Le Travenues Technology Limited (IXIGO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Le Travenues Technology, also known as ixigo, Q2 FY '27 Earnings Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Anmol Garg from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you, [ Ekra ]. Good evening, everyone. On behalf of DAM Capital, I welcome you all to ixigo's Q2 FY '27 Earnings Call. We have with us Mr. Aloke Bajpai, Chairman, MD and Group CEO of the company; and Mr. Saurabh Devendra Singh, Group CFO of the company. Now before I hand over the call to Aloke and Saurabh, I would like to highlight the safe harbor statement on the second slide of the presentation, and it is assumed to be read and understood. I now hand over the call to you, Aloke. Thank you, and over to you.

Thank you. Good afternoon, everyone, and thank you for joining our Q2 FY '27 Earnings Call on what is technically a long weekend. And I'm assuming many of you have booked your long weekend this time using ixigo, ConfirmTkt or AbhiBus. At ixigo, our ambition is to build the best customer experience for travel. We've built our business by understanding where our journey becomes stressful, and then using technology to give people more certainty and peace of mind. Once we prove our ability to deliver peace of mind, we have seen that it builds customer loyalty and trust. This quarter, we have made progress across the business in quite different market conditions across these lines of business. Trains recovered with some of the base effect of policy changes starting to go away, buses continued to grow strongly and secularly, and hotels took a great leap forward, getting to a critical mass that makes it large enough to start disclosing. Flights faced a tougher external environment with high fares and limited capacity affecting bookings growth, and the overall market was down nearly 6% in volume terms in the quarter. Despite that, the team pulled off 7% segment growth, which in itself is an achievement. In Q2 FY '27, we delivered resilient growth on quarterly GTV as well of INR 5,304 crores, up 22% Y-o-Y, and revenue from operations of INR 321 crores, up 13% Y-o-Y. Our PAT was an all-time high, aided by our partial sale of stake in Freshbus. Flight and bus led the quarter with GTV growth of 37% and 32% Y-o-Y, respectively. From this quarter onwards, we are also disclosing a new line of business of hotels, which grew GTV 2.6x Y-o-Y, INR 211 crores, with a gross take rate of more than 12%. Before Saurabh takes you through the numbers in detail, let me deep dive a bit by each line of business and give some color on the choices we are making for the next phase of growth. The recovery in trains was encouraging. Advanced bookings for Dussehra and Diwali help volumes, and we stepped up our focus on growth again, while maintaining healthy unit economics. However, we want to see that momentum continue beyond the festive season before calling it a sustained recovery. I also want to call out that ConfirmTkt now has a 4.9 rating on the Google Play Store. And among the apps which have a scale of over 100 million downloads, it has become the highest rated travel app in the world that operates at this kind of scale. For us, that is a meaningful endorsement from the travelers we serve. We are also expanding our relationship with travelers beyond the ticket, food on trains, metro tickets and our new Bharat Darshan rail packages offerings. These have enhanced our ixigo train app, where we are able to serve more parts of the journey. In buses, AbhiBus has been growing faster than the overall OTA bus market for close to 3 years. Expanding supply, building our brand in markets where we have room to grow, and improving the travel experience continue to drive that performance. Our new women's zone is a good example of how we are improving this experience. It helps women traveling alone make more informed choices through ratings from other women, information about seats next to other women and other women-friendly features that build trust for making operator choices and see choices with more confidence. Flight remains challenging in the near term as capacity has not returned as quickly as we had expected, and we are seeing the impact of oil prices reflect on the 30% increase in fares Y-o-Y on several routes. International travel has been more encouraging, with our international flight GTV growing 59% year-on-year. Let me spend a little time on hotels because we see a significant opportunity to build our next major business here. We are disclosing hotels in the same level of detail as other businesses now because product market fit is emerging and the business has become more material. This reflects our growing confidence even as we recognize that we are still early in this journey. We now do more than 5,100 room nights per day net of cancellations, 4.7 lakh room nights for the quarter, a growth of 3.9x compared to last year and a growth of over 50% versus the comparable Q1 number. In Q2, hotel GTV reached INR 111 crores, up 39% sequentially and 2.6x year-on-year. Revenue grew more than sixfold year-on-year to INR 8.1 crores and our gross take rate exceeded 12% and became the highest in our business. Contribution margin improved from minus 55% of revenue a year ago to minus 15%, with a contribution loss of INR 1.2 crores this quarter. The reason why our unit economics is able to develop some headroom is more than 86% of our hotel bookings came from travelers which were already on our platforms or our captive users. Having said that, as we said in the past, we will not be shy of continuing to invest in growing hotels as a strategic category for our business and aspire to remain the fastest-growing OTA in our country in this line of business as well. The TAM of the hotel's opportunity is proven in India, and it is the largest profitability pool globally for OTAs. ixigo's opportunity is particularly compelling in the budget, mid-market and independent hotels, where online penetration is low and travelers need greater reliability and peace of mind. About 60% of hotel room nights in India sell below 2,000 a night, and independent hotels account for 73% of routes as per the recent VIDEC industry report. Out of the 70,000 hotels in India that we sell, we are now tied up directly with over 12,000 hotels across about 1,100 towns, up from 10,000 hotels last quarter. Our thesis on hotels fits our customer base closely. 