Ease My Trip IPO Review and Analysis in Detail
Basis Structure of EaseMyTrip IPO
Easy Trip Planners, which is best known for operating the travel portal EaseMyTrip, is gearing up to bring its IPO to the Indian stock market.
The Easy Trip Planners IPO will be open for subscription from March 8 to March 10.
This IPO is of a book-building nature, which means the shares are going to be offered in a price band. The other type of IPO, called the fixed price offering, quotes the shares with one specific price.
The EaseMyTrip IPO is sized at Rs. 510 crores. There isn’t a fresh issue segment in this IPO, the entire offering is an offer for sale. Two of the promoters, Nishant Pitti and Rikant Pittie, will be selling shares worth Rs. 255 crores each.
EaseMyTrip is a cash-rich company, and it is not going to retain any of the proceeds from the IPO. Instead, the entire amount will be credited directly to the promoters selling their shares.
Easy Trip Planners will be the first online travel aggregator which will list itself on the Indian stock exchanges. Its competitor, MakeMyTrip, listed on the NASDAQ in the year 2013.
The table below lists the details about the IPO. Things like EaseMyTrip IPO date, EaseMyTrip IPO size, Easy Trip Planners IPO price and more have been summarised.
After the IPO, the Easy Trip Planners shares will be listed on the NSE and BSE.
About the Company
EaseMyTrip was launched in the year 2008.
One of India’s leading travel platforms, EaseMyTrip started as a B2B2C operator. In 2011, it started operating in the B2C segment, and in 2013, it entered the B2E segment for employees.
Easy Trip Planners claims to be one of the only travel platforms which have been profitable from the very beginning.
As of November 2019, EaseMyTrip had a client base of over 1.09 million. It is also affiliated with over 52,000 travel agents across the country.
Products and Services
EaseMyTrip offers a series of products designed to answer their clients’ travel-related needs. Based on the category of service, the products can be divided into three separate verticals as follows:
- Airline tickets
This includes airline tickets, both domestic and international. The international travel segment commenced in 2012. As of 2019, 79.18% of the airline revenue came from domestic tickets and the remaining 20.82% came from international flight tickets.
- Hotels and holiday packages
EaseMyTrip offers its customers the choice of 73,400 hotels in India and 10,23,000 hotels outside India. Apart from that, the company also offers planned holiday packages as a complete travel solution for clients.
- Other services
Other services include bus and railway tickets along with taxi rental services.
The graph above shows the share of the different product categories in the total operating revenue of EaseMyTrip.
As mentioned above, EaseMyTrip functions primarily on a B2C business model. As of September 2019, the company had over 8 million clients across the country.
Promoter Shareholding Pattern
The table below lists out the primary shareholders prior to the Easy Trip Planners IPO.
After the IPO, the shareholding structure is expected to change.
The table below summarises the main financial parameters for EaseMyTrip over the past four years. All the figures given below are in Rs. Crores.
Based on the financial figures, EaseMyTrip has recorded considerable growth on a yearly basis. Between 2017 and 2020, the total revenue earned increased at a CAGR of 35.26%. This growth is primarily due to the increase in customers in the B2C segment.
As EaseMyTrip is a service-based company, it is light on assets. Between 2017 and 2020, the assets increased at a CAGR of 28.52%.
As for the profits after tax, that has recorded a CAGR of 33.82%. One of the reasons why EaseMyTrip has been able to maintain a profit margin even though most of its contemporaries are not breaking even is the fact that they do not charge convenience fees for bookings. This fact sets it apart from the other online travel platforms and adds a competitive edge.
The tourism industry in India is the tenth-largest in the world, as of 2019.
The impact of the COVID-19 crisis on the tourism and hospitality sector was the harshest. It was expected that international travel declined by at least 60% in 2020. There was a loss of about $3.4 trillion in global GDP. The Indian travel industry is expected to decrease at a CAGR of 2% between 2020 and 2023.
It was only in the third quarter of 2020 that the industry started recovering slowly. Now, the foreign tourist arrivals are expected to increase at a CAGR of 3% between 2019 and 2024. Domestic tourist arrivals, on the other hand, are expected to grow at a CAGR of 22% in that same period.
The industry will take a while to recover. Domestic passenger traffic is expected to reach 19 crores by 2025. International passenger traffic is expected to reduce by 80% in 2021. The volume is predicted to reach 8.5 crores by 2025.
The government of India has taken several initiatives to boost the travel and tourism sector. Examples include the expansion of the e-visa facility to 169 countries. Also, the FDI allowance in hotel infrastructure has now been increased to 100%.
Apart from that, there are schemes like NCAP and UDAN in order to promote connectivity of regional and smaller airports.
The online travel market, it comes as no surprise, is one of the fastest-growing segments of the overall travel market. Consumers in this segment are expected to increase at a CAGR of 4% between 2020 and 2025. The online penetration is predicted to reach 68% by 2023.
The online ticketing segment dominates the air booking and rail booking segments, with a 62% share and 25% share respectively.
When it comes to online bookings, online travel aggregators like EaseMyTrip account for 78% of the market. The overall sub-segment is expected to increase at a CAGR of 2% in terms of revenue, till 2023.
This growth trend in online travel aggregators is backed by convenience, competitive pricing and the increased reliance on internet platforms.
It should be noted that this industry is highly fragmented and there are a large number of competitors. EaseMyTrip enjoys a market share of 3.8%. However, if the company is unable to sustain its competitive edge, this market share will decline in future.
The table below compares some key metrics of EaseMyTrip with its competitors.
As we can see from the table above, EaseMyTrip outperformed all its peers in 2020. In fact, it was the only online travel aggregator which recorded a profit in 2020. All the others reported negative returns on equity and capital employed.
Only MakeMyTrip was able to record a positive value of revenue growth.
If EaseMyTrip is able to maintain its performance, then it will continue to outshine its peers.
Strengths of the EaseMyTrip IPO
Among strengths, there is the fact that EaseMyTrip has been consistently profitable since inception. In fact, over the course of the last year, when all other online travel aggregators were in the red on account of COVID-19, EaseMyTrip still reported a profit.
Another strength that sets EaseMyTrip apart from its peers is the fact that the company does not charge any convenience fees for ticket bookings. As all other platforms charge this amount, it provides a significant competitive edge.
Weaknesses of the EaseMyTrip IPO
One of the primary weaknesses is the fact that the industry in which Easy Trip Planners operates is highly fragmented and competitive. The larger players currently dominate the market and service the majority of the market share.
However, this is a sector where anyone can enter. If any new players come up with disruptive technology, then this could impact EaseMyTrip’s business significantly.
Another weakness is the fact that the company provides loans to its related companies. Over Rs. 66 crores have been paid to Easy Productions in 2019 and 2020. This amount is yet to be recovered completely.
EaseMyTrip also has also provided payments to relatives of its key managerial personnel. In 2018 and 2019, an amount of Rs. 396 crores have been provided as payment by EaseMyTrip.
If the company continues to provide loans and enters into payments with related parties, it will present as a red flag to potential investors.
Valuation of EaseMyTrip IPO
Easy Trip Planners is the only one of its contemporaries that is currently profitable. Hence, as far as the valuation is concerned, it is not possible to compare its peer financials and value it on the basis of the price-to-earnings ratio.
Instead, we will resort to Benjamin Graham’s formula to calculate the intrinsic valuation of the company.
FY20 Profit = Rs. 34.65 crores
Expected growth rate = 10%
Intrinsic Value = 34.65 * (8.5 + [2*10%]) = Rs. 986.1 crores
If we consider a 10% margin of safety, intrinsic value = Rs. 887.49 crores
As per the basis structure of the EaseMyTrip IPO, the company is aiming for a market capitalisation of Rs. 2,031.87 crores.
This means the EaseMyTrip IPO is overvalued.