Yatra IPO: Should you apply?

Yatra Online Limited is a big player in the travel business. They've got 1,05,600 hotels in India and about two lakh hotels around the world. According to the latest CRISIL Report for 2023, they have more hotels than its competitors in the online travel agency business.

But here's where it gets interesting. Yatra is all set to become a publicly traded company. But some experts are urging caution and suggesting potential investors to evaluate the offering carefully.🥲

Before we dive into what Yatra Online does and what this IPO means, let's quickly check out how the travel industry is overall doing.

Industry Overview

The travel market in India is booming thanks to the advancement in digital technology.

Between 2017 and 2023, the Indian travel industry has been steadily growing at a rate of 6-8% per year. It's now worth around ₹2,825-2,845 billion. This growth is due to a strong economy, India's diverse geography and culture, and government efforts to promote travel.

And the good news is this growth is not slowing down. Experts predict that the industry will keep expanding at a faster rate, around 9-11% annually. By 2028, it could be worth ₹4,540-4,560 billion. 

This growth will be driven by better tourism facilities, higher income levels leading to more spending on travel, more people travelling for both business and leisure and easier Visa procedures.

Now, let's dive into the specifics of the company.

About the company

Yatra Online Inc. is the parent company of Yatra Online Limited, previously known as Yatra Online Private Limited. It's headquartered in Gurugram, India, and is a big player in corporate travel services with more than 700 corporate customers. Yatra is also one of India's top online travel companies and runs the website Yatra.com.

Yatra started its journey in August 2006 and has gained a lot of trust from customers over the years. 

What does Yatra offer? Well, it provides all sorts of travel-related services. You can find information, prices and book domestic & international flights, hotels, holiday packages, buses, trains, city activities, cabs for both within and between cities, homestays, and even cruises. 

Now that we've got a good grasp of what Yatra is all about, let's shift our focus to how the company makes money.

Revenue Generation

Yatra operates primarily in three core areas:

1. Air Ticketing: This involves selling airline tickets, both as standalone purchases and as part of holiday packages. It caters to domestic and international travellers from India. 

2. Hotels and Packages: Yatra offers a wide range of hotel accommodations, including standalone hotel room bookings and comprehensive travel packages. These packages can include hotels, cruises, travel insurance, and Visa processing. 

3. Other Services: Yatra provides additional services such as booking rail and bus tickets, renting taxis, and offering value-added services like travel insurance, Visa processing, and tickets for activities and attractions.

Sales in the Air Ticketing and Hotels & Packages businesses are conducted through various channels, including websites, mobile apps, mobile web platforms, partnerships with travel agents (B2B2C), and call centres.

As of March 31, 2023, Yatra has served around 14 million cumulative travel customers.

Now, let's delve into the financial performance of the company.

Key Financials

Reading the financial statements can get boring at times. Worry not! I have got you covered by mentioning a few of the important metrics that one must definitely look for:

1. Total Income Growth: Over the last three years (2021-2023), Yatra has shown a significant uptrend in total income. It increased from ₹143 crore in 2021 to ₹397 crore in 2023, indicating strong revenue growth.

2. Profitability: While the company didn't generate a profit in 2021 and 2022, it reported a small profit of ₹7 crore in 2023. This suggests that Yatra is moving towards profitability, though slowly.

3. Booking Growth: Yatra's booking numbers are on an impressive growth trajectory. Air passenger bookings have grown at a Compound Annual Growth Rate (CAGR) of 46% from ₹26 lakhs in FY21 to ₹56 lakhs in FY23.

Additionally, hotel room night bookings increased from ₹5 lakhs in FY21 to ₹17 lakhs in FY23, reflecting the company's expanding customer base.

4. Return on Equity (ROE) and Return on Capital Employed (ROCE): These are important metrics to assess how effectively the company is using its resources. Yatra's ROE stands at 18.1%, while ROCE is at 26%. These figures indicate that the company is generating reasonable returns on shareholders' equity and capital employed.

5. P/E Ratio: Since the company's profit margin is still thin, the Price-to-Earnings (P/E) ratio might not be meaningful for evaluating its valuation. 

These metrics provide a solid starting point for assessing Yatra's financial health and performance. However, it's essential to consider these numbers in the context of industry benchmarks and the company's future growth prospects before making any investment decisions.

Yatra Online IPO Details

IPO Date	15th September to 20th September 2023
Face Value	₹1 per share
Price Band	₹135 to ₹142 per share
Lot Size	105 shares
Total Issue Size	₹775 crore
Fresh Issue	₹602 crore
Offer for Sale	₹173 crore

Issue Structure

QIB Not more than 75% of the offer NIB Not less than 15% of the offer Retail Not less than 10% of the offer

Take a look at the table below to get an idea of the shareholding % pre and post issue.

	Pre-Issue	Post-Issue
Promoters	98.59%	64.46%
Non-Promoter Non-Public	1.14%	0.76%
Public	0%	34.78%

Moving on, let’s look at why is Yatra opting for an IPO? 

Reasons for Issue

The reasons behind Yatra's decision to go public and how it plan to use the money it raises are:

• Strategic Growth: Yatra wants to expand and grow its business. It plans to use a portion of the money from the IPO to make strategic investments and potentially acquire other businesses. This means it might buy other companies to help them grow even faster.
• Improving the Business: Yatra also wants to make its current business better. It plans to invest in adopting advanced technology to make its business stronger, increase customer base and enhance satisfaction.
• General Business Needs: Lastly, the company will use some of the money for general business needs. This could include things like day-to-day expenses, paying off debts, or anything else it needs to run the business smoothly.

Now, let's turn our attention to the areas that might be the cause of concern for Yatra.

Areas of concern

Here are the main concerns for Yatra:

1. Competition: Yatra faces stiff competition not only from other similar companies but also from foreign Online Travel Agencies (OTAs) and new players entering the market. This makes it challenging to stand out and attract customers.

2. Financial Challenges: Yatra experienced losses in the financial years 2021 and 2022, and  had negative cash flow in 2022 and 2023. This means it needs to carefully manage its finances to ensure stability.

3. Fluctuating Commissions: Any changes in the commissions it earns or restrictions on flight and hotel fares could hurt Yatra's business. These factors directly impact the company’s earnings.

4. Technology Risks: Like any tech-based company, Yatra is vulnerable to technology failures. If its systems or platforms goes down, it can disrupt the operations and affect customer service.

5. Price Sensitivity: In the travel industry, customers often prioritise the cheapest options and convenience when booking. This hyper-competitive environment means that customers may not be loyal to specific websites or agents, making it challenging for Yatra to retain them.

The Bottom Line 

While Yatra Online Limited stands as one of the giants in corporate travel services, its financial journey until FY22 was far from a smooth ride. With its recent financial upswing in FY23, the IPO might seem a tad too expensive. Add in the highest attrition rates recorded, and caution is certainly warranted. 

Perhaps giving this costly bet a miss isn't such a bad idea! 😄

Yet, it's worth noting that the company holds promising long-term potential. 😉

*Disclaimer: The stock discussed above aren't recommendations from Finology, and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making an investment decision.