Here’s What You Need to Know About the Easy Trip IPO

Easy Trip Planners’ Initial Public Offering kicked off today. The online travel agency’s IPO is an offer for sale (OFS) in its entirety with two promoters offering ₹255cr ($34.9m) each, making it a ₹510cr ($69.8m) IPO and steeply priced in the band of ₹186–187 ($2.5) per share implying a nearly 50x forward P/E.

The three-day issue opened on March 8th and closes on March 10th. Here’s all you need to know.

Company Profile

The company Easy Trip Planners Private Limited was incorporated on June 4th 2008. It primarily operates in the support and supply of auxiliary transport business which includes transport activities and travel agencies. Offering a range of travel-related products and services including airline tickets, bus tickets, rail tickets, hotels and holiday packages etc, it is positioning itself as an end-to-end travel solutions company.

It was founded as a distribution channel (business-to-business-to-consumer) enabling travel agents to book tickets for the offline market. In 2011, it entered the business-to-consumer segment wherein it started selling directly to consumers. Following that, in 2013, it entered into business with corporates too, further entering the business-to-enterprise segment.

This is the first external equity infusion for the company since its inception. Until now the company has largely relied on internal free cash flow generation to drive business growth. The main sources of revenue are the incentives and commissions derived from the tickets booked by customers on its platforms.

As of December 31st 2020, Easy Trip has 96 lakh registered customers. Its market rivals are other Online Travel Agencies (OTAs) and fairly well known operators — MakeMyTrip and Yatra Online. Easy Trip ranks second among the key online travel agencies in terms of booking volume in the Indian market.

Fast Facts

• The OFS amounts to 25.10% of Easy Trip’s paid-up equity.
• The offer face value is at ₹2 ($0.02) per share. Listed in both BSE and NSE.
• Market lot /Minimum bid size = 80 shares. Retail investments reserved for a maximum of 13 lots per investor.
• 75% of the offer is allocated for Qualified Institutional Bidders (QIBs), 15% for Non-Institutional Investors (NIIs) and a surprisingly scanty 10% to Retail Investors.
• The IPO was subscribed 1.75 times at the end of day on March 8th 2021 (9.45 times in the retail category, 0.00x in the QIB category and 0.13 times in the NII category).
• Anchor investors were allocated 1.22 crore shares at ₹187 ($2.5) a piece.
• The IPO is valued at 58.7 times the FY20 earnings on a trailing basis, 49 times on an annualised FY21 basis and 15.2 times the book value.

Company Financials

Easy Trips’ annual operating revenue growth on an unconsolidated basis was recorded at 58% between FY18 to FY20 while adjusted and restated profit saw a sharp 4x+ upswing. This makes it the only profitable operative in the OTA sector currently with the highest CAGR growth.

Easy Trip is the highest-rated OTA app on Google Play as of February 2021. Although MakeMyTrip is the industry leader when it comes to booking volume in the country, Easy Trip outshines the latter and other industry rivals in terms of net profit and growth, among other indicators.

The Growth in OTA Industry

The rise of OTAs has consequently led to a decreasing share of offline Tour and Travel Agencies (TTAs) in the domestic market driven by low-cost internet and smartphone ubiquity. In addition, the offer of a one-stop-all fulfilment of the entire gamut of travel-related needs (i.e. Hotels, holiday packages, rail tickets, bus tickets, taxis and last-mile connectivity) has given OTAs a competitive edge over offline TTAs.

The steady growth of the Indian hotel industry also seems to have a cyclical impact on the online booking industry. The organised hotel industry has grown at an 11.5% CAGR in the last five years, particularly the premium hotel industry which grew at 9.4% CAGR for the same period. This spurt has been driven through economic growth, rise in business travel from large corporations and foreign travel.

However, on account of the pandemic, travel demand and business have recorded a significant decline over the last year, a decline that is well expected to continue in FY21. Operating margin is projected to decrease by 400 to 600 bps in FY21 attributed to decreasing revenues and low proportion of fixed cost.

Prospects Before Investment

As is evident from the chart, OTA businesses like Easy Trip bank heavily on airline ticketing businesses for their revenue (comprise more than 90% of their total booking volumes). Plus, it is a highly competitive industry with notable players like MakeMyTrip, Cleartrip and Yatra online who have maintained a sturdy presence for quite some time.

Since the travel industry is sensitive to restrictions akin to global lockdowns and in turn the discretionary travel and spending levels of consumers, it is fair to say that a steady financial performance of OTA companies is speculative at least over the near-medium term, given the ongoing pandemic climate.

Having said that, Easy Trip shows a firm presence among its market counterparts more so on the margin and cash flow generation front, and has a scalable business model with persisting cash generating abilities. One of its lucrative charms is the zero convenience fee it levies from customers, which is courtesy of the numerous tie-ups with hotel aggregators and domestic airlines that it partners in business with which is reflected in the lofty agent count associated with the business. This wide distribution network, negligible debt margins and the asset-light business model of the company positions Easy Trip somewhat attractively, however limited retail float and stretched valuation are notable points of pushback.

(Originally published March 12th 2021 in transfin.in)