TBO Tek coming with IPO to raise upto Rs 1571.38 crore

TBO Tek

• TBO Tek is coming out with a 100% book building; initial public offering (IPO) of 1,70,80,225 shares of Rs 1 each in a price band Rs 875-920 per equity share.   
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on May 8, 2024 and will close on May 10, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 875 times of its face value on the lower side and 920 times on the higher side.
• Book running lead managers to the issue are Axis Capital, Goldman Sachs (India) Securities, JM Financial and Jefferies India. 
• Compliance Officer for the issue is Neera Chandak.

Profile of the company

The company is one of the leading travel distribution platform in the global travel and tourism industry in terms of GTV and revenue from operations for Fiscal 2023 providing a wide range of offerings operating in over 100 countries by providing Buyers with a comprehensive travel inventory according to the needs of their customers; and supporting a wide range of currencies along with forex assistances. It simplify the business of travel for suppliers such as hotels, airlines, car rentals, transfers, cruises, insurance, rail and others (collectively, Suppliers), and retail buyers such as travel agencies and independent travel advisors (Retail Buyers); and enterprise buyers that include tour operators, travel management companies, online travel companies, super-apps and loyalty apps (Enterprise Buyers, together with Retail Buyers, Buyers) through its two-sided technology platform that enables Suppliers and Buyers to transact seamlessly with each other. Its platform allows the large and fragmented base of Suppliers to display and market inventory to, and set prices for, the large and fragmented global Buyer base. For Buyers, its platform is an integrated, multi-currency and multi-lingual one-stop solution that helps them discover and book travel for destinations worldwide, across various travel segments such as leisure, corporate and religious travel. It has two key revenue models for its transaction, i.e., B2B Rate Model where it receives inventory from Suppliers on which it applies a certain mark-up and pass on to the Buyers and Commission Model where its Suppliers fix the price at which they want to sell to the end traveller on which receive commission from the Supplier part of which it retains and part of which it share with the Buyer.

The company’s business solutions aim to solve problems of discovery, reliability, transactions, and service by aggregating global travel supply and global travel demand on one platform and by enabling Buyers and Suppliers to transact seamlessly. It aggregate supply from hotels, airlines, car rental companies, transfer providers, cruise companies and other via direct connectivity or through third party aggregators. It classifies Buyers into two broad categories, Retail Buyers and Enterprise Buyers. Retail Buyers are typically small businesses such as travel agencies or travel advisors operating independently. They use its retail selling platform to search, book and pay for global travel supply. On the other hand, Enterprise Buyers comprise large travel businesses such as tour operators, travel management companies and online travel agencies, as well as digital native businesses such as ecommerce portals and super apps. Enterprise buyers usually use its Extensible Markup Language (XML) or JavaScript Object Notation (JSON) application programming interface (API) to transact through its platform. Through its platform, hotels across the world are able to share live inventory and pricing information with it in multiple ways, including through XML feeds, JSON feeds or through its extranet platform. Its Supplier universal API engine aggregates hotel data from all sources and performs multiple data cleaning and consolidation processes. Once ready, its analytical models assess the data and push pricing and personalization recommendations to the Retail Buyer interface of its platform. Its Buyers, while searching to make bookings through the platform, view geo-centric recommendations personalized for them, which facilitates a fast-booking experience. The platform also settles payments on both, the Buyer and Supplier fronts, managing for multiple currencies at both ends. 

Proceed is being used for:

• Expansion of the Supplier and Buyer base.
• Amplification of value of the company’s platform by adding new lines of businesses.
• Inorganic growth through selective acquisitions and building synergies with its existing platform.
• Leveraging data procured to offer bespoke travel solutions to Buyers and Suppliers.

