Easy Trip Planners

Verdict: Easy Money for Promoters, which lacks Comfort

IPO Snapshot

Easy Trip Planners is launching a Rs. 510 crore IPO between Mon 8^th Mar to Wed 10^th Mar 2021, comprising 100% OFS by promoters in the price band of Rs. 186-187 per share. Issue represents 25% of post-issue capital, with listing on 19^th Mar.

Although company reported profits for the past years, based on SEBI guidelines, adjusted profit were not positive in 3 of past 5 years necessitating 75% reservation for QIP (against 50% otherwise), with only 10% for retail. Low retail quota may lead to high subscription in the IPO.

Profitable Online Travel Agent (OTA)

A 100% boot strapped consumer tech company, Easy Trip derives 90% of revenue from booking of air tickets on its portal/mobile app easemytrip.com, with no convenience fees being its biggest USP. Hotel booking and hotel package, a high margin business started in 2013, accounts for less than 10% of revenue, so do other verticals like rail/ bus /taxi, indicating growth challenges due to intense competition. Air ticket booking however remains a key growth opportunity, especially when international travel resumes in the post pandemic world, which was hitherto curtailed in 9MFY20.

Asset Light Business with 31% ROE

Competitive intensity remains high in the sector. Company’s gross booking revenue grew at a 47% CAGR between FY18 to FY20, but revenue (including claims written back) grew at only 25% CAGR during this period to Rs. 160 crore. FY20 PAT stood at Rs. 33 cr, with EPS of Rs. 3.2, Rs. 22 crore equity (FV Rs. 2 each) 100% owned by promoters, 3 Pitti brothers. During 9MFY21, revenue (including claims) stood at Rs. 72 cr with PAT of Rs. 31 cr and EPS of Rs. 2.9. 20% profit is generated from non-operating interest income (Rs. 9 cr in 9MFY21) as company is debt free, with surplus cash of Rs. 140 cr.    

While business is scalable without much investment, generating 30%+ RoE, few financial aspects draw attention:

1. Contingent liabilities stand at Rs. 126 cr, which is a high amount at 3x annual profit. Half of these contingent liabilities are claims and litigations whereas a fourth is income tax demand.
2. Rs. 29 cr advance was written off in FY18, for movie production business, in addition to some unrelated businesses like coal and share trading, also yielding losses during previous years.
3. Impairment provision and bad debts have also been on a rise to Rs. 4.3 cr in FY20 from Rs. 2.7 cr YoY.
4. Financial systems are not in place (even till FY20), as evidence for alleged misappropriation of funds by employee could not be traced and matter was closed on grounds of materiality 

Corporate Governance Red Flags

• Two founding promoters draw annual salary of Rs. 8 cr ,plus Rs. 2 cr reimbursement expenses, making Rs.10 cr promoter salary, a very high number on Rs. 40 cr profit.
• Independent Director and Chairman of Audit committee Mr. Maxy Francis Assis Fernandes resigned from the board on 18th Feb 2020, within 8 months of his appointment. Even the former CFO Mr. Abansi Kant Jha’s tenure lasted less than 16 months, between 10th May 2019 to 31st Aug 2020. Company was without a CFO for 5 months before the IPO, between Sep 2020 to Jan 2021 and the current CFO was appointed only last month on 8th Feb 2021. Such senior level changes in the finance department raises many questions.
• For a corporate which claims to be the 2nd largest OTA in India, audit report being emphasized for delay in payment of advance income tax and GST (in FY19 & FY20) is quite bizarre.

Valuation:

At Rs. 187, company’s market cap will be Rs. 2,032 cr, leading to FY20 sales and PE multiple of 14x and 59x respectively. These multiples are exactly same as IRCTC, which is not a strict peer, given its larger scale, government backing and monopoly in domestic rail ticketing. In comparison to Nasdaq listed Makemytrip’s Rs. 24,000 cr market cap, Easy Trip’s Rs. 2,000 cr may not look high given its ~6% market share (and growing) coupled with profitable track record vs 70%+ market share for Makemytrip albeit loss making.

New age technology stocks have caught tremendous investor fancy with valuation multiples skyrocketing for unique stories like Indiamart, Affle, Route etc. Easy Trip might just turn out to be one of them due to its asset light business model and consistent profitability despite small size.

Conclusion:

Growth is not a concern for the company, but the quality is, especially on the corporate governance side. If one wants to bet on the stock purely for listing gains, one can apply to the issue, but one must be aware of the risk that this is clearly not a portfolio stock.

Grey Market Premium (GMP) of Easy Trip Planners: Grey Market Premium of Easemytrip is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.

Disclosure: No Interest.