The Curious Case of EaseMyTrip
Ritesh Gulrajani 07 June 2024
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 travellers. A 4-star hotel in Vietnam and Bali is more economical compared to a similar category in Lonavala or Simla. Now, most of the suppliers of these services like the airlines, cruises, hotels, and attractions are profitable and are slowly coming back on track post-COVID and almost every company is showing robust numbers. With this, the travel commodity sellers like online travel agents (OTAs) 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 with the likes of Thomas Cook India to MakeMyTrip listed on NASDAQ, and the sales and profits being almost at record levels with their stock prices at an all-time high.
With this background, a company called EaseMyTrip (EMT) seems to be bucking the trend and has reported a net loss of Rs150mn (million) for the March 2024 quarter compared to Rs310mn profit for the March 2023 quarter. For the FY23-24, the profit is at Rs1,030mn compared to the profit of Rs1,340mn for the previous year. I do understand there is an exceptional loss of Rs724mn due to write-off 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 the travel industry is not showing better profits when 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 goes back to pre- and post-IPO days.
EMT 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 after 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 the company name MakeMyTrip which is not a coincidence. In the years 2018 and 2019, MakeMyTrip had filed lawsuits against EaseMyTrip in the Delhi High Court (HC) for trademark infringement. EMT was accused of using keywords of MakeMyTrip through Google ad words 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 not doing well in a thriving industry and a bullish market.
Let’s start with a basic understanding of the top-line of the company. EMT provides a number that they call gross booking revenue (GBR) and then the revenue from operations. If we compare the previous two financial years, GBR has increased from Rs80,506mn in FY22-23 to Rs85,126mn in FY23-24 which is a mere growth of 5.7%. However, the revenue from operations has increased from Rs4,488mn in FY22-23 to Rs5,906mn which is a healthy growth of 32%. Shouldn’t GBR and revenue from operations move in line or at least be close to each other? If we account for customer discounts, the adjusted revenue has grown by 20%. GBR on a quarter-on-quarter (q-o-q) basis is lower and in the times when travellers are struggling to find reasonable air tickets, the company seems to have either lost the market share or somehow got 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 Rs39 crore. And for the entire year, the profit after tax, if you remove the exceptional item, comes at about Rs157 crore, which is the highest ever for the company.” 
Somehow it seems the investment world has caught up with the bottom-line minus exceptional items. There have been a number of times we have heard of earnings before interest, taxes, depreciation and amortisation (EBITDA) minus exceptional loss, earnings before interest and taxes (EBIT) before employee stock ownership plan (ESOP) margin, profit minus exceptional items, etc. and somehow these exceptional items seem to be a part of the operations in most of the cases. We have also heard how the chief executive officer (CEO) of a leading fin-tech company breaks into tears when the company is listed or when he is asked for an RBI (Reserve Bank of India) meet, never mind the consistent losses as it is still profitable except for exceptional items.
Now let’s look at this number of Rs724mn as a write-off from not being able to recover the money from the defunct GoFirst. Every company has a risk management team/ committee which discusses these points on a regular basis. How can a company with a full year’s revenue from operations at Rs5906mn afford to write off Rs724mn which is more than 12% of their revenues 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 has not been affected as is the case with EMT. 
Also, the receivables’ numbers seem way off. EMT, as we know, is predominately a business-to-customer (B2C) company and most of the sales should be recorded as an advance for selling flights and hotels. How can a company have receivables of 49% of the sales compared to, say, Thomas Cook India at 17.5% which also operates in the business-to-business (B2B) space (MICE and corporate ticketing) where it has to give credit to their clients?
Let’s talk a bit about 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 volume. It would be interesting to see the breakup of the airlines’ sales and even more interesting to see the bank reconciliation 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 would 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 many of their customers have, especially in the case of refunds. Why would a company, which is doing so well, delay customer refunds? Customer service is also something 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 up a lot of interesting tweets.
The auditor of the company is SR Batliboi & Associates and they have, in the past, been banned by RBI due to certain lapses. Now, how much detail the auditor goes into during an audit and how much information is shