IPO: TBO Tek

TBO Tek, a travel distribution platform company, will launch its IPO (initial public offering) on March 8, 2024. Below is a breakdown of the company's strengths, weaknesses and growth prospects to help investors make an informed decision.

In a nutshell

• Quality: Its three-year average ROE and ROCE are 14 and 12 per cent, respectively.
  
• Growth: Its revenue grew 174 per cent annually between FY21-23.
  
• Valuation: The stock is valued at a P/E and P/B of 54.8 and 11 times, respectively, compared to its peers' median and average of 61.1 and 5.6 times.
  
• Overview: Rising demand for travel and tourism should help the company scale up. However, the industry is highly price-sensitive, and the company depends on a few suppliers.

About TBO Tek

TBO Tek is one of the leading travel distribution platforms in the travel and tourism industry. Its platform allows its suppliers (such as hotels, airlines, car rentals, transfers, cruises, insurance, and rail) to display and market inventory to the large and fragmented global buyer base (independent travel advisors/agencies, tour operators, travel management companies, online travel companies). For buyers, TBO Tek serves as a one-stop solution for exploring travel options for worldwide destinations. As of December 31, 2023, the company has sold over 7,500 destinations in over 100 countries.

Strengths of TBO Tek

• Network effect: The platform provides services to both suppliers and buyers, offering instant access to a global network of partners. As the buyer base expands, more suppliers are drawn, leading to better pricing, a wider range, and increased supply across existing and new products. As of December 31, 2023, the company has boarded 1.59 lakh buyers and facilitates searching and booking from over 750 airlines, covering more than 3 lakh origin-destination combinations.

Weaknesses of TBO Tek

• Dependent on few suppliers : As of FY23, 68 per cent of the company's revenue comes from the top five suppliers. As the number of suppliers is limited, the business is exposed to pricing pressures from suppliers.
  
• Dependent on hotels and airlines: The company's operations depend highly on the hotel and airline industries. Any downturn in these industries may significantly impact the business.

Risk report

Company and business

• Are TBO Tek's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its earnings before tax for TTM was Rs 207 crore.
  
• Will TBO Tek be able to scale up its business?
  Yes. The travel and tourism industry is experiencing growth due to rising incomes and a trend of first-time travellers exploring unique destinations. The company's focus on expanding its buyer and supplier base across various geographies will aid in scaling up its business. Over the last three years, there has been substantial growth in the number of daily bookings, with an average of 44,592 bookings per day in 9MFY24 compared to 13,396 in FY21.
  
• Does TBO Tek have recognisable brands with client stickiness?
  No. Customers in this industry are price-sensitive and may switch to competitors offering similar services at lower prices.
  
• Does the company have a credible moat?
  No. Even though the company has a huge buyer and supplier base, customers in this industry are price-sensitive and may switch to competitors offering similar services at lower prices. However, the company's platform generates significant volumes of valuable data, which is a key asset.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over a 25 per cent stake in the company?
  Yes. Post IPO, the promoters' stake will stand at 44.4 per cent.
  
• Do the top three managers have over 15 years of combined leadership at TBO Tek?
  Yes. Gaurav Bhatnagar (Joint Managing Director) and Ankush Nijhawan (Joint Managing Director) have been with the company since 2006 and 2007, respectively.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is TBO Tek free of promoter pledging of its shares?
  Yes. The company is free of promoters pledging its shares.

Financials

• Did the company generate a current and three-year average return on equity (ROE) of more than 15 per cent and a return on capital employed (ROCE) of more than 18 per cent?
  No. Its three-year average ROE and ROCE are 14 and 12 per cent, respectively. However, for TTM, they were 45 and 42 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. It generated positive cash flows from operations in each of the last three years.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company is net debt-free as of December 2023.
  
• Is TBO Tek free from reliance on significant working capital for day-to-day affairs?
  No. The business has high receivable days (730 days on a TTM basis).
  
• Can the company operate its business without relying on external funding in the next three years?
  Yes. The company has been generating good cash flows from operations. Besides, it is net debt-free and is less capital-intensive. However, its working capital requirements are high due to high receivable days.
  
• Is TBO Tek free from meaningful contingent liabilities?
  Yes. As of December 31, 2023, contingent liabilities as a percentage of equity stood at around 9.9 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an earning yield of 2.1 per cent.
  
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. It is valued at a price-to-earnings ratio of 54.8 times compared to its peer's 61 times (only one listed peer).
  
• Is the stock's price-to-book value less than its peers' average level?
  No. It is valued at a price-to-book ratio of 11 times compared to its peer's 5.6 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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