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RateGain Travel Technologies

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About the Company

RateGain Travel Technologies Ltd is the leading distribution technology company globally and the largest Software as a Service (SaaS) provider in the travel and hospitality industry in both domestic and international travel markets. The firm offers travel and hospitality services across different verticals like hotels, airlines, online travel agents, meta-search companies, package providers, car rentals, cruises, and ferries.

Q1 FY23 Updates

Financial Results & Highlights

Standalone Financials (in Crs)
  Q1FY23 Q1FY22 YoY % Q4FY22 QoQ % FY22 FY21 YoY%
Sales 24.9 17.4 43% 18.9 31% 72.7 92.7 -21%
PBT 3.3 1.5 120% 1.1 200% 2.8 (6.1)
PAT 2.2 1 120% 0.7 214% 1.8 (6.2)
Consolidated Financials (in Crs)
  Q1FY23 Q1FY22 YoY % Q4FY22 QoQ % FY22 FY21 YoY%
Sales 119.3 74.9 59.2% 107.9 10.6% 366.5 250.8 46.2
PBT 11 -0.56 12.3 -11% 10.8 -24.6
PAT 8.4 -1.4 11.6 -27.5% 8.42 -28.5

 

Detailed Results:

  1. Q1 FY23 Revenue grew 59% YoY to Rs.119.3 crores.
  2. Annual Recurring Revenue: Rs.477cr (20% higher than pre-covid levels)
  3. Gross Revenue retention: 90% | Recurring Revenue: 99%
  4. US Hotel and Rental Occupancy at pre-covid levels.
  5. Gross Margins saw a small dip to 75%.
  6. Revenue Breakup by Segment – Martech: 41.7% | DaaS : 24.7% | Distribution: 33.6%   
  7. Revenue Breakup by Engagement – Subscription: 34% | Transaction: 23% | Hybrid: 43%
  8. Revenue Breakup by Geography – North America: 54%| Europe: 33% | Asia-Pacific: 10% | Others: 3%
  9. Top 10 Customers Revenue Share: 34%
  10. Employee Count: 625 [3% Q-oQ increase] | Employee Attrition: 22.3%
  11. Revenue per Employee: Rs.0.77cr [ ARR/Employee Count]
  12. Cash Flow from Operating Activities: Rs.0.48cr

 

Investor Conference Call Highlights

  1. Labour shortage in Travel industry has accelerated the path towards digitization and RateGain is well positioned to capture this opportunity.
  2. Expect little or no impact due to inflation, higher interest rates or Russia-Ukraine conflict.
  3. Demand for Metasearch and marketing products driven by customers looking to optimize their spends in increasing cost environment. 
  4. Distribution business is sticky and company has pricing power in this segment. For Daas and Martech product, the pricing for most customer contracts are back to pre-covid levels.
  5. EBITDA guidance of 20-25% in 3-4 year timeline.
  6. Money raised from IPO utilised to pay debt of Rs.85 cr, Rs. 170 cr yet to be spent on M&A, Data Centre related Capex and R&D.  
  7. New products are present in no or less intense space, will be able to generate gross margins of 90+%
  8. Positive surprise in business travel, expected 60% of pre-covid levels, experienced 80% of pre-covid levels.
  9. Operating Leverage can be expected to come into play post crossing Rs.800cr mark [$100M].
  10. Most of the competitors are point-solution providers and do not provide a comprehensive solution including both social and data/digital offering. 
  11. Closed contracts with smaller retail customers which were not profitable. Focusing more on the Enterprise contracts.
  12. DSO improved from 80 days to 70 days. Targeting DSO of 60 days. Larger players have DSO of 75 days.
  13. Working on products that capture increasing share of traveller spends, Eg: engaging with the traveller to reduce friction in organising the day, booking cabs, finding right restaurant and so on. 
  14. Segment Margins- Daas: 75% | Distribution: ~90% | Martech: ~60% 
  15. GDS – OTA Break-up – 20-80% respectively.

 

Analyst’s View

RateGain Travel Tech has a lot of growth ahead of it. Access to data helps it derive deep insights and serve customers with more optimized solutions, be it in rate parity, bookings or marketing. As it expands the business, this moat can be expected to widen. Apart from that there is customer stickiness as well with 7 of the Top 7 customers being with them for more than 10 years, makes one believe that they might be doing something right there. It can also be an attractive acquisition target of a large global SaaS player looking to expand in Travel space. The company is highly correlated with the travel industry, so its performance is largely dependent on how Hospitality and Travel Industry performs and like most tech companies, RateGain also faces risk of competition developing better tech products in a constantly evolving space. 

