In September 2023, travel service provider Yatra Online marked its stock market debut at ₹135.9 apiece, which was 4.3% lower than the IPO price of ₹142 per share. At current levels, the stock is still trading 1.40% below its issue price.
However, according to recent projections from brokerage house Investec, there may be a potential reversal of this trend going forward, driven by the company’s increasing market share. In its latest report, the brokerage has initiated coverage on the stock with a ‘buy’ rating and set a target price of ₹215 per share, indicating an upside of 51.40%.
Yatra Online is India’s leading corporate travel services provider in terms of the number of corporate clients and the third largest online travel company in the country. It is a one-stop destination for travel information, pricing, bookings, and more.
Yatra lost market share in B2C over time due to funding constraints, but it has built the largest enterprise online travel agency (OTA) business. The enterprise OTA business is three times more profitable than the consumer business and is in its early phase of adoption by the industry, said Investec.
According to the brokerage, Yatra is 3x larger than MakeMyTrip in the enterprise business, which has a TAM of ₹1,004 billion. This, as per the brokerage, implies a potential revenue exceeding ₹50 billion for OTAs over time.The brokerage pointed out that Yatra is now well-placed after the recent IPO fundraising of around ₹6,000 million. This positions Yatra to invest in technology and supplier agreements that will help boost growth and margins.
Yatra has historically had a tech refresh every 2-3 years in the B2C business, however, it has not been able to do this since FY19 due to a paucity of funding and a strategic choice to use the limited funds for the enterprise business. This is set to change with investments in tech over the next 12 months, it added. The consumer business constitutes 58% of gross bookings. Post the recent India IPO, Yatra is now equipped to make substantial investments in enhanced supplier agreements, leading to improved airfares, hotel rates, and ultimately higher profit margins. The brokerage is optimistic that these strategic moves will result in stronger growth and potential market share gains.
We believe Yatra has been able to deliver in the past and is now well-placed to deliver strong growth led by both the B2B (which includes enterprise and travel agents) and consumer businesses. We expect 19% and 22% revenue growth CAGR across B2C and B2B,” said Investec.
The brokerage projects a 60% CAGR in EBITDA from FY23 to FY26E, and it expects the company’s EBITDA margin to benefit from a combination of factors, including improving margins from a better business mix in favour of the enterprise business, benefits from better supplier agreements, and operating leverage.