The curious case of EaseMyTrip

With an industry tailwind, the stock price seems to be going nowhere!

Everyone loves to travel and what we have seen in 2023 and now in 2024 is that the demand has outpaced the supply by quite a margin. The flight and hotel rates are over the top for most of the travelers. A 4 star hotel in Vietnam and Bali is much economical compared to a similar category in Lonavala or Shimla. Now, most of the suppliers of these services like the airlines, cruises, hotels, attractions are profitable and slowly coming back on track post Covid and almost every company is showing robust numbers. With this, the travel commodity sellers like OTAs (Online Travel Agent) and travel companies (Offline or hybrid) too are showing good profits and a healthy order book for the year 2024. We can see the financial performance from the likes Thomas Cook India to MakeMyTrip listed on NASDAQ, the sales and profits are almost at record levels with their stock prices at an all time high.

With this background, a company called EaseMyTrip seems to be bucking the trend and has reported a net loss of INR150mn for the Mar 2024 quarter compared to INR310mn profit for Mar 2023 quarter. For the FY2023-24, the profit is at INR1030mn compared to the profit of INR1340mn for the previous year. I do understand there is an exceptional loss of INR724mn due to writeoff from not receiving money from GoFirst Airlines, which has hampered the profit for the quarter and also for the year. More on it later. But why is it that a company in a travel industry is not showing better profits whereas almost every other travel company in the world has reported record numbers? The answer lies not in the current quarter or the current year but it goes back to pre and post IPO days.

EaseMyTrip promotions have always been with the marketing words ‘zero convenience fees’ and they seem to have the magic wand to generate profits through airline commissions, low asset light cost model etc etc. I wrote an article post the IPO of the company and you may want to read it on this link after which it seemed it was not worth keeping up with the company updates. I will take a few pointers or red flags from that old article to highlight why an investor needs to be very careful with companies like EMT.

The name of the company is EaseMyTrip and it resembles to the company name MakeMyTrip which is not a coincidence. In the year 2018 and 2019, MakeMyTrip had filed lawsuits against EaseMyTrip in the Delhi High Court for trademark infringement. EMT was accussed of using key words of MakeMyTrip through Google adwords on a sponsored link to divert the traffic. This is how the journey of this company began. Now, let’s look at the stock price chart here and try to link it with the financials and other points to better understand what is the reason for the stock to not do well in a thriving industry and a bullish market.

Source: screener.in

Let’s start with a basic understanding of the topline of the company. EMT provides a number which they call it as GBR (Gross Booking Revenue) and then the revenue from operations. If we compare the previous 2 financial years, the GBR is increased from INR80,506mn in FY2022-23 to INR85,126mn in FY2023-24 which is a mere growth of 5.7% however the revenue from operations have increased from INR4,488mn in FY2022-23 to INR5,906mn which is a healthy growth of 32%. Shouldn’t the GBR and revenue from operations move in line or be at least close to each other? If we account for customer discount, the adjusted revenue has grown by 20%. The GBR on a quarter on quarter basis is lower and in the times where the travelers are struggling to find reasonable air tickets, the company seems to have either lost the market share or somehow get great commissions from airlines or managed the cost very well.

Prashant Pitti, Co-Founder of EaseMyTrip in the recent results conference call said and I quote ‘In this quarter, if you remove the exceptional item, the profit after tax comes at about INR 39 crores. And for the entire year, the profit after tax, if you remove the exceptional item, comes at about INR 157 crores, which is the highest ever for the company.’ Somehow it seems the investment world has caught up with bottomline minus exceptional items. There has been a number of times we have heard EBITDA minus exceptional loss, EBIT before ESOP margin, Profit minus exceptional items etc etc and somehow these exceptional items seems to be a part of the operations in most of the cases. We have also heard how a CEO of a leading fintech company breaks into tears when the company is listed or when he is asked for an RBI meet, doesn’t matter the consistent losses as it is still profitable except exceptional items.

Now let’s look at this number of INR724mn as a write off from not being able to recover the money from the defunt GoFirst. Every company has risk management team/committee which discusses these points on a regular basis. How can a company with a full year revenue from operations at INR5906mn afford to write off INR724mn which is more than 12% of their revenue and more than 70% of the year’s profit in a commodity selling business? This however seems to be the case with other travel companies too but the trend of sales and profits have not been affected as is the case with EMT.

Also, the receivables numbers seem way off. EMT as we know is predominately a B2C company and most of the sales should be recorded as an advance for selling flights and hotels. How can a company have a receivables of 49% of the sales compared to say a Thomas Cook India at 17.5% which also operates in B2B space (MICE and Corporate Ticketing) where it has to give credit to their clients.

Let’s talk a bit on margins now. The operating profit margin with EMT is the highest if we compare it with the likes of MakeMyTrip, Thomas Cook or generally with commodity sellers like Avenue Supermarkets. This is when EMT has 93% of the business coming from air ticket sales which has the lowest margins of all the travel component segments. The promoters have in fact said in the conference call that they would like to increase the non-air part of the business in the future. This kind of business model itself thrives on the volume. It would be interesting to see the breakup of the airlines sales and even more interesting to see the bank reconcilation with GBR.

The company has never shied away from loud marketing expenses. They even got huge ads on the front pages of leading newspapers announcing that they will stop the business in Maldives after the diplomatic rift between India and Maldives. The trend from many others seems to prove our nationalism these days. So the ban on Maldives booking was announced with a bang but now that they have restarted Maldives bookings, the nationalism quotient is still the same.

The company is on social media platform X as well but what is interesting is the number of complaints a lot of their customers have specially in case of refunds. Why would a company which is doing so well, delay customer refunds? The customer service is also the company can’t be proud of as it either doesn’t resolve the issue or asks the customer to call the airline directly. A random search on Twitter on EMT can throw a lot of interesting tweets.

The auditor of the company is S R Batliboi and they have in the past been banned by RBI due to certain lapses. Now, in how much details the auditor goes through during an audit and how much information is shared by the company through accounting softwares is something very few people would be congnizant of. The huge number of transactions and different streams of revenue and cost associated adds to the complexity to understand a travel company. If only we could get the data and information like we got during DRHP, it would have been quite satisfying to analyse this company. Somehow, I feel the disclosure norms with respect to financials should also have a clubbing rule wherein any 2 or more numbers if clubbed should have a description (or a note) with a breakup of the numbers if any of the line items are more than 20% of that clubbed item.

This is a company which is not-so asset light, owns a hotel in Ayodhya, with a not-so-good customer service, spending like any other travel company or even more than them, working in a segment which has the least margins, promotes themselves as a no-convenience fee company, in an acquisition spree, stopping business (Maldives) through front page ads to prove their nationalism and then silently restarting the business, in an industy which has tailwinds which we have never seen ever and yet the stock price is languishing and the promoters who are bullish on India and their company but still selling their stakes. A company where some of the numbers look way off compared to the nature of the business and when compared to the companies in the same industry. It has in the past invested in movies and also written off a substantial amount too. This is an online travel company which managed to do well financially post Covid when every other company was reeling, and now when other competitors are at an all-time high in profits and stock prices, EMT is telling us a different story.

This is a case where the market doesn’t seem to be confident of either their numbers or it is discounting the company’s dismal future prospects. The curious case of EMT now seems to look similar to a movie named ‘The Curious Case of Benjamin Button’

Disclaimer: I am a SEBI registered Investment Adviser, and the information on this post is only given as an educational case study. This is my opinion and I have every right to be wrong. I, or my family, have no positions in the stocks discussed.

My family owns a micro travel company and we don’t deal with the company discussed to keep our analysis unbiased.