30% fall from highs! This travel & tourism company is a good ‘buy on dip’ candidate; here’s why

Easy Trip Planners Ltd, the second largest online travel agency (OTA) in India, has plunged by about 30 per cent from its high of Rs 717 on the BSE recorded on 17 September, but the recent price action suggests that the long term trend remains intact.

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Easy Trip which was listed on the exchanges back in June is still up by about 170 per cent from its issue price of Rs 187. It was oversubscribed by about 160 times.

Ease My Trip has been profitable since its inception and is the only profitable player among key OTAs in India. Edelweiss Wealth Research in a recent note in November initiated coverage with a buy rating and a target of Rs 733 that translates into an upside of 41 per cent from Rs 517 recorded on 23 November.

Over FY18-20, Ease My Trip delivered healthy net revenue/EBITDA/PAT CAGR of 19%/87%/91%. It is also focusing on the inorganic route for growth.

The acquisition strategy (Traviate & Spree Hospitality) is aimed at entering newer verticals and to strengthen its brand in existing segments. It works on an asset-light model and earns RoCE of over 30 per cent.

Key Factors To Take Note:

Dominant player in domestic air ticketing:

While the company has the largest agent network in the Indian OTA industry, it also ranks second in terms of air ticket volume and third in terms of gross booking revenue (GBR) and number of registered customers.

In terms of gross booking revenue, the company’s share in the Indian OTA market has increased to 4.6% in FY20 from 3.1% in FY18. Ease My Trip has delivered industry-leading growth thanks to its ‘No Convenience Fee’strategy, which attracts a large number of customers.

Focus on lean and cost-efficient operations:

Ease My Trip has a lean cost structure, which has enabled it to remain profitable even in challenging times, especially when peers (including industry leaders) have suffered losses.

The company has restricted employee and infrastructure expenses through focus on technologies and kept marketing and sales promotion expenses lower due to its unique selling point of ‘No Convenience Fee’ strategy.

Beneficiary of technology infrastructure:

The company is focused on developing in-house technology infrastructure and software, which has enabled it to continuously strengthen its products and service delivery. This has helped the company to grow its market presence and restrict expenses.

Ease My Trip has a wide distribution network (the largest network of 59,274 registered travel agents across almost all major cities in India) with three distinct distribution channels, namely B2C, B2E, and B2B2C channels, which enables it to cross-sell its products and services.

Valuations:

Edelweiss Research believes that the OTA market is fragmented and competitive. Building a business in such a market is an arduous task; however, once built successfully, network effects come into play.

With no external funding since launch, the company built its business the traditional way – pay-as-you-go, by generating revenue and managing costs diligently. The company has consistently reported profits along with
superior GBR growth and we expect it to continue its profitable growth trajectory.

With the recent post-IPO run up in the stock price, the stock trades at 41x/1.1x FY23E earnings and EV/GBR FY23E.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)