Easy Trip Planners, an online travel agency, opened its Rs 510-crore initial public offering for subscription on March 8, with a price band of Rs 186-187 per share. The Rs 510-crore public issue is a complete offer for sale by promoters who currently held 100 percent shareholding in the company. Through the IPO, the company's founders will each sell shares to the tune of Rs 255 crore.
Bulk of the company’s revenue comes from air bookings, the company, through its website and mobile application, offers a range of travel services such as air ticket booking (97.8 per cent of gross booking revenue in FY20), hotel and holiday packages (1.4 per cent), bus tickets, rail tickets, taxi rentals and more.
Easy Trip Planners has created a different business model where there is no convenience fee charged to end users. The major source of its income is commissions and incentives from airlines. The company also earns from unclaimed refunds. This other income contributes to @ 12 percent of its revenues.
The company has a market share of 4.5 per cent in the OTA industry in terms of gross booking revenue for FY20. The company as of December 2020, provided access to more than 400 international and domestic airlines, more than 10,96,400 hotels in India and outside, along with railway bookings, bus tickets and taxi rentals for major cities in India. The company saw 5.16 crore visitors on its website in FY20, and has a total of around 55 lakh app downloads as of December 2020.
What’s its Got Going for It
The company has created a unique model of not charging its customers a convenience fee. Letting go of this fee has helped the company build a loyal customer base,
It has market share of 6.5 per cent of the gross booking revenue in the air tickets market, this makes it ranked second amongst Key OTAs in India
The company has a lean and cost-efficient operations which has made it the only profitable online travel agency among the Key Online Travel Agencies in India in Fiscals 2018, 2019 and 2020, in terms of net profit margin.
The company has a strong presence in both browsing and app-based search. It recorded 5.16 crore website visits in FY20 and its app had 55 lakh downloads as of December 2020. Furthermore, the company has 55,981 travel agents registered with it, providing access to tier-2 and tier-3 cities.
The Grey market price is currently @ 170 which gives it a 90% premium.
Things To Look Out For
Its dependence on the airline booking segment is worrisome. This constitutes 98% of its revenue. The sector has notoriously low margins and is open to entry of new players which brings in fresh competition. Video conferencing has had a big impact on necessity of corporate travel, video conferencing looks here to stay and could lead to drop in income from this segment
One of the primary concerns is easy replication of business which new E-commerce players such as Amazon, Paytm and others can bring in. These players have a great client base and provide multiple cross platform services that help them in building customer loyalty. Platform businesses need to create strong network effects in order to resist easy replication by new players, this is currently lacking in Easy Trip Planners. There is talk of Flipkart wanting to acquire Cleartrip. All these factors form its competition in combination could easily hit the company airline revenue stream creating a strain on its profitability
The litigation amounting to the tune of 140 crores is another concerning factor. Its Ticketing partner has alleged that the company manipulated records and has claimed 37 crores in damages in its ongoing case. This allegation is very concerning.
The current IPO upper stock band will give it a P/E of 61.5. IRCTC which has a somewhat similar business model trades at a P/E of 58.4. This makes it a very aggressively priced IPO.
Though the company is profitable and debt free but its reliance on the airline ticketing stream which is open to entry from potential big players combined with the aggressive price makes us uncomfortable and this IPO is a avoid for us.
Investors should only subscribe for potential IPO gains
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