Le Travenues Technology coming with IPO to raise Rs 746.92 crore

Le Travenues Technology

• Le Travenues Technology is coming out with a 100% book building; initial public offering (IPO) of 8,03,14,037 shares of Rs 1 each in a price band Rs 88-93 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 more 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 June 10, 2024 and will close on June 12, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 88 times of its face value on the lower side and 93 times on the higher side.
• Book running lead managers to the issue are Axis Capital, DAM Capital Advisors and JM Financial. 
• Compliance Officer for the issue is Suresh Kumar Bhutani.

Profile of the company

The company is a technology company focused on empowering Indian travellers to plan, book and manage their trips across rail, air, buses and hotels. Its vision is to become the most customer-centric travel company, by offering the best customer experience to its users. Its focus on travel utility and customer experience for travellers in the ‘next billion user’ market segment is driven by technology, cost-efficiency and its culture of innovation. Its OTA platforms allow travellers to book train tickets, flight tickets, bus tickets and hotels, while providing travel utility tools and services developed using in-house proprietary algorithms and crowd-sourced information, including train PNR status and confirmation predictions, train seat availability alerts, train running status updates and delay predictions, alternate route or mode planning, flight status updates, automated web check-in, bus running status, pricing and availability alerts, deal discovery, destination content, personalized recommendations, instant fare alerts for flights, AI-based travel itinerary planner and automated customer support services.

The company is the leading OTA for the ‘next billion users’, with its focus on localized content and app features that aim at solving problems of Tier II/ Tier III travellers. It was the second largest OTA in India in terms of consolidated revenue from operations in Fiscal 2023. It is also the leading OTA for the ‘next billion users’, and in September 2023, ixigo flights, ixigo trains, ConfirmTkt and AbhiBus have collectively seen the highest usage and engagement among all key OTA players and standalone transactional train mobile apps in India in terms of Monthly Active Users and sessions. It is the largest Indian train ticket distributor in the OTA rail market and it had the largest market share of around 51%, in terms of rail bookings, among OTAs, as of March 31, 2023. Its market share in India in the OTA rail market was 46.15% in Fiscal 2023 and increased from 46.4% in the first half of Fiscal 2023 to 52.4% in the first half of Fiscal 2024. It has significant penetration in the ‘next billion user’ market. ‘Next billion users’ refers to an existing as well as anticipated market of ‘new to Internet’ users that includes all non-Tier I market demand i.e., all travel demand originating from and/or concluding in Tier II, III and rural areas in India as well as ‘new to Internet’ users emerging from middle and lower income groups of Tier I cities. In the next five years, it is expected that 20% of the ‘next billion users’ will come from Tier I cities, and a substantial 50% to come from Tier II and Tier III cities, and significantly, the rest of 30% will come from rural India. 

Proceed is being used for:

• Part-funding working capital requirements of the company.
• Investments in cloud infrastructure and technology. 
• Funding inorganic growth through unidentified acquisitions and other strategic initiatives and general corporate purposes. 

Industry overview

According to the World Travel & Tourism Council (WTTC), Indian travel and tourism spending was Rs 16.5 trillion in Fiscal 2023 with an equally high contribution to GDP at 9.7% of GDP as of Fiscal 2023, and this contribution is expected to grow strongly in the forecast period. This includes not just transportation and accommodation spending but also spending on culture, sports, recreational spending, on entertainment, retail trade and food and beverage amongst others by residents as well as visitor exports. The Indian travel and tourism market for air, road, air and hotels accounts to around Rs 3,808 billion and this is expected to grow to Rs 5,904 billion in Fiscal 2028. The overall travel market is expected to grow at a CAGR of 9%. Middle India is becoming increasingly mobile through the growth of disposable income and the frequency of vacation and travel has increased compared to the past. There is a growing share of discretionary spending in overall income, of which the share of travel spending is also increasing. As internet penetration brings deep Middle India into the mainstream and decreases information asymmetry, Indians in Tier II and Tier III towns are increasingly contributing to the growth of the travel industry.

