play against volume. So we're very careful to make sure that we play the balance right. Of course, there's a huge capital expense on building Hummingbird, which is also built -- which shows you in our EBITDA and will show more as we go along. So price point will be interesting, it will become more affordable for sure and more easier.

[Sakshi Chhabra, analyst]

Okay. Can you quantify the CapEx that would have been spent on it?

[Mahesh Iyer, executive]

We are still in the process of spending. So we haven't -- we'll probably get back to you later once we complete the project.

[Operator]

The next question is from the line of Pavas Pethia from Aditya Birla Mutual Fund.

[Pavas Pethia, analyst]

This travel and related services margins, EBIT margins, you've talked about close to 7%. Is this a steady state margin? And if yes, when you plan to achieve it?

[Debasis Nandy, executive]

See, look, as I said, currently, we are at about 3%, and this 3% does not reflect the full profitability of our DMS and the inbound business currently because we are in a non-seasonal shoulder quarter. So once they start delivering those numbers, we expect this to be at 7%. And I think that, that should be more like a steady state for us. But again, it's a seasonal impact that comes because this -- the segment that we operate travel has got seasonality in it. COVID has changed some patterns of seasonality for sure, but that's more relevant for the India part of the business. Overseas still continue to be a little more seasonal. And as Madhavan guided us in the initial comment, he mentioned about the long-haul travel coming in from the Europe. I think those will continue to have that impact. But on a semi-state basis, we expect it to be about 7%.

[Pavas Pethia, analyst]

And what was this number pre-COVID days on an invoice basis, these margins?

[Debasis Nandy, executive]

So I'll have to give a longer answer to that question because if we talk about the pre-COVID days, it also includes the app business, the DMS business that was acquired in late 2017. And if you remember, we had acquired that business, which as a loss-making business. And the actual business turn is around over a period of 3 years. That period got a little extended because of COVID, obviously. But now the business is turning around, parts of it has started making money. So if you compare what it was pre-COVID, it will be more or less the same because that kind of business was not taking money for structural reasons. But the structural imbalances have now been live out, the cost structures will completely revamped. They needed certain developments on the technological side, which has got technical or technology inputs have been provided. So now the business is all set to sort of take wins. And therefore, we are more confident today, as Mahesh pointed out, to deliver the EBITDA margin -- EBIT margin of 7%.

[Pavas Pethia, analyst]

Okay. And this steady state, if inbound travels kind of return to normal, can we see in FY '25 itself?

[Debasis Nandy, executive]

We expect so. But as Mahesh pointed out, that we should be around 75% to 80% of -- in terms of overall recovery about 75% to 80% normal volumes in the current year itself. And then we know that we see growth continuing in the travel business, and therefore, we should be reaching 100% level in the following year, that is FY '25.

[Operator]

The next question is from the line of [ Samir Sharma ], who's an Individual Investor.

[Unknown Analyst]

A question around seasonality. Your multiple businesses operate in multiple countries and the seasons are quite different. Can you give us a sense on the June quarter, the September quarter? How does the quarter-wise quarter seasonality function in each of the businesses? That's my one question. The second is around capital allocation. With the cash accumulation, you did mention there were no acquisitions around and you would reduce the debt. Is there a policy around dividend that you would like to bring forward and announce at any point in time? And three, the obsolete convertible debentures that you may have, are they going to be bought back or by the shareholders?

[Mahesh Iyer, executive]

So [ Samir ], this is Mahesh. I'll take the first part of the question and the rest 2 parts I'll leave it to Debasis to explain that to you. For the first part, for your seasonality, as you know, travel businesses out of India, typically the strongest seasonal quarter is April, June coincides with vacations and breaks for kids. The second best quarter that comes is October, December coincides with some part of Diwali vacations and festivities that come in now and the year-end breaks that come. So typically, there are 2 such quarters that come for the travel businesses April, June, typically will represent close to about 55% to 60% of the overall volumes that we do in the year. October to December will do about 25%, and the rest will be spent between April to Jan to March and July to September. So that's the broad breakup as far as outbound businesses from India are concerned. That pattern, as I also mentioned, I'd like to call it out here that those trends are beginning to change.Now holidays are becoming more like a year-round activity. But again, the longevity of the holiday changes. The start rates are more like the 2, 3 nighters, which are more domestic haul, short hauls. It's the long hauls where the ticket size is larger, and that's what we -- as a GIT operator, we get a lot of cream coming from the market. If I look at the inbound businesses, the peak credit starts in October and run all the way until March. So the 2 quarters of October, December and Jan to March is the peak for inbound into India. If I look at the DMS companies, again, each of the geographies have got different seasonality that they have, some coinciding with the India inbounds like October-March and some in the July-September quarter. So that is kind of spread between the 5 geographies that we operate there. So that's more about the seasonality. As we said, these patterns are beginning to change, at least that's visible in the India businesses. But as overseas business is concerned, we still haven't seen that changing too dramatically, but we'll have to wait and watch for that.Debasis, over to you.

[Debasis Nandy, executive]

I'll try and answer your second question, which is around -- on dividend and what can we expect, et cetera. So see, as I mentioned earlier, we would like to use our cash generation. We have started generating cash and would like to use the cash primarily for reducing our debt to as low levels or near 0 levels because we also like to reduce the interest cost in the process, and therefore, increase our profit, PBT.Dividend, of course, as the business makes profit, we'll continue to give dividends. There is -- we haven't kept the percentage in mind right now. But obviously, we'll ensure a different return to the shareholder in terms of overall earnings, in terms of EPS as well as distribution of part of that through our dividend process.On your last question, which is on the optionally convertible debenture. Honestly, we don't really have an instrument like that on our balance sheet. We did have optionally convertible preference share, which was issued during 2021 to the parent, Fairfax -- Fairbridge, Mauritius, which was duly converted into installments, 1 in March and 1 in June of '22 into equity. So the entire thing has now been converted to equity, which gives Fairfax at the overall level, about 72% ownership. We do not have any debentures on our books.

[Operator]

That was the last question in queue.

[Debasis Nandy, executive]

Yes. Maybe we can just hand it over to Madhavan for his closing comments and before we all sign off.

[Madhavan Menon, executive]

Yes. Ladies and gentlemen, thank you very much for having heard what we had said. And I trust that all the answers, the questions were answered.Just as a sign-off comment, I just wanted to make a slightly forward-looking comment. Looking at our forward bookings, looking at our cost structures, I can confidently say that with this trend will continue over the next several quarters. When I say this trend will continue, is this return to pre-COVID levels in terms of our turnover, sustainable margins and sustainable cost reductions. So -- and of course, if we look at our forward bookings, both in the outbound business, both domestic as well as short haul and long haul for SOTC and Thomas Cook as well as the forward bookings that are being received by Sita, which is our inward business in India, I expect that it will be reflected over the next couple of quarters. So I think we are still in that space where we can benefit from the restructuring that we went through. And in my opinion, this can continue for some time.Thank you very much.

[Operator]

Thank you very much. On behalf of IIFL Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen, you may now disconnect your lines.