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ixigo IPO and the Indian Travel Industry: Facts, Stats, Opportunities and Risks

Aug 18, 2021 3:06 AM 6 min read

It’s a new week and of course we have a new IPO to talk about!

This time around, it’s travel booking platform ixigo (Le Travenues Technology Ltd. Is the operator’s name). On Friday, it filed its DRHP for a ₹1,600cr ($215.9m) IPO. It will include a primary component in addition to an offer-for-sale (OFS).

While ixigo will join a long list of companies that have made their bourse debuts this year, its listing would be unique for two main reasons.

One, it would be a gauge of investor sentiment for the travel sector, which was directly impacted by the COVID-19 pandemic but is staging an impressive rebound (two other recent travel-related IPOs are Easy Trip Planners and Go First). And two, ixigo would be one of the very few new-age internet startups to go public as a profitable company.

About the Company

Launched in 2007, ixigo describes itself as “a technology company focused on empowering Indian travelers to plan, book and manage their trips across rail, air, buses and leveraging artificial intelligence, machine learning and data science-led innovations”.

It operates via its OTA platforms, website and mobile apps (which include separate apps for train and flight bookings). The company claims 37.48 million monthly users and 2.44 billion monthly screenviews. Its overall user base is reportedly 250 million-strong.

Besides assisting customers in booking tickets, ixigo also provides an array of travel utility tools and services such as train PNR status, ticket confirmation predictions, train seat availability alerts, bus running status, flight status updates etc.


Fast Facts

  1. ixigo’s offer includes a fresh issue of shares worth ₹750cr ($101.36m) and an ₹850cr ($114.87m) OFS by existing shareholders.
  2. As far as shareholding is concerned, Elevation Capital currently holds a 23.97% stake in the company with other shareholders including smartphone-maker Micromax (7.61%), Aloke Bajpai (9.18%) and Rajnish Kumar (8.79%).
  3. The company says it will use ₹540cr ($72.98m) from the primary component proceeds towards driving organic and inorganic growth.
  4. SEBI could take up to two weeks to review the documents, following which the date of the IPO would be announced based on market conditions. 
  5. Link to DRHP


Macro and Money Matters

As a tech company, ixigo’s listing would fit well with 2021’s ongoing stature as the year India’s tech startup scene came of age. Its DRHP follows those of Zomato, Paytm, Mobikwik, Nykaa and others. But what sets ixigo apart from many of these firms - and indeed, within the broader travel industry - is that, despite the pandemic’s widespread disruptions and mayhem, the travel company turned profitable in FY21.

Last fiscal, ixigo posted a profit of ₹7.5cr ($1m), a major improvement compared to FY20 when it posted a loss of ₹26cr ($3.5m) in FY20. Other metrics have grown too. Total income rose to ₹138cr ($18.65m) from ₹112cr ($15.14m) during this period while revenue from operations was ₹135.5cr ($18.3m) in FY21, up 21.5% from the previous fiscal.

It also delivered ₹6.14cr ($830,000) in EBITDA implying EBITDA margins of mid-single digits but more importantly hitting the inflection point of turning into an EBITDA-positive business. From the standpoint of traditional valuation metrics, an estimated post-money valuation of ₹4,000cr ($540.58m) does not make much sense. However, what makes sense is that this company is now generating EBITDA and Net Income and has a massive growth runway in the “Next Billion Users” segment which is what should help drive the stock.

The latter is an important point. Le Travenues’s DRHP states that “a key driver of our revenue will be...the growth in our user base. We are focused on the ‘next billion users’ segment of the travel market which comprises travellers from tier-2, tier-3 cities and rural India”. The company estimates that this “next billion users” segment comprises about 62% of the overall travel market.

ixigo already has a strong non-tier-1 presence. If you chart Indian cities by Monthly Active Users on ixigo for FY21, 12 of the top 20 cities are non-tier-1. As are the top two (Lucknow and Patna). In fact, the percentage of transactions booked through the company's OTA platforms involving either origin or destination as non-tier-1 cities was 92.60% in the last fiscal.

ixigo’s IPO is likely to see early backers reap hefty returns. Elevation Capital, Sequoia Capital and Fosun International would be earning at least 27% annualised RoI on their investment in Le Travenues Tech Ltd. Elevation, in particular, is bound to be elated. It is ixigo’s oldest investor, having invested ₹64cr ($8.65m) in 2011 and possessing a 23.97% stake currently (it is slated to make a partial exit post-issue).