94% of our transactions involve travel to or from Tier 2 and 3 cities and more than 9 and 10 trips we sell out by train or bus. Many travelers looking for an affordable room are already booking their journey with us. Our aspiration remains to become the largest player serving this part of the hotel market over the next 4 to 5 years. The size of the opportunity supports that ambition. VIDEC estimates India's hotel market at about INR 1.57 lakh crore in FY '26, projected to reach INR 1.94 lakh crores by FY '28. Lodging represents as much as 30% of total travel spending. Hotel bookings through OTAs are projected to grow around 19% annually from INR 40,200 crores to INR 57,000 crores over that period. Hotels is already the second largest OTA category around 3x the size of the OTA rail market. These estimates may still understate the opportunity, particularly non-hotel accommodation that remains largely offline. Building this business requires investment. Much of our spending on hotels, product, technology and people sits in the group costs below contribution margin. So the segment's contribution loss captures only a small part of what we are investing, and Saurabh will explain this in more detail in a bit. Our core business profitability gives us the capacity to keep funding this opportunity. We have an existing customer base, and we are now going to expand the direct supply. And as the unit economics start to come in, there is a lot of work to be done ahead in order to drive repeat business and achieve reliable state based on direct supply, better fulfillment and support when things go wrong. And we need to build peace of mind products in this category as well. Our ambition is to become the largest player serving this part of the market. And over the next 4 to 5 years, we believe we can achieve that ambition. We will continue to calibrate our investment based on that progress and the long-term returns that we see. Across the group, AI is helping us improve our service and productivity even as we continue to invest further in enhancing our capabilities with it. TARA handled 45 lakh queries before and after the booking, and now resolves 94% of chat queries without human intervention and 82% of customer calls end-to-end. AI handled queries more than doubled year-on-year while customer service costs did not rise in proportion. That is already giving us greater capacity to serve travelers as we grow. We also remain conscious of the advances that consumer AI agents could bring to travel discovery and booking. Our platforms are already available as natively integrated apps on ChatGPT, and we are continuing to build on ixigo NEXT, our own agentic AI products and voice first experiences. We believe that in a world where AI agents develop the potential to do consumer bookings on behalf of the customer, there is an opportunity to become the most contextually aware AI agent for travel for our users. In fact, we demoed a fully agentic booking flow complete with payments at the recently concluded GFS conference in Mumbai, and we await regulatory clarity before launching the same. Further, we want to stress again on this, that we will differentiate our company by actually building the best peace of mind products for our travelers and using AI to solve their real-world problems more meaningfully by building those relevant products suited for our market. For example, our recently lost Smart Lock product for flights is a perfect example of using AI to build better experiences. Smart Lock is an agentic AI product that finds and locks the cheapest flights based on preferences. You can tell it your route, budget, travel preferences. It scans the airfares 24/7 and locks the first flight that fits within that budget and matches your preferences. If nothing matches by the time scanning ends, you get your full premium back in ixigo money right away. Finally, a word on Freshbus. We are proud to have backed the team early. Reducing our stake now reflects our focus on being an asset-light tech and distribution platform. And the lessons from that investment that we learned now helps us to service bus operators with more understanding on the unique opportunities and challenges that EV-based plus operator space. Freshbus remains a valued commercial partner and Saurabh will explain about the exceptional gain portion separately in a bit. As we look ahead, our priorities are very clear: strengthen our core business, continue the acceleration of our hotel trajectory to keep gaining share and continue investing in building AI platforms to improve both customer experience and productivity. We will keep balancing these opportunities with the responsibility to deliver long-term returns for our shareholders. Thank you to our customers, partners, teams and shareholders for your continued trust. With that, let me hand over to Saurabh, who will take you through the numbers.