 

Q3 FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY22 Q3FY21 YoY % Q2FY22 QoQ % 9MFY22 9MFY21 YoY%
Sales 26 25 4.0% 24 8.3% 77 62 24.2%
PBT -0.5 2.56 -119.5% 0.7 -171.4% 1.7 5 -66.0%
PAT -0.44 2.3 -119.1% 0.4 -210.0% 1 4 -75.0%
Consolidated Financials (In Crs)
Q3FY22 Q3FY21 YoY % Q2FY22 QoQ % 9MFY22 9MFY21 YoY%
Sales 100 65 53.8% 88 13.6% 269 186 44.6%
PBT 0.4 -11 103.6% -1.4 128.6% -1.5 -22 93.2%
PAT 0.085 -11 100.8% -2 104.3% -3 -23 87.0%

Detailed Results

  1. The company showed good recovery with a 53% YoY rise in revenues and coming back to profitability vs a loss after tax of Rs 11 Cr last year.
  2. 9M numbers were similarly encouraging with the company posting a 45% YoY rise in revenues and reduction of loss from Rs 23 Cr last year to Rs 3 Cr currently in 9MFY22.
  3. The company has seen 75% of revenues in 9M come from subscriptions and 98% from recurring revenues.
  4. The company also has a net cash of Rs 420 Cr with zero debt.
  5. The Martech product line saw revenue contribution at 34% in 9M with 136 new clients added so far.
  6. The DaaS product line saw revenue contribution at 36% in 9M with 67 new clients added so far. it also saw 160% growth in BI subscriptions, 161% growth in AirGain revenues and OTA processing was at 120% of precovid levels.
  7. The distribution line saw revenue contribution of 30% and 81 clients added in the year so far.
  8. Rategain saw gross margin for 9M at 79%. Cash generated from operations in the same period was Rs 179 Cr.
  9. The revenue distribution by geography was :
    1. North America: 64%
    2. Asia Pacific: 11%
    3. Europe: 21%
    4. Others 4%

Investor Conference Call Highlights

  1. The company saw a demand rise of 10-14% in travel in  key cities like New York, London, Barcelona, Delhi through its  product Demand AI.
  2. The management states that the company’s acquisition of Myhotelshop in Germany completes its MarTech offering as an end-to-end platform for digital customer acquisition.
  3. The company has on-boarded Budget Rent A Car from Las Vegas for its REV AI product.
  4. The gross margin in the distribution business has improved to 92%.
  5. In Q3, 75% revenues came from subscriptions while 25% came from transactions.
  6. The company added 182 new employees in Q3.
  7. The gross revenue retention is at 92%, while the net revenue retention stands at 120% for Rategain.
  8. The management explains that the revenue share of North America is higher than the actual operations in the region because sales from multinational clients based out of the region are also counted as North America Sales no matter which part of the world the service or product is being used.
  9. The company is also seeing a high attrition rate of above 20% like the rest of the IT industry.
  10. The company is targeting to follow the rule of 40 as many SaaS companies are. The rule of 40 states that the sum of revenue growth and EBITDA margin should equal to 40.
  11. Despite having more clients than before the pandemic, the revenue figures for 9M are still below pre-covid levels. The management states that this is because the charges across the travel industry and for rategain are still not back to pre-covid levels as there is still discounting everywhere to promote the sector growth.
  12. Most of the contracts are now back on pre-covid levels as of Q3.
  13. The net contract value of the clients added in Q3 were at $ 4.9 million annually which comes out to Rs 40 Cr currently.
  14. Currently only 25% of DaaS customers use the distribution services and vice versa. Thus there is still a cross sell opportunity for 75% of the customers in both segments.
  15. Without the addition of myHotelshop, the organic growth in revenues in 9M was at 35% YoY.
  16. The company added 778 customers in Q3 of which 600 came from MHS (MyHotelShop).
  17. The amortization on the 3 acquisitions done by rategain was at 4% of revenues.
  18. The management expects the revenue share of the Martech business to rise from current levels in the future.
  19. The addressable market for Martech solutions is over 1 Lac hotels to but only 400 are using these solutions currently. Rategain’s immediate focus is to increase this number to 1000.
  20. DaaS is the most profitable business for Rategain followed by distribution. Martech has the lowest margin profile currently but should rise in the future according to the management.

Analyst’s Views

RateGain is one of the leading travel technology companies in India. The company has done well to provide tech solutions to most of the travel booking industry. It has seen good recovery in FY22 so far with new client additions in all segments and 3 acquisitions. The company has a big cross sell opportunity among its operating segments and is sitting on a cash chest of Rs 420 Cr and an asset light model which indicates that there can be further new acquisitions in the near future. The Martech segment is expected to be the growth driver for the company as travel demand rises across the industry. It remains to be seen whether the global travel demand is slowed down by the new uncertainty around the geopolitical tensions around the world and how fast can the company scale back to profitability despite multiple hurdles like the Russia-Ukraine war, new strains of COVID and others. Nonetheless, given the large variety of solutions tailored to the travel industry and the rising demand in travel and tourism, RateGain is a pivotal stock to watch out for, as it can act as a rough proxy of the travel industry.

 

 

 

 

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