Industry overview

The Indian travel buyer market is highly fragmented, unorganized, and dispersed across the country which results in difficulty in finding global inventory at one place to offer a variety of choices to the end customer. Lack of comprehensive choices results in lower stickiness of consumers toward travel buyers. This creates a huge challenge for the buyers as limited options provided result in lower stickiness of customers towards travel buyers. The travel buyer market (specially for airlines and hotels) in India is growing significantly on account of various factors such as increased middle-class population wanting improved travel experience, higher disposable incomes, various regulatory and policy push by the government to enhance travel experience. Similar to global travel market, in India as well, the retail and enterprise travel buyers together address the end customer market requirements and provide for a set of distinct travel needs by providing travel services such as airline, train, hotel reservation, holiday packages amongst others and a host of other services as per customer requirements. There are about 275,000 travel buyers in India which aim at providing their customers with right pricing and global inventory to select from. The travel buyer market in India is categorized by four major distribution channels of direct online (supplier websites and applications) estimated to be contributing 5% to 10%, direct offline (central reservations or walk-ins) contributing 15% to 20%, online (OTAs, super applications or loyalty) contributing 25% to 30% and the traditional travel agents (travel advisor / TMCs) contributing about 40% to 45% in 2023. The travel buyer market is expected to grow at a CAGR of 13.9% from 2023 to 2027 and reach a market size of US$ 63.2 billion by 2027.

The travel industry is extremely fragmented with the presence of tens of thousands of small and mid-sized travel providers. Historically, travel distribution (that includes a long tail of independent hotels and lodging providers along with other service providers such as local transfers, tour guides, car rental companies amongst others) has also been a large and fragmented industry with limited technology adoption. Building the right approach across channels to create safe, secure, and seamless experiences from booking to arrival and beyond, delivering the experiences that travelers desire has always been a challenging task for travel buyers. Inability to adjust to rapidly changing travel needs has led to a decline in business for lot of travel buyers. On account of the evolving and fragmented nature of the travel industry, travel buyers lack efficiency which results in average or below average travel experience to consumers.

Pros and strengths

Platform creating network effect with interlinked flywheels to enhance value proposition for partners: One of the key value propositions of the company’s platform for both, Suppliers and Buyers is providing them instant access to a global network of partners on the other side of the transaction. As its Buyer base grows, it channels additional demand and therefore conduct more transactions through its platform. This attracts more Suppliers, which in turn, enables it to offer better pricing, wider range, and higher volume of supply across both, existing and new products. By analyzing its search data, it prioritizes efforts to onboard Suppliers from the destination markets (markets where Buyers need hotels) that are of most interest to its source markets (markets where Buyers are) worldwide. This attracts more Buyers to the platform, which in turn attracts more Suppliers. This first flywheel of network effects is a virtuous cycle that results in more transactions completed on its platform and continuously enhances the breadth of its partner base across Buyers and Suppliers. The second flywheel is a data flywheel which creates learning effects that it uses to improve its platform and drive the depth of its relationships to seek a higher wallet share with its partner base. Buyers access its platform and conduct searches for supply that they eventually book. As more searches and bookings take place through its platform, it gets access to additional data such as destination preferences and days of stays at a location.  

Modular and scalable proprietary technology platform: The company has designed its platform to be modular which, enables it to develop and launch solutions that serve specific Buyer and Supplier segments efficiently. These improvements leverage its platform’s core capabilities including Supplier and Buyer modules, payment infrastructure, with data assets and analytics, to quickly go-to-market and scale with minimal investment. Similarly, its partner model solution for airlines was easily customized for its airline partners allowing them to start selling quarantine packages that comply with government rules. Leveraging the scalability of the platform, it has been able to develop a go-to-market playbook. Outside of India, it has executed its model in the Middle East, Latin America, and APAC markets. Its global playbook leverages the core platform and requires limited customizations for language, payments and a few market specific needs for it to enter a new market. The modularity and scalability of its platform are key differentiators for it, compared with any new entrant who may have to incur greater cost and time to replicate the capabilities it possesses and offer travel products i.e., services or experiences that are designed and marketed for travellers catering to various aspects of the travel and tourism industry similar to it.

