Yatra Online, Inc. (YTRA) Earnings Call Transcript & Summary

Good day and welcome to the Yatra Online, Business Update Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Manish Hemrajani. Please go ahead.

Thank you, Stephanie, and good morning, everyone. Welcome to Yatra's Business Update call. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi. Before we begin, I would point everyone to an accompanying presentation available on the IR section of our website at investors.yatra.com. The following discussion, including responses to your questions, reflects management's views as of today, June 9, 2020. We do not undertake any obligation to update or revise the information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate, or similar statements. Please refer to company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements. Additional information concerning these statements is contained at the Risk Factors section of the company's annual report on Form 20-F filed with the SEC on July 31, 2019. Copies of this and other filings are available from the SEC and on the IR section of our website. Please note that the purpose of this call is to discuss Yatra's business operations and strategy. As a matter of policy, we will not be making any comments or answering any questions on the pending litigation. With that, let me turn the call over to Dhruv. Dhruv?

Thanks, Manish, and good morning, everyone. We'll start with an update on the travel industry and the market in general in India at this point in time. As some of you might have seen, India started lifting the COVID-related lockdown towards the end of May, and we expect a gradual lifting of restrictions over the next several weeks as the economy begins to reopen. Domestic flights have resumed operation, albeit on a limited basis and capacity addition is being done gradually. Currently, we anticipate it's between 15% to 20% of pre-COVID level on the domestic flights front that are operational in the country. International flights are expected to resume operations sometime in July or early August 2020. The situation is still evolving in India, so it's hard to give an exact estimate of timelines for recovery. But we've begun to see the emergence of the initial threads of recovery. On Page 3 are some of the key measures that we've taken over the last couple of months. These include implementation of work-from-home policies since March 23. We've enhanced our automation capabilities to largely automate rescheduling and cancellation of bookings because that was a key area of concern. As you can well imagine that from a normal cancellation rate of sub-10%, we had days went pretty much bookings for the next 30, 60, 90 days were being canceled. So the call volumes coming into the call centers were more than 5x to 7x of the average daily volume, which was there in the pre-COVID days. So this automation has helped us manage that peak. We've optimized the cost side to better align with operations and to minimize the cash consumption at this point in time. And we've been providing customers with flexible conditions to defer and cancel their travel plans. In terms of liquidity, as of June 4, 2020, our total available liquidity was $32.5 million. This included unutilized credit facilities of $8.3 million and excluded restricted cash of $7.6 million. Our fixed cost currently is approximately $1.2 million a month. So if you combine these 2 things, given the liquidity of $32.5 million and the fixed cost of $1.2 million per month, we believe we've got adequate liquidity to weather any adverse conditions for an extended period of time. We've also taken a number of cost reduction initiatives over the past 12-odd months now. Our fixed cost from April 2020 onwards has even reduced further and currently stands at 43% of March 2020 levels and 30% of March 2019 levels. So if you refer to the chart on the bottom right, you'll see that the fixed cost, which was close to $3.8 million in March 2019, has today come down to $1.2 million per month. We've reduced management salaries by 50% and implemented variable reduction in salaries of 25% to 75% across the board for the near-term in addition to freezing any salary hikes. We've renegotiated fixed costs like rent, some of our other IT expenses. We've deferred noncritical CapEx, marketing spends have been reduced substantially to better align with revenue. We've renegotiated contracts with suppliers and renegotiated also the payment terms. So if you look at the highlights of 2020, and this is for the 9-month period ended December 2019, you'll see that over the past, whatever, 14, 15 months now, we've taken a number of steps to optimize our cost base and restructure our business. We went from an adjusted EBITDA loss of $3 million in the quarter ended June 2019 to a positive adjusted EBITDA of almost $3 million in the period ended or quarter ended December 2019. So in a 6-month period, we went from a loss of $3 million a quarter to a profit of almost $3 million a quarter. While part of this was on account of scaling back the loss-making hotels business, but a meaningful part of this came from cost reduction that we undertook. In addition, given the steps that we've taken over the past 60-odd days now, we believe that we can breakeven at sub-50% of revenue levels that we were at in the December '19 quarter and get to 15% to 20% operating margin once things normalize. Switching gears to our corporate business. So Yatra, as you're all familiar, is one of the most well-recognized homegrown Indian Internet brands and the largest corporate travel service provider in India. India is also one of the fastest-growing corporate travel markets globally. In the post-COVID world, there is an increased wave by corporates of adopting digitization. We've seen this happen in the discussions that we've been having with some of our customers. Everyone today wants to have their supply chain digitized, their services digitized. So that's, I think, a great macro shift that's happening, which will benefit Yatra in the times to come. Our technology allows us to scale and adjust to this anticipated higher demand without the need for much additional manpower. According to some research, which has been done by third parties, the corporate travel market in India is estimated at $32 billion, with just about a 5% online penetration. The market is highly fragmented, with 60% of the corporate travel market currently being sold by small and medium travel agents, and we anticipate an accelerated shift from that side of the market towards large corporate travel management companies such as Yatra, who can provide a stable technology-enabled environment for business travelers. We've built robust tools for automating business travel and in this environment where companies across the globe are focused on cost reduction, we think these tools are a great value-add for our customers. So while there is a focus on the business travel side of things, we also feel we've built a very strong and extensible corporate travel platform. And this platform, which today has almost 800 large corporates in India, we believe is extensible enough and can be expanded to offer other related services, and we've highlighted some of these below. So expense management, which is an end-to-end expense management platform. We believe this can be a potential meaningful contributor to our profitability going forward. We feel there is an opportunity for us to create a closed user group corporate procurement platform for our customers. This is a one-stop platform for corporate supplies, and it increases corporate stickiness. This will fit under the same workflow management engine that -- and approval process mechanism that company's currently use for business travel. We've made that workflow engine extensible now to be able to service other products and services as well. And then things like facilities management. In the post-COVID era, some of the facilities management services, like sanitization, et cetera, are in high demand. We are adding some of these service providers also on our platform so that companies can seamlessly source these services as well through our platform. So in conclusion, we believe Yatra is very well positioned to emerge stronger and leaner. We've got a strong cash position and an efficient cost structure that allows us a long runway. We've got a low-cost delivery model. Our technology is scalable and allows us to adjust in line with demand without needing much incremental manpower. We've got a favorable competitive environment as well. So from a macro standpoint, we do believe that over the next few months, a lot of the small and midsized players will find it extremely challenging. And also, there will be a shift from the consumer side towards adopting technology, and we're already beginning to see that. So that trend towards digitization of corporate travel will favor us, we believe, strongly, given that we are the market leaders in this segment. So all in all, we believe we are very well placed to tie through this period and thrive in the mid- to long run. So with that, I'm going to hand it back to Manish, who can then open it up for questions. Manish?