Good afternoon, and thank you, Aloke. I'll start with the headlines. Now this was a quarter of growth in the core business, a deliberate step-up in investment and also a quarter where the numbers need to be read carefully, given the impact of a significant one-off. Now all figures are in rupees crore unless specified otherwise, and year-over-year comparisons would be Q2 FY '27 against Q2 FY '26. Passenger segments grew by more than 11% to INR 3.98 crores. GTV grew 22% to INR 5,304.47 crores. Revenue from operations grew 13% to INR 320.96 crore, and contribution margin grew 14% to INR 124.86 crores. Adjusted EBITDA was INR 23.58 crores against INR 28.48 crores a year ago, down 17%. Reported PAT was INR 63.42 crores, but this includes an exceptional gain, which like always, I will discuss in the end. Let's go to the business lines. Trains had some recovery and thus, we shifted from conserving margins to leaning on growth. Passenger segment grow -- rose about 7% year-over-year to INR 2.9 crores. Revenue grew 16% to INR 149.14 crores, and contribution margin grew 29% to INR 47.23 crores. PM is at 32% of revenue. Our share of the OTA rail market is now close to 64%. Now buses continue to compound. GTV grew 32% to INR 752.65 crores. Revenue grew 24% to INR 81.04 crores, and contribution margin grew 27% to INR 43.14 crores. CM is at 53% of revenue. Flights were, as Aloke mentioned, flights were the difficult part of the quarter, something we'd also flagged in August. Capacity cuts and very high fares held the booking back. GTV grew 37% on the back of higher fares, but revenue fell 8% to INR 82.66 crores, and the contribution margin fell 10% to INR 35.68 crores. Gross take rate fell from 9.4% to 7% as the base payer and the international mix increased. With pure bank offers in the market, we funded more discount, which is why -- and that is the base in this, which is why the contribution margin as a share of revenue held at 43%. As Aloke has already mentioned, October started softer than we would like, with capacity not yet back. We had indicated that we would share more about the hotel business as it evolved and with growing confidence in the product market fit. We are following through on that commitment this quarter, as you might have already guessed from Aloke's section. Now hotel supported -- hotels are now reported as a separate segment, where GTV grew 2.6x to INR 111.34 crores, with approximately 4.7 lakh room nights and a gross take rate of over 12%. The segment reported a loss of INR 1.21 crores compared to a loss of INR 0.71 crores in the comparable quarter. Now remember, across quarters, we will prioritize different lines where we will invest. And in this quarter, we have prioritized people and technology for this segment. And according to management estimates, we would have spent a further 10 core in the people and technology line for hotels, taking the total investment in hotels to slightly north of INR 11 crores this quarter. We began consolidating Brevistay this quarter. So part of this growth is inorganic. Now below contribution margin, adjusted EBITDA went down 17% from INR 28.48 crores to INR 23.58 crores. Other income was INR 22.08 crores against INR 5.17 crores a year ago, now reflecting the treasury income, and it is excluded from adjusted EBITDA. On the balance sheet, the total cash and cash equivalent, including fixed deposit and mutual funds and net of borrowings is about INR 1,831.71 crores. Operating cash flow of the year was INR 76.44 crores against INR 91.55 crores last year. Now in the disclosures, we have made -- we have made 3 changes. Hotels is a separate segment. Food on train services have been moved into trains. And Brevistay is consolidated within hotels. We have restated earlier periods on the same to same basis. Now this time, as we changed the format, we had asked for questions from investors, and a number of you have replied back. Between Aloke and I have tried to -- we've tried to cover a lot of these. Now one of the questions, which has been asked quite frequently and -- has been on the use of capital on the balance sheet, especially the inorganic part. Now I would say something which we've said before that we would pursue selective acquisitions where there is a strategic fit, strong team technology or distribution synergy and reasonable pricing. Now as we've said before, whenever something crystallizes, we will inform the markets right away. I'll get on to the last section, which is the one-offs and the callouts that were there in Q2 FY '27, which included the sale of a stake in Freshbus on August 13, resulting in a onetime gain of INR 40.66 crores. Share of loss from Freshbus and [indiscernible], which we have been associated companies. [indiscernible] was an associated company was INR 2.49 crores. The one-offs and the callouts that were there in Q2 FY '26 included a onetime ESOP accounting charge of INR 26.93 crore on account of early achievement of performance thresholds specified in the grant terms and share of loss of Freshbus, which was an associate company then of INR 1.47 crores. With that, I will pass it to the moderator.