Ability to generate and leverage large data assets: Since the company’s platform generates large volumes of data, it follows the principles of good data governance and have developed an enterprise-wide data warehouse that segments data into various subject areas such as searches, bookings, invoices, and payments. Data received on its platform is curated and verified for accuracy before being subjected to data analytics. It also endeavor to protect data through its privacy and data security practices. It considers data as its corporate currency, and it monetize it by advancing and refining its platform for its partners as well as by including additional insights to its platform. For instance, search results for hotels are displayed based on the end-traveller profile, nationality, and the source market. This has led it to include filters that can narrow search results, which has helped educate new Buyers about unexplored markets. It continuously analyses data to find ways to increase bookings by fulfilling requirements. It mine data to gather actionable insights that are shared with its Supplier and Buyer partners in form of dashboards. 

Data driven decision making across the enterprise: The company has democratized access to data from the frontline sales executive to the product manager and encourage all its decisions to be data driven. It has also developed sales forecasting models based on recurrent neural networks that record events happening in the distant past and recent past. Dynamic pricing decisions are guided by the model predictions and hotels are grouped using clustered algorithms to arrive at the concept of similar hotels. It continues to work on marketing analytics and personalization exercises as its future projects are aimed at disruptions with Buyers in real-time. 

Risks and concerns

Dependent on the hotels and ancillary bookings: The worldwide travel and tourism industry is highly sensitive to general economic conditions and trends, including trends in consumer and business confidence, actual or perceived safety concerns, the availability and cost of consumer finance, interest and exchange rates, fuel prices, unemployment levels and the cost of travel. In addition to general economic conditions, the global travel and tourism industry is highly susceptible to other factors that are outside its control, such as global and regional security issues, political instability, acts or threats of terrorism, hostilities or war and other political issues; increased security measures at ports of travel that reduce the convenience of certain modes of transport; world energy prices, particularly fuel price escalations; prolonged work stoppages or labour unrest; changes in attitudes towards the environmental impact of carbon emissions caused by air travel; changes in the laws and regulations governing or otherwise affecting the travel and tourism industry; epidemics or pandemics; changes in trade or immigration policies; natural disasters, such as hurricanes and earthquakes; and aircraft, train and other travel-related accidents, as well as other factors that increase the cost of travel, hotel accommodation and travel-related services or that otherwise adversely affect airline passenger numbers, hotel occupancy rates or domestic, regional and international travel patterns or volumes. The overall impact on the travel and tourism industry of such factors can also be influenced by travellers’ perception of, and reaction to, the scope, severity and timing of such factors.  

Business depends on relationships with limited range of Supplier: The company is dependent on a limited range of Suppliers for a significant portion of its gross transaction value or GTV. GTV is computed as total transaction value net of cancellations during a particular year or period. Its relationships with its Suppliers enable it to offer its Buyers access to travel services and products. Any adverse changes in such relationships, or its inability to enter into new relationships with Suppliers, could have an adverse effect on its ability to offer services and products. While none of its Suppliers have withdrawn their inventory from its platform during the last three Fiscals and the nine months ended December 31, 2023, it cannot assure that such withdrawals will not take place in the future. Further, certain of its Suppliers are increasingly focused on driving online demand to their own websites and may cease to supply it with the same level of access to travel inventory in the future. 

Rely on proprietary technology for business operations: The company relies on its proprietary technology for its business operations. It further intends to continue spending on technology solutions to meet the travel demands of its Buyers and Suppliers. Whilst there have been no instances of technology failures in the last three Fiscals and the nine months ended December 31, 2023, however, going forward, any failure to identify and adapt to technological developments within the industry may cause it to lose its competitiveness, which would adversely affect its business, results of operations and financial condition. Maintaining and upgrading its technology carries certain risks, including the risk of disruptions caused by significant design or deployment errors, delays or deficiencies, which has made and may continue to make its platform and services unavailable. Some of its existing technologies may become obsolete or perform less efficiently compared to newer and better technologies and processes in the future. Certain of its competitors may have access to similar or superior technology or may have better adapted themselves to technological changes. It may also implement additional or enhanced technology in the future to accommodate its growth and to provide additional capabilities and functionalities. The implementation of new or enhanced technologies may be disruptive to its business and can be time-consuming and expensive and may increase management responsibilities and divert management attention. If it fails to properly maintain or promptly upgrade its technology, its services may be disrupted or become of lower quality or unprofitable, and its results of operations and financial condition may be adversely affected. 