Availability of low-cost travel, increasing income per household, flexibility options, and offers provided by OTA, have made travel more attractive. The higher number of OTAs and the increasing competitiveness among airlines, railways, and buses as modes of transport have increased the affordability of travel. There have been many drivers of tourism in Indian government policy initiatives that promote domestic tourism and the development of tourism infrastructure. There have also been policy reforms in visa and passport issuance. In addition, social media has increased exposure for tourist destinations. Around 21% of all Indian travellers in 2022 have visited international destinations and the rest have visited domestic destinations. The average spend on domestic travel was estimated to be around Rs 27,000 and for international travel it was around Rs 1,29,000 in 2022. Infrastructure bottlenecks have been a common woe for all modes of transport. In airlines, capacity is restrained due to the shortage of aircraft, airports and air slots. In railways, there is an upper cap in the number of trains that can be operated due to the shortage of tracks and any capacity addition will also need higher speed for existing trains. Comparatively, road transportation has fewer capacity bottlenecks and can be easily ramped up to meet demand surges. The government has put various policy measures in place to bolster infrastructure capacity for each mode.

Pros and strengths

Leading online travel agency: The company is the leading OTA for the ‘next billion users’ with the highest Monthly Active Users for mobile apps across all key OTAs as of September 2023. It was the second largest OTA in India in terms of consolidated revenue from operations in Fiscal 2023. It is also the fastest growing OTA in India, in terms of revenue from operations between Fiscal 2020 and Fiscal 2023. The number of transactions booked through its OTA platforms has increased at a CAGR of 139.43% from 8.56 million in Fiscal 2021 to 49.07 million in Fiscal 2023, and to 42.00 million and 36.47 million in the nine months ended December 31, 2023 and December 31, 2022, respectively. Ixigo and ConfirmTkt, collectively had a market share of around 51%, in terms of rail bookings, among OTAs, as of March 31, 2023. The company’s OTA platforms target the ‘next billion user’ travel market in India and it has focused on growing organically in this segment through its travel utility products Value-Added Services, investment in social media marketing, and word of mouth marketing. In line with its focus on the ‘next billion users’, it has developed several marketing campaigns targeting travellers from non-Tier I cities. 

Artificial intelligence and technology driven operations: The company is a technology-focused company. Technology forms the basis for its operating leverage and is instrumental in achieving significant efficiencies in its business processes and operations. It uses artificial intelligence, data science and machine learning to transform its travel information and crowd-sourced data into business intelligence that enhances its travel offerings and improves its operating efficiency. It has developed advanced and scalable technology platforms allowing it to address the requirements and problems of travellers. Its proprietary search, caching, train PNR prediction and crowd-sourcing algorithms help it in improving its customer experience and leveraging information from its own users to provide accurate and meaningful information to solve user pain areas. It has recently launched ixigo PLAN, an intelligent AI-based trip planner that delivers detailed itineraries and real-time destination information to help travellers plan their journeys. In addition, it has also launched its generative AI plugin, enabling conversational interactions with ixigo PLAN. It has also recently launched a Value-Added Service, ixigo Assured Flex, which allows the purchase of a fully flexible airline or train ticket with no additional payment for cancellation or rescheduling, apart from the fare difference, across all domestic flights and train bookings, at a nominal price.

Established consumer travel brands built with user-first approach: ixigo Group apps were one of the highest rated apps among OTAs, with a rating of 4.6 on the Google Play Store as of November 2023, and the company’s apps had the highest usage and engagement among all key OTA players and standalone transactional train mobile apps in India in September 2023 in terms of Monthly Active Users and sessions per user per month. Its brand presence and loyalty amongst users is evident from the growth in Monthly Active Users, which has increased from 21.59 million in March 2021 to 44.20 million in March 2022, 62.83 million in March 2023 and were 77.04 million and 62.01 million in December 2023 and December 2022, respectively. It had a Repeat Transaction Rate of 86.06% and 85.14% in the nine months ended December 31, 2023 and in Fiscal 2023, respectively. The company has followed a cost-efficient approach towards marketing and user acquisition and relied on its brand to generate significant organic user traffic. For developing and promoting its brand, it has been using a combination of online, offline, cross-marketing, social media and other viral marketing initiatives. Its online marketing channels primarily consist of search engine optimization, app store optimization, and paid search engine marketing with a focus on enhancing its ranking organically on search engines and app stores with quality content and improving user ratings and reviews of its OTA platforms.