[Operator Instructions] First question is from the line of Mr. Anmol Garg from DAM Capital Advisors.

I have a few questions. Firstly, if I look at revenue per ticket in flights, it has been reduced by 13%,14% over the average of, let's say, 5, 6 quarters. So this time, we have given higher discounts. That's how it looks like it. So is it something which will continue going ahead as a form of market share gain? Or this is something that we have done it only sort of for this quarter?

Anmol, so I think -- if you look at the environment right now, right, it's fairly unique in the sense that the flight fares have gone up by about 30% like we indicated year-on-year. And therefore, the price delta between, let's say, a plane ticket and a flight ticket or a bus ticket and a flight ticket has become substantial. And as you know, there's a significant portion of our NBU users who make flight bookings who also -- for whom we need to make it more affordable. So that has been one of the reasons for increase in discounts there on that line. And that's why you see the net revenue sort of compressing a bit. See the other reason in terms of how the optical take rate compression is it's largely to do with the fact that the international mix has improved and also we have seen, as the sales go up, obviously, optically, the take rate compression because convenience fees are a larger part of the income. But having said that, as and when things bounce back, and we have seen this in the past, right, in COVID or after COVID, we saw fares move up and down a lot. If the fares were to come down, we think we will also be the biggest beneficiaries of it because there is a lot of latent demand we are unable to serve today. So the reason why we are not growing double digits on the flight side, the only reason is that the fares are so high. That this whole -- it's a much harder environment to sell flights into. And you're seeing the load factors also slightly edging down on the airline side. So -- so we'll wait and merge and we continue to remain cautious on how things will progress. But we are -- I don't think we will have to step the pedal beyond this on discounts, if that is the question. Like I think we are at a level, at least on the current fare levels we are comfortable at, and we continue to take market share, to your point.

And Anmol, if you see, there are 2 parts to things, right? The one part is the pure discount part. So if you're looking at our CM2 per segment, which we get, that also at a high price environment gets affected because the attach of the products becomes lesser at a point of time. And we've talked about it last quarter, too, something like a travel guarantee or many of these products become less attractive at a very high price point environment. So as that comes back, we see that improving. And as Aloke said, we are not -- we don't believe as a company in gaining a temporary market share. We always, whatever we do and what we are trying to do here is also make it possible for the loyal customers to travel more easily rather than just trying to gain market share aggressively.

Sure. And just one question in continuation of the previous question. In -- particularly for Q3, are we -- given that this is a festive quarter. So are we seeing some recovery, any early trends about Q3 that you can indicate particularly in the flight segment?

Yes. Anmol, I think we mentioned it in the FAQ also that festive demand is a shade lower than what one would have expected this time of the year, right? We are not saying there's any major negative bump. I mean, it's actually -- obviously, the season always sees some bump up, but one would have seen a higher bump up if the sales were more amenable for the consumers. And therefore, we are saying we remain a little cautious on the flight side heading forward. We are not going to guide any aggressive growth on that side at this point. We'll just try to do what we are doing, which is try to keep growing. Despite the market degrowing, if we continue to keep growing, that itself is an achievement.

Understood. And secondly, good to see disclosures on the hotel segment and strong growth in the GTV as well. Here, I just wanted to understand 2 parts. One is that -- when can we get a number of where the gross take rate actually goes up to 16% to 17% like other OTA, which will obviously require more directly contracted properties? When do you think we'll reach that kind of number? And in accordance, when do you think that this segment for us will become profitable?