Operate in highly competitive industry: The company faces significant competition from companies that operate as a distribution network and consolidate demand and supply for segments within the travel industry. In the future, it may face competition from players that are currently focused in the business to consumer, GDS, bed banks or channel manager sectors. In the event its competitors expand their product offerings, Suppliers and Buyers may choose to use their platforms instead. Its customers may also choose not to list on external platforms and instead, rely on their own online platforms and change their sales and marketing models through technology and infrastructure investments. In addition, if its competitors develop business models, products or services with similar or superior functionality to its solutions, it may adversely impact its business. Its competitors may also impede its ability to reach new Suppliers and Buyers or commence operations in certain jurisdictions. Its competitors may have greater financial, marketing and other resources, greater geographical reach, broader product ranges or a stronger sales force. They may also offer deep discounts to capture greater market share, have extensive travel industry relationships, longer operating histories and greater prominence than its platform. As a result, such competitors may be able to respond more quickly with new technologies and undertake extensive marketing or promotional campaigns. If it is unable to compete with such companies effectively, the demand for its offerings could substantially decline. 

Outlook

TBO Tek (TTL) is one of the leading travel distribution platform in the global travel and tourism industry in terms of GTV and revenue from operations for Fiscal 2023 providing a wide range of offerings operating in over 100 countries by providing Buyers with a comprehensive travel inventory according to the needs of their customers; and supporting a wide range of currencies along with forex assistances. It simplifies the business of travel for suppliers such as hotels, airlines, car rentals, transfers, cruises, insurance, rail and others (collectively, Suppliers), and retail buyers such as travel agencies and independent travel advisors (Retail Buyers); and enterprise buyers that include tour operators, travel management companies, online travel companies, super-apps and loyalty apps (Enterprise Buyers, together with Retail Buyers, (Buyers) through its two-sided technology platform that enables Suppliers and Buyers to transact seamlessly with each other. On the concern side, the company’s suppliers continue to look for ways to decrease their costs and to increase their control over distribution. Its Suppliers may reduce or eliminate commissions, incentive payments, including performance-linked bonus, or other compensation payable to it, or default on or dispute their payment obligations towards it. They may also impose restrictions on it from charging convenience or other charges to customers. 

The company is coming out with an IPO of 1,70,80,225 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 875-920 per equity share. The aggregate size of the offer is around Rs 1494.51 crore to Rs 1571.38 crore based on lower and upper price band respectively. On performance front, total income increased from Rs 5,119.28 million in Fiscal 2022 to Rs 10,857.71 million in Fiscal 2023 primarily due to the easing of COVID-19 related travel restrictions and increase in revenue from contracts with customers from India as well as international operations. The company recorded a profit for the year of Rs 1,484.91 million in Fiscal 2023 compared to a profit for the year of Rs 337.17 million in Fiscal 2022. Meanwhile, the company will continue focusing on strengthening its Buyer base in both, existing markets and new markets by continuing to invest in growing its on-ground sales team. It will also be augmenting its enterprise sales team to onboard large Enterprise Buyers, such as OTAs, tour operators, and travel management companies. The company will also focus on its new loyalty business services initiative for clients with reward programs to book with OTA-like experience. It will invest in developing these new lines of businesses by using its existing go-to market capabilities across the globe. It will also continue to create additional solutions for its platform, which can service its existing Buyer and Suppliers and attract newer partners to the platform.