Diversified business model with significant operating leverage and organic flywheel: The company’s business model consists of a comprehensive mix of product and service offerings with presence across trains, flights, buses and hotels businesses, which comprehensively addresses the online travel market in India allowing it to monetize all aspects of its OTA platforms. It relies on utility and crowd-sourced driven use cases to acquire users organically. As more users utilize its OTA platforms, the additional information added to its proprietary algorithms increases the utility and effectiveness of its PNR and train running status predictions, and crowd-sourced information, as well as enabling it to offer an enhanced user experience. All of these help it to attract and retain more users, resulting in increased monetization through train bookings. The growth of its active user base also enhances its OTA platforms’ value to advertisers and partners, which leads to increase in its advertisement revenue, as well as its ability to cross-sell and up-sell travel and Value-Added Services, resulting in network effects. Since inception, it has focused on growing its operations organically by relying on online marketing strategies to generate word-of-mouth product referrals, search engine optimization, social media engagement and video content. 

Risks and concerns

Train ticketing services depend on the company’s agreement with IRCTC: The company undertakes its train ticketing services pursuant to an agreement with IRCTC, pursuant to which it has been appointed as a principal service provider on a non-exclusive basis for booking of reserved e-tickets for train travel. Its business is therefore dependent on maintaining its arrangement with IRCTC. Its agreement with IRCTC has been renewed or extended several times since it was awarded in May 2017 initially, and was most recently renewed until April 30, 2028. In its agreement with IRCTC, it is required to pay annual maintenance charges, advertising charges for promotional activities undertaken and refundable security deposits which are liable to be forfeited in case of violation of any terms and conditions of the agreement with or policy of IRCTC or misuse of IRCTC services, resulting in loss of reputation of IRCTC. In the nine months ended December 31, 2023, penalties amounting to Rs 1.20 million were levied on it by IRCTC for concerns relating to complaints by customers, and other than this, there have been no penalties in the three preceding Fiscals and the nine months ended December 31, 2023. Further, IRCTC has the right to discontinue the service until annual maintenance charges are paid as well as the right to impose penalty in case of any misconduct in relation providing refunds to customers and right to terminate the agreement at its sole discretion without providing any reasons. 

Required to incur significant expenses towards Partner Support Costs: The company is required to incur significant expenses towards its Partner Support Costs which includes expenses incurred for various charges levied by IRCTC such as annual maintenance fees, charges for assured bookings, and PNR inquiry charges. Such charges are levied by IRCTC from time to time and its ability to control or rationalize such expenses is limited. Other distribution partners may in future also levy such charges. In order to maintain its competitive position and grow its ticketing revenues, it expects to continue to incur such expenses in future periods. In the event such Partner Support Costs increase further, its business, financial condition and results of operation may be adversely impacted.

Indian OTA industry highly competitive: The Indian OTA industry is highly competitive. The company’s success depends upon its ability to compete effectively against numerous established and emerging competitors, including other online travel agencies, or OTAs traditional offline travel companies, travel research companies, payment wallets offering ticketing services, ecommerce players offering ticketing services and search engines and meta-search companies, both in India and abroad including their affiliated and group entities. Some of its competitors may have significantly greater financial, marketing, personnel and other resources than it has. It also competes against large, established internet search engines with a global presence and meta-search companies who can aggregate travel search results to compete against it for customers. Certain of its competitors have launched brand marketing campaigns to increase their visibility with customers. Search engines have grown in popularity and may offer comprehensive travel planning or shopping capabilities, which may drive more traffic directly to the websites of its suppliers or competitors. In addition, the IRCTC and many airlines, hotels, bus operators and tour operators, including its suppliers, have call centers and have established their own distribution channels, including their own websites and mobile applications. Suppliers may offer advantages for customers to book directly, such as member-only fares, bonus miles or loyalty points, which could make their offerings more attractive to customers.