FYI: MakeMyTrip used to be an ixigo investor - it entered the fray at the same time as Elevation - before selling its stake earlier this month. But not before clocking 8x returns on its original $4.8m investment.


Industry Overview

Travel and tourism is the largest service industry in India. It commands a total contribution of over $247bn to the nation’s GDP - a number expected to double in the near-term.

In recent years, thanks to a ballooning middle-class, improved connectivity, easier access to information and booking portals via the internet, and Government schemes, the sector has grown by leaps and bounds. Case in point: the country’s position in the WEF’s Travel and Tourism Competitive Index has moved from #52 in 2015 to #34 in 2019.

Needless to say, with its staggering geographical and cultural diversity, India’s tourism potential is immense. But with a mere 1.2% share in World Tourist Arrivals and 2.05% share in World Tourism Receipts, the market can grow much further. And investors are paying attention. Case in point: despite the coronavirus and the Indian economic slowdown that preceded the pandemic, FY20 saw an inflow of $2.94bn in tourism investments vis-a-vis $1.07bn in FY19 - a 174.7% YoY jump.


Travel and COVID-19

The pandemic affected the travel industry in a brutally direct manner. Border restrictions were propped up and flights began to be grounded well before lockdowns began to be imposed. Even after the economy was being “Unlocked”, most flights were either barred from flying or later allowed to fly below-capacity (the latter continues to be the norm to this day).

Moreover, the era of social distancing brought about a sea-change in the way consumers viewed travelling. For starters, visiting tourist destinations is no longer a simple matter of fixing dates and booking tickets. Now the virus caseload of the destination, rules in place for incomers (mandatory tests/vaccination certificates/compulsory quarantine) and the safety of the mode of transport are major factors that go into decision-making.

However, there’s no need to write obituaries for the industry yet. Things were bad but today, despite persisting problems and the looming threat of a Third Wave, there are strong recovery trends across the sector.

The pandemic has also given rise to certain travel “microtrends” such as staycations, revenge travel, remote working/workation etc. This has been enabled by the burgeoning work-from-home culture which, despite no longer being universal, is still being employed by many companies (not to mention the rise of the “hybrid” model of working from both home and the office alternatively).

Then there’s demand. People’s appetite for travel may change or shift but never really subside. A March 2021 survey by American Express Global Travel Trendsfound Indians to be “most interested” in travel - more than even Americans, Australians, Canadians, British or Japanese. The market knows this too. Stocks of travel-related companies such as Mahindra Holidays, IRCTC, Easy Trip Planners, Delta Corp etc. have been on the rise lately. Even during the national lockdown when everything was shut, hotel stocks were surging solely on the back of investor optimism.


The Bottom Line

ixigo’s IPO performance is likely to be viewed as a verdict on the health of the broader travel industry. Or at least investors’ perception of it.

There are obvious risks involved in investing, but the biggest worry remains COVID-19. The pandemic is far from over. With year-end vaccination targets highly likely to be missed by a spectacular margin, the possibility of a Third Wave cannot be ruled out. Particularly with the Delta variant on the rise and the Epsilon variant knocking. The spectre of local lockdowns and travel restrictions is also a notable short-term threat.

But come what may, people will always be bitten by the travel bug. And this will help the wider industry come back to life, against all odds. Investors were bullish about travel stocks even during the peak of the lockdown last year. It’s highly possible that they’ll also wholeheartedly embrace ixigo’s stock market entry. The fact that it’s already a profitable business is the icing on the cake.


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