Easy Trip Planners - an Online Travel Agent (OTA) which makes most of it's money from airline ticket sales - is coming out with an IPO. On the final day, the issue was oversubscribed by around 159 times. Not surprising, since this Company is commanding a grey market premium of 80%.
We evaluated the Company based on several parameters to see if it can withstand the test of time.
Parameter #1: Growth of the Industry [Score 5/10]
Easy Trip Planners operates in the 'Online Travel market' which is currently an INR 2,625 billion industry. This industry faces a major headwind in the form of COVID-19, and it's expected to contract by 2-3% over the next 3 years.
Over the long term however, there are a few positive shoots to look at. India is expected to be one of the fastest growing destinations for leisure travel. The Government also launched the National Civil Aviation Policy - to make flying affordable to the masses in India.
Parameter #2: Competition & Risks [Score 6/10]
Easy Trip faces competition from players like MakeMyTrip (MMT), Yatra & Cleartrip. In terms of gross booking revenues - MMT has a 50% market share followed by Yatra (9.5%) and Easy Trip Planners (4.6%).
MakeMyTrip bought the Ibibo group in 2017 to strengthen its hotel booking business. It also acquired RedBus as a part of the Ibibo deal. Yatra has acquired several companies like TravelGuru, MagicRooms, BuzzInTown - to increase it's presence in the hotel segment.
Easy Trip Planners ventured into the hotel segment in 2013, however they have failed to make an impact there. They derive 94% of their revenues from airline ticketing - such concentration is the biggest risk for the Company in our opinion.
There is also an infringement suit ongoing against the Company filed by MMT, alleging that Easy Trip's logos/trademark are used in a way which is similar to MMT. Any adverse news on this front, would significantly impact the brand image.
Parameter #3: Advantages of the Company [Score 7/10]
Easy Trip is the only company in this segment which is making a profit since it's Inception. They boast the lowest operating costs. It's an extremely frugal company - with solid financials. Although it's a small player, they have been able to grow their market share consistently.
100% of the Company is owned by the promoters. No FIIs/DIIs. No VCs. Which means they have been completely bootstrapped and grown the business without any external help. Not something you find easily these days.
Parameter #4 : Financials [Score 8/10]
Financials, is where this Company shines. Gross booking revenues increased by 47% YoY. Revenues have grown by 18% YoY. They have witnessed steady profit growth (except in 2018). There is negligible debt on the books. RoCE is around 40% - which shows you that the promoters are great allocators of capital.
However, the next few quarters will answer the question - 'Can Easy Trip continue to produce such good numbers?'
Parameter #5 : Valuations [Score 5/10]
At the issue price of INR 187, Easy Trip is trading at a P/E of around 60 times - which looks very expensive, for an OTA player. The Company has to double it's profit or exponentially grow their market share to justify this valuation - something we don't see happening realistically. Plus, if the Company lists at a 70-80% premium, the P/E would breach the 'insanity' level.
This issue is a complete Offer for Sale, however we believe that the promoters missed a trick here by not raising fresh capital, which could've been deployed to spearhead growth into different OTA verticals like online hotel bookings, bus & railways.