Yes. Thanks, Anmol. So that's a good question. I'm sure a lot of people have this in their mind. See, if you think about how the market structure looks like today, right? So -- like I mentioned, out of the overall hotel market, a very large portion is in the mid-tier budget and independent hotels. Now also a reality of this market is that the take rates, the gross take rates are actually higher on that side compared to the more premium side of the inventory, right? So in terms of the opportunity of tapping into the kind of take rates that you're indicating, well in a small subset of the hotels we have directly contracted, we already operate at that take rate. It's just that on a blended basis, you're seeing a 12% number at this point of time, right? So as our direct supply improves, -- and we already added 2,000 more hotels last quarter, right? So we've crossed 12,000 on that. But as that continues going up -- and by the way, we are not in any mad rush to also take this 12,000 number up significantly in a short period of time because it has to grow in tandem with our growth, right? Because we also want our hotel partners to benefit as we grow. And therefore, we do expect to achieve the kind of take rates you're talking about over the long term. I think those are very much achievable in the long term. I think in the short term, we are obviously going to see it edge up. Over the next 3 to 4 quarters, you will see them edge up for sure. But I'm not giving any guidance right now on where we'll be next year. It's just that we will be higher. That is a certainty.

Right. And on the profitability, sir, any target in terms of when can we expect profitability in this segment?

See, I think we said this last year also, but now that the numbers are in front of us, let me remind everyone that all OTAs that were built in the hotel category lost money for several years in this country before they built out the category. And even at the volume that we exist today, most OTAs were losing money, right? So it's not a novelty to be trying to build this by investing. The advantage we have is that we have a captive user base where, even at this scale, we are operating at a contribution margin, which is, still, we believe, has a lot of headroom in terms of driving growth because once we open out to third-party channels or once we start bringing in users from other platforms into the mix, this number, obviously, could edge up because we would have to invest more at that point of time. But right now, what I'll say is our investment will go hand-in-hand with our growth. And only if we are seeing a return, so if I invest incremental dollars this quarter in the next 4 quarters, I see those customers coming back and booking more with me, it means my return is coming and it's working, only then do we typically step up investment. That's how every category you see ixigo operate in got built in the past, right, whether it was flight or whether it was buses. And that's how we built those categories out. So it will not be a different journey. But yes, for 2 to 3 years, we expect to continue investing in getting to a scale where we become comfortable that profitability becomes more important. But in the short to medium term, I don't see why we would want to not keep doing what we are doing, which is done for growth. Within guardrails, we've always said that we do this within guardrails. We don't do it in an unmeasured way. We measure every single day, week, month, what the returns are. And in the subsequent quarters, you may see us invest more, invest at the same level, that will all depend on how we are seeing these numbers pan up.

Next question is from the line of Pankaj from BofA Securities.

Congrats for a good show. I have a question picking up from my own question from earlier. And Aloke, just to your point, can you quantify what exactly do you mean by within guardrails? And I mean, basically, how to think about an overall [ burn ] envelope or investment that you are comfortable with on either an overall basis on an annual basis that you could quantify how to think of the framework that an x crore of investment, let's say, goes into building hotel business out there?

Yes, sure. Thanks, Pankaj. I think if you see what Saurabh said was because we invested more than INR 1 crore above the contribution and INR 10 crores below that, so about INR 11 crores odd investment that we did in total. I think if we see the incremental returns better than what we expect, we will not be shy of stepping that up. The guardrails that I talked about relate to the payback period on whenever we acquire a customer either through discounts or performance, we always look at the payback period subsequently of that customer coming back to our platform to do more hotel bookings or to do more bookings in general. So 2 things that we are focused on right now. Number one, in terms of the percentage of our existing users that are coming to book other things and then we are able to drive them into the hotel funnel and make them realize that we now have a product and rates where they can, in fact, get wide choice as well as hotels within their budget. I think that's our immediate focus and attention. And therefore, you don't see us as active on third-party platforms as some of the other OTAs might be. So this is largely being driven from inside our platform. If we decide to go outside the funnel at some point, which will not happen probably in the next couple of quarters but may happen down the line, you could see us step up that investment. But if we see an opportunity to do it sooner, we'll not be shy of it. So let me say that the biggest guardrail, which we mentioned last time around also was that, obviously, we don't want to -- we've traded a very difficult part to get to profitability 3, 4 years back and then stick to that profitability at the overall company level, right, and maintain that. So we believe that, that guardrail is a very obvious one as a guardrail we will never try to breach. But even within where we operate today, which is mid-single-digit EBITDA, I think we would want to stick around there somewhere and not sort of go too much below where we operate at, let's say, at this quarter.