Thanks, Dhruv. Operator, open it up for questions.

[Operator Instructions] Our first question comes from Ashwin Mohit (sic) [ Ashwin Mohan ] with Moneycontrol.com.

This is Ashwin Mohan calling from Moneycontrol.com in India. Dhruv, I have a few questions. The first one is by when do you expect the Indian business of Yatra to reach the pre-COVID levels in terms of domestic and international site bookings? And secondly, is there any alternate mechanism or backup plan that Yatra has in mind to provide an exit to its shareholders now that the previously envisaged merger with Ebix has been terminated?

Ashwin, in terms of looking at the market scenario right now, we feel that on the domestic front, capacity will continue to come back gradually. And by the same time next year, we should, from a run rate point of view, be at similar levels from a domestic flight's perspective. With regards to international flights, I think a lot of how it plays out on the international flights will depend on the kind of developments we see on the vaccination front globally. Because as of now, what we are hearing from our contacts in different embassies and different airlines, countries will follow a different approach to opening up their borders and that will have an impact on international travel. So this will be a more gradual process that we see happening on international travel. If the vaccine does come out as anticipated towards the end of this year, calendar year 2020, we think by middle of 2021, we should get back to the kind of run rates where we were in the pre-COVID environment. So all in all, I think there are some macro factors which need to be taken into account. But based on what we are seeing right now, our broad sense is that by the same time next year, we should be getting closer to the run rate that we were at in the pre-COVID environment. As far as your second question is concerned, so Yatra today, as you can see and you've seen in the numbers, is fairly well capitalized, and we will be using this capital judiciously to get some of the growth back into the business. And we are confident that come the same time next year from a run rate point of view, if the, let's say, the macro environment continues to evolve positively, we should be back at the pre-COVID era.

Right. Dhruv, can I ask a third question? If that's allowed?

