IPO: Le Travenues Technology (Ixigo)

Le Travenues Technology, which owns the travel aggregator app Ixigo, is launching its IPO (initial public offering) on June 10, 2024. We bring you 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 6.8 per cent and -0.8 per cent, respectively.
  
• Growth : Its revenue and net profit have grown 92 and 76 per cent per annum over the FY21-FY23.
  
• Valuation : Post the IPO, the stock will be valued at a P/E and P/B of 51.1 and 6.5 times, respectively.
  
• Overview: Growth in demand for travel and tourism on the back of rising consumer discretionary incomes will translate into growth for this company. However, the industry is highly competitive with the presence of other organised players such as Easy Trip and Yatra .

About Le Travenues Technology

Le Travenues Technology, popularly known by its brand name Ixigo (its largest revenue generator), was the second-largest online travel agency (OTA) in India by consolidated revenue in FY23. It provides services such as flight, train and hotel bookings through its platforms. Its target customers consist of travellers from tier 2 and tier 3 cities. It is also the largest train ticket distributor in the rail OTA industry with a market share of 52 per cent (as of H1FY24). Its bus-focused app, AbhiBus, had a market share of more than 12.5 per cent as of H1FY24.

Strengths of Le Travenues Technology

• Strong market position: In terms of gross transaction value, the company had the second highest market share of 6.52 per cent (as of December 2023) in the OTA industry, only behind MakeMyTrip.
  
• Highest user engagement: The company's platforms generate impressive engagement. The Ixigo app had the highest usage and engagement among standalone train booking mobile apps in September 2023, with the highest monthly active users and sessions per user during the month. Across all its apps, the company had a high repeat transaction rate of 86 per cent, as of December 2023.

Weaknesses of Le Travenues Technology

• Revenue concentration: The company earns about 47 per cent of its revenue from train bookings, which are dependent on agreements with IRCTC.
  
• High customer acquisition cost: Since the target consumer is price-sensitive, the company has to spend significantly to attract and retain customers. Its advertising and sales promotion expenses accounted for 24 per cent of total revenue as of December 2023. The ad spending has been swiftly rising over the years.

Risk report

Company and business

• Are earnings before tax of Le Travenues Technology more than Rs 50 crore in the last 12 months?
  No. Although the company reported a profit before tax of Rs 54 crore in the last 12 months ending December 2023, this included an exceptional income of Rs 24 crore.
  
• Will Le Travenues Technology be able to scale up its business?
  Yes. Growing travel and tourism demand combined with the company's focus on technology will help it scale up and expand the business.
  
• Do Le Travenues Technology have recognizable brands with client stickiness?
  No. Although it is the second largest OTA player in the industry, customers are price-sensitive and do not stick to one player. There is also no switching cost for them.
  
• Does the company have a credible moat?
  No. It faces stiff competition from other OTA players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  No. The company is professionally managed and does not have an identifiable promoter.
  
• Do the top three managers have more than 15 years of combined leadership at Le Travenues Technology?
  Yes. Key managerial personnel and senior management have more than 15 years of experience combined.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
  
• Is Le Travenues Technology free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  No. Its three-year average ROE and ROCE are 6.8 and -0.8 per cent, respectively. On a trailing 12-month (TTM) basis, its ROE and ROCE were 17.3 and 5.8 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flow from operations in FY21 and FY22.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio, as of December 2023, was 0.1 times.
  
• Is Le Travenues Technology free from reliance on huge working capital for day-to-day affairs?
  Yes. The company recorded average working capital to sales of just 6 per cent in the last three years.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. The IPO proceeds should ensure that it does not rely on external funding for the next three years.
  
• Is Le Travenues Technology free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of total equity stood at around 2 per cent as of December 2023.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer a 0.5 per cent operating earnings yield on its enterprise value after listing.
  
• Is the stock's price-to-earnings less than its peers' median level?
  Post the IPO, it will trade at a P/E of 51.1 times compared to its peers' median of 69.8 times.
  
• Is the stock's price-to-book value less than its peers' average level?
  Post the IPO, it will trade at a P/B of 6.5 times compared to its peers' average of 7.3 times.

Disclaimer: This is not a stock recommendation. Investors should do their due diligence before investing.

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