Travel Aggregator Le Travenues Technology Files For IPO: Here's What You Need To Know

Le Travenues Technology Limited (LTT) recently filed its draft red herring prospectus (DRHP) for an IPO. The company runs online portals like Confirmtkt, Ixigo and AbhiBus. These portals are focused on the travel and tourism sector. The offer consists of a fresh issue of around Rs 750 crore along with an offer for sale of Rs 850 crore.

Initially, a travel meta-search model, the company shifted to the Online Travel Agent (OTA) model to capitalise on the growth of travel in India. Ixigo is among the largest OTAs in the Indian tourism sector in terms of Gross Transaction Value (GTV). It operates four main apps for ticket bookings – ixigo (trains), ixigo (flights), ConfirmTkt (trains) and Abhibus (buses).

The company is the largest Indian OTA in the online train bookings segment with two train-centric mobile applications, ixigo trains and ConfirmTkt. The two apps were collectively the leading B2C distribution platforms for Indian Railway Catering and Tourism Corporation (IRCTC), with a 42 per cent market share, in terms of rail bookings among the OTAs and B2C distributors of IRCTC in FY21.

The bus-focused app, AbhiBus, was the second-largest bus-ticketing OTA in India, with a 10 per cent market share in online bus ticket bookings, in FY21. The company is also the third-largest flight OTA in India, with a market share of 12 per cent in online air bookings in FY21.

ConfirmTkt was recently acquired to consolidate its hold on the railway business. The railway business has relatively lower margins due to government-set prices but higher volumes. Seventy-five per cent of railway business happens directly through IRCTC, and the remaining through OTAs and other channels. Large OTAs derive a small part of their revenues from the railway segment and therefore, do not focus on the segment.

AbhiBus too, was a recent acquisition as a way to capitalise on the under-penetrated bus booking segment. The RedBus acquisition has worked out extremely well for MakeMyTrip, contributing to 14 per cent of revenues in 2020, from the initial 3 per cent in 2015. LTT is pinning its hopes on a similar push to its earnings with the acquisition of AbhiBus.

The Gross Transaction Value has grown at a compounded annual growth rate (CAGR) of 135.21 per cent from Rs 389 crore in FY19 to Rs 2,153 crore in Fiscal 2021. The Gross Take Rate (Transactions), the percentage of transaction value charged as revenue, has also been consistently increasing and was 1.42 per cent, 5.08 per cent and 6.94 per cent in Fiscals 2019, 2020 and 2021, respectively. Revenue from operations has grown at a CAGR of 83.26 per cent between Fiscal 2019 and Fiscal 2021 from Rs 40 crore to Rs 135 crore.

Despite Covid, the company’s GTV in the fourth quarter of FY21 surpassed the GTV in the fourth quarter of FY20. So far, the company has demonstrated the ability to be resilient. The cost structure for the current year is the same as the previous year, implying that costs might have stabilised, which can allow the company to exploit its operational advantage. However, the company has still been unable to generate consistent cash flow. So, the company has raised money through debentures to finance its shortfall.

Key Risks:

Covid-Related Risks:

If the third wave strikes India, travel will again see a nosedive which can adversely affect companies like LTT. Ixigo derives a large part of its revenues from train operations. Therefore, lower demand for train travel can also harm Ixigo negatively.

Partnership with IRCTC:

LTT derives a large part of its gross earnings from its partnership with IRCTC. The agreement is renewed every few years for a period of around three years. But the arrangement with IRCTC is on a non-exclusive basis, meaning that IRCTC can continue selling tickets through other channels. Further, almost 75 per cent of railway tickets are sold through IRCTC, which limits the market size for other players.

History of Losses:

So far, the company has been unable to generate profits except for FY21, which is typical of companies going in for IPOs. It remains to be seen whether the profits are sustainable. So far, the company seems to have stabilised its costs and lower the cost of customer acquisition. With further revenue growth, the company might show sustaining profitability.

Competitive Intensity:

The business face intense competition from other OTAs, traditional businesses, super apps, payments companies etc. Therefore, it might become difficult for it to fight against a well-funded customer.

In terms of valuations, the company is expected to be valued at around Rs 4,000 crore for the IPO, implying a valuation of around 40 times sales. Investors should be cautious of such valuations.