Depends on relationships with broad range of travel suppliers: Adverse changes in any of the company’s relationships with travel suppliers, or the inability to enter into new relationships with travel suppliers, could reduce the amount of inventory it is able to offer and has an adverse impact on its financial condition and results of operations. Its arrangements with travel suppliers are not typically subject to long-term commitments and may not remain in effect on current or similar terms, and the net impact of future pricing options may adversely impact its revenue. A significant change in its relationships with its major suppliers for a sustained period of time, including an inability by any travel supplier to fulfill their payment obligation to it in a timely manner or a supplier's complete withdrawal of inventory, could have a material adverse effect on its business, financial condition, cash flows or results of operations. Furthermore, it cannot assure that its travel suppliers will not further reduce or eliminate fees or commissions or attempt to charge it for content, terminate its contracts, make their products or services unavailable to it as part of exclusive arrangements with its competitors, or offer their inventory on their own websites, or default on or dispute their payment or other obligations towards it, any of which could reduce its revenue or may require it to initiate legal or arbitration proceedings to enforce their contractual payment obligations, which may adversely affect its business and results of operations. 

Outlook

Le Travenues Technology is an online travel agency (OTA) that enables travellers to book train, flight, and bus tickets as well as hotels via its OTA platforms under the brand name ‘ixigo’. The company's list of services includes PNR status and confirmation predictions, train seat availability alerts, train running status updates and delay predictions, alternative route or transportation planning, flight status updates, automated web check-in, bus running status, price and availability alerts, deal discovery, destination content, personalized recommendations, instant fare alerts for flights, AI-based travel planning service and automated customer support. The company recently launched ixigo PLAN, an intelligent, AI-based travel planner that helps travelers plan their trips with detailed itineraries and real-time destination information. It has also launched a generative AI plugin that enables conversational interactions with ixigo PLAN. The company has also launched a value-added service, ixigo Assured Flex, which enables the purchase of a fully flexible air or rail ticket with no additional payment for cancelation or rebooking, apart from the price difference, for all domestic flights and rail bookings at a low cost. It endeavours that its OTA platforms are able to build significant user adoption and engagement by offering convenience, utility and value-added customer-centric solutions for travel related issues. On the concern side, there is no guarantee that any new features or initiatives it develops will ultimately be successful and, if they are not, its business and results of operations may be materially adversely affected. Even if it is able to successfully introduce new offerings, and adopt new features, improvements or strategies, the impact of such initiatives may take longer to develop than it expects or not develop at all. 

The company is coming out with an IPO of 8,03,14,037 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 88-93 per equity share. The aggregate size of the offer is around Rs 706.76 crore to Rs 746.92 crore based on lower and upper price band respectively. On performance front, total income increased by 34.46% from Rs 3,849.41 million in Fiscal 2022 to Rs 5,175.73 million in Fiscal 2023 due to an increase in both revenue from operations and other income. The company’s restated profit for the year was Rs 233.96 million in Fiscal 2023 compared to restated loss for the year of Rs 210.94 million in Fiscal 2022. Meanwhile, the company intends to continue to invest in online and offline brand building initiatives, particularly through creation of content with the objective of achieving virality, and media campaigns (online and offline) with the objective of building ‘top-of-mind’ awareness and recall among new and existing users. It also intends to invest more deeply in its brand to educate new users on its product benefits and uniqueness of its offerings. In addition, the company plans to provide travel insurance, and foreign exchange services by partnering with third party service providers to enable them to offer these to users on its OTA platforms. Such Value-Added Services will enable it to generate additional revenue and contribute to conversion of active users to transacting users.