Rategain Travel Technologies Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Rategain Travel Technologies Ltd (RATEGAIN) Q3 FY23 Earnings Concall

Management Update:

• [00:02:03] RATEGAIN said 3Q was the best ever quarter in its history in terms of new contract wins at over INR49.3 crores.

• [00:13:26] RATEGAIN’s guidance for 4Q23 includes organic business growth of 30% YoverY, expected EBITDA of around 15% at a consolidated basis, and expected PAT margin of around 9%.

Q&A Highlights:

• [00:14:53] Karan Uppal from PhillipCapital asked about the outlook for travel in CY23 in terms of core markets of US, Europe and APAC and how China is opening up to the travel industry. Bhanu Chopra MD said that cross-border travel is expected to grow by 50%. RATEGAIN added that it’s mainly focused on US and Europe markets and is hopeful for continued growth despite the pandemic.

• [00:17:24] Karan Uppal from PhillipCapital also enquired if the company still feels 30% organic growth rate is possible in FY24. Bhanu Chopra MD clarified that the growth of the business is a function of retention and increasing net revenue retention rates, volume expansion with large customers, and new customer wins. All indications point to positive organic growth in the future.

• [00:22:26] Anmol from Albatross Capital enquired about the integration cost of Adara acquisition in 4Q23. Tanmaya Das CFO answered RATEGAIN should be able to deliver a 5% EBITDA in 4Q23 despite factoring in all transition and integration costs.

• [00:23:49] Anmol from Albatross Capital queried about the cash utilization of about INR400 crores on the book. Tanmaya Das CFO replied that after spending INR120 crores post 3Q23, the current available cash is around INR 335-340 crores. INR90 crores will be used for tech investments and AWS investments, while the remaining balance will be held for inorganic and organic expansion when the time arises.

• [00:38:19] Shobit Singhal at Anand Rathi queried if budget cuts in the Martech business are similar to what other global peers are seeing. Bhanu Chopra MD said that RATEGAIN has signed up many new customers during the COVID recovery but is pruning some of its low margin accounts to improve margins. This pruning should not affect the company’s projected demand and numbers for Q4 and FY24.

• [00:40:49] Shobit Singhal at Anand Rathi asked about the EBITDA margins of the BCV social for 3Q23. Tanmaya Das CFO said that it will be in a similar range of 2Q23.

• [00:41:17] Shobit Singhal at Anand Rathi enquired about the organic and inorganic revenue and EBITDA guidance for 4Q23. Tanmaya Das CFO replied that RATEGAIN expects to grow 30% YoverY in 4Q23 and have an organic business EBITDA margin of 18-19%. Adara’s EBITDA should be 5%, but there are some one-time costs that will reduce the overall EBITDA to 15%.

• [00:42:26] Ranodeep Sen with MAS Capital asked if RATEGAIN is in talks to acquire any more companies like Adara. Bhanu Chopra MD answered that Adara is the fourth acquisition for RATEGAIN and it’s willing to pay 1.5x to 2x revenue for an asset. The company has seen great results from its previous acquisitions and are confident that Adara will be a great alpha creation.

• [00:45:52] Ranodeep Sen with MAS Capital enquired about the trends in India as a market for RATEGAIN, and the potential opportunity with ICC World Cup 2023 being held in India. Bhanu Chopra MD said RATEGAIN is a revenue recognition company focused on mid-market and enterprise market chains of hotels with 10 or more hotels, and international chains. It primarily operates in the US, although it is looking to expand into APAC. It is interested in exploring opportunities from the govt.’s policy to focus on inbound tourism and developing Top 50 destinations.

• [00:52:47] Rahul Jain of Dolat Capital asked about the timeline for releasing a platform to help scale up RATEGAIN’s cross-sell and up-sell efforts. . Bhanu Chopra MD said that RATEGAIN has released its one platform that provides customer acquisition, engagement and retention with wallet share expansion, and have started conversations with large chains about moving to it. The rest of the year will be spent building out additional components to make the platform complete, with early signs indicating success.

• [00:57:25] Mayur Patwa asked about the acquisition cost left in the books and the number of quarters it will continue. Tanmaya Das CFO replied that next year, RATEGAIN can expect amortization costs to be similar to this year, with any reductions being offset by Adara’s addition. Over time, these costs will decrease as the useful life of the acquired intangible assets comes to a close.

• [00:57:45] Mayur Patwa enquired about the EBITDA margins of Adara once everything stabilizes. Tanmaya Das CFO clarified that RATEGAIN is targeting a 15% EBITDA margin for the next fiscal year. RATEGAIN will also be able to leverage operating leverage from the Adara acquisition as it is similar to DHISCO as a platform.