Pankaj, roughly, if you have to model, again, don't take this as a guidance over the next couple of quarters. Think of a similar range as this quarter, which is between INR 10 crores to INR 12 crores. Having said that, if the growth, if what we are seeing on the ground becomes more enticing or less enticing, either ways we could move one way or the other, yes.

Got it. The second question is just from a very core conceptual perspective. How do you now define the product market fit in hotels, right? And a continuation of that is, what proportion of hotel supply on ixigo's platform, perhaps online just because they're present on you and may not be available on any other online platform.

Yes. See, our product market fit is a function of 2 things. One is what you see versus what you get, being able to ensure that. And in cases where that is not happening, being able to course correct that within a very short period for the customer, right? Because what was happening on the budget side in India was, people were either not getting the rooms that they have promised in terms of the pictures or the reviews of the ratings or the room type, or they would walk in and discover that there could even be a better rate being offered if a customer just walked into a hotel, right? Now these kind of problems existed very unique to our market, right? And the ways to solve that involve, obviously, having a more direct relationship to ensure that the experience on the ground matches the experience being shown on the app. But also if something goes wrong, how quick are we to react and overcompensate for that. And I think we have -- in a subset of our hotels, we've already sort of demonstrated to ourselves, certain benchmarks where we have customer satisfaction scores that are coming in are higher than other cohorts where we have repeat from those customers actually improving and where we also have the ability to say that the negative customer experiences such as bump rates or whether it's a mismatch, those coming within a certain tolerable limit, right? So I think we'll be more explicit about it once we have peace of mind products built around this category out. Like we indicated, we are working on some peace of mind products here as well. And then it will become more apparent what we are talking about.

And best of luck again for the upcoming quarters, and wish you guys a happy Dussehra and Diwali.

Thank you, Pankaj. And I'm hoping that you booked your vacation on ixigo. [indiscernible] for that, too. But thanks.

Next question is from the line of Karan Uppal from PhillipCapital India.

Just on the hotel segment, room nights per day is somewhere around 5,000 plus. How much can this scale, let's say, next 2 to 3 years' time frame? And as it scales, the ADV of 2,200 which we have currently, will that remain at that level? Or there is a room for ADV to improve?

Yes. So I think the way to look at it is as follows, right, that the [ Pareto ] average transaction value for ixigo, given that we are proving on ground transportation and the fact that we serve so many next billion users, the average transaction value will remain where the affordability for our kind of customers really is there, right? And therefore, we expect that at these levels, the -- because the penetration is so low out there in the market, like if you go to a budget category, we are talking about 10% to 15% online penetration, we expect that we can continue to grow pretty rapidly. I mean, obviously, even the next 4 quarters, our target will be to continue growing in triple digits if we can, right? But if I were to give you a longer-term guidance, like 4 to 5 years, we want to be the largest hotel OTA in the budget to mid-market hotel category on a room night basis. And if you just look at the scale of that ambition and work backwards from where we are today, there is no choice we have to grow. This has to be the fastest-growing line of business for the next years to come, right, in that sense. So that's how we are looking at it. And we are not that obsessed about where the ATV will come in at because if we are solving this problem also for more premium customers, if you go to our flight app and look at the hotel section there and how you can use TARA to actually navigate many of the things that you want to do in that. I think there is an experience-led playbook that is also bringing in Tier 1 customers to come and book hotels with us, which is an early trickle at this point. But depending on how this mix plays out in the future, we'll decide the direction of ATV. So the average room rate or ADR that we sell will be a function of how fast the Tier 2, 3 versus Tier 1 customers grow. So it's early to comment. It could be -- it could be lower than this as well if we decide to bring in the next, to Pankaj's question earlier, like if we go after hotels, which are not on any OTA platform, the average room rate could be lower as well. But at the same time, we see opportunity to continue growing on the Tier 1 side. So that could balance it out and keep it around where we are today.