Sure. Go on, please.

I just wanted to check whether there is the possibility of perhaps initiating any arbitration proceedings as well with regards to the terminatory merger, over and above the lawsuit that has been filed?

So as Manish articulated at the start of things, Ashwin, today's objective was to discuss the business strategy, and we will refrain from answering or addressing any questions with regards to the litigation process.

[Operator Instructions] Our next question comes from [ Michael Norella with Habitat ].

Actually, I did that before you said the thing about Ebix. I was just wondering though, wouldn't it be worthwhile to try to renegotiate the merger? I mean I understand that them backing up because of what happened with COVID, but why give it up entirely and why so hostile? But if you can't answer that, then that's fine as well.

Yes. I think at this point in time, it's best to let that be. At the appropriate moment, all of that will end up being discussed.

Thank you. There are no additional questions at this time. We did have one additional question just lined up. Our next question comes from Bharati with NewQuest Capital Partners.

Just checking on a couple of things. You guys speak about the fixed cost reduction. Could you comment on -- if this is sort of all a onetime reduction? Or it's to the extent to which that's going to be sustainable? And the second question is in terms of your cash available that you have on the presentation, are there any immediate liabilities that, that cash is tied back to? Or the -- what is indicated as available liquidity is indeed entirely available to kind of pay the expenses?

Sure. So in terms of the fixed cost, we think these are the cost levels that we will be sustaining in the near term. And this kind of cost level should be sufficient for us to get to, let's say, about 1/3 of our revenue base before we start adding more cost gradually as revenue and how business volume continues to rise. So for the near term, at least, this cost base should suffice us. With regards to your question on the liquidity, there is one open liquidity item which is there, a payout which is there, which is with regards to an ongoing ATB litigation, which has been carrying on. That process is currently going through an audit process. That audit process got pushed out because of the lockdown. But at some point in the next 60 to 90 days, that is a potential liability which will be there. But otherwise, all other liabilities should be achievable on being settled through other sources of current working capital which are not included in this. So this should be largely free liquidity available to us to grow the business.

Understood. And if I may ask a couple of follow-up questions if that's shareable? So one would be, in terms of -- how much would be the liability that's outstanding? And secondly, in terms of your amount which is indicated as restricted cash here, what would that be on account of?

Sure. So in terms of the liability which is there, that liability is going through a price determination process in a court-approved settlement. And there are 2 sets of independent auditors who are working on that. Given that it is a court detainment process, I wouldn't want to speculate on what that final number comes out to be. We believe that the liability that they're carrying in our books is more than sufficient to meet any of that number that comes out of that exercise. In terms of the other question around restricted cash. So the restricted cash has 2 components. One part of it is margin money, which is for the facilities, which are outstanding. So these are the working capital and the receivable facilities that we have with the banks. Some part of the restricted cash is bank guarantees and fixed deposits, which are being maintained against these. And then another part of that is against the IATA Bank guarantee, which is provided by us. What will happen on the restricted cash is given that the IATA Bank guarantees are based on your trailing volumes, as we go forward, some of the restricted cash will free up as the trailing volumes will be lower. So let's say, hypothetically, the last 6-month volumes as you go into next month will be lower than the last 6 months volume as of today. So we will have some of this restricted cash also getting freed up as the IATA Bank guarantee requirement continues to come down on account of the lower volumes of the past few months.

Understood. No, that's very helpful. And last question from me. Would you be able to comment on your total debt position right now?

Our total, sorry, I missed that, debt position?

Yes.

So as of now, we don't really have any term loans or any fixed debt. We only have working capital facilities, of which $2.8 million is drawn down and a further $8.3 million is available.

Thank you. That concludes today's Q&A session. I'd like to now turn it back to our presenters for closing remarks.

Thank you, everyone. Yes, go ahead, Dhruv.

Yes. And just in terms of the way forward, I just want to stress that from a Yatra perspective, we believe we are well positioned to be able to tie through this. We've got enough liquidity at this point in time. And the steps that we've taken should allow us to come out leaner and stronger in the post-COVID era. Manish, would you like to add anything else?

No. Thank you, everyone. If you guys missed the presentation, we have it uploaded on our Investor Relations site, investors.yatra.com. You can download it there. And the transcript and replay of the call will also be available shortly. Thanks for joining us today.

Thank you.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.