IPO: Yatra Online

Yatra Online, India's leading online travel agency, launched its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality: Yatra Online's three-year average ROE and ROCE are -40.8 and -13.6 per cent, respectively. Moreover, it reported negative cash flow from operations in the last two financial years.
  
• Growth: The company grew its topline by 57.9 and 91.9 per cent in FY22 and FY23, respectively, on the back of a recovery in customers and corporate travelling.
  
• Valuation: The stock has a value at a P/E and P/B of 292.0 and 2.9 times, compared to its peers' median and an average of 60.1 and 10.9 times, respectively.
  
• Overview: Customers are shifting their preferences towards one-stop solutions for all travel needs, such as booking tickets, hotel accommodations, and holiday packages. It will be a significant growth driver for online travel agencies. Also, developing tourism infrastructure and rising income levels will provide further support. However, the industry remains highly competitive, and brands must compete in pricing and deal offerings.

About Yatra Online

Incorporated in 2005, Yatra Online is an online travel agency. It provides pricing information and booking facilities for domestic and international travellers. According to a CRISIL report, Yatra Online is India's most prominent corporate travel services provider (in terms of clients) and the third-largest online travel company (by gross booking revenue and operating revenue in FY23). Its platform caters directly to customers, corporate travellers, and travel agents and offers services like air ticketing, hotels & lodging, holiday packages and more. Moreover, its parent company, Yatra Online Inc., is listed on NASDAQ.

Strengths of Yatra Online

• Yatra Online is India's largest corporate travel services provider (in terms of clientele), with over 800 large corporate clients. In FY23, it reported a retention ratio of 98 per cent.
  
• As per a CRISIL report, it has the highest number of hotel and accommodation tie-ups among key domestic OTA players (over 21 lakh as of FY23).

Weaknesses of Yatra Online

• Trade receivables accounted for around 42.2 per cent of total assets in FY23. Any issues concerning delay/default in payments can significantly hamper the company's operations.
  
• Operates in a highly competitive industry and faces stiff competition from peers.

Risk report

Company and business

• Are Yatra Online's earnings before tax more than Rs 50 crore in the last 12 months?
  No. The company's profit before tax for FY23 was Rs 12 crore.
• Will Yatra Online be able to scale up its business?
  Yes. The development of tourism infrastructure coupled with higher spending on travel and tourism (led by rising income levels) and the increasing frequency of business travel will help the company to scale up its operations.
• Does Yatra Online have recognisable brands with client stickiness?
  Yes. It is a recognisable brand in the industry and is the largest corporate travel services provider, with over 800 large corporate customers and a retention ratio of 98 per cent in FY23.
• Does the company have a credible moat?
  No. It faces stiff competition from both domestic as well as international players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do the promoters have over a 25 per cent stake in the company?
  Yes. Promoters' stake will be 64.5 per cent post-IPO.
• Do the top three managers have over 15 years of combined leadership at Yatra Online?
  Yes. The combined leadership of the top three managers is more than 15 years.
• 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 Yatra Online free of promoter pledging of its shares?
  Yes. Yatra Online is free of promoter pledging of its shares.

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. The company's three-year average ROE and ROCE are -40.8 and -13.6 per cent respectively. In FY23, the company's ROE and ROCE were 4.5 and 14.0 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  No. Cash flow from operations was negative in FY22 and FY23.
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio, as of March 2023, stood at 0.45 times.
• Is Yatra Online free from reliance on extensive working capital for day-to-day affairs?
  No. It has high trade receivables (around 42.2 per cent of total assets in FY23) and was yet to generate cash flows in the last two financial years.
• Can the company run its business without relying on external funding in the next three years?
  No. While the company reported a profit in FY23, post the recovery in consumer and corporate travel, its cash flows remained negative in the last two financial years. Thus, for further expansion, it may require more capital.
• Is Yatra Online free from meaningful contingent liabilities?
  No. Contingent liabilities as a percentage of equity is 23.7 per cent.

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 0.8 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  No. The company will trade at a price-to-earnings ratio of 292 times post-IPO compared to its peers' median level of 60.1 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The company will trade at a price-to-book ratio of 2.9 times post-IPO compared to its peers' average of 10.9 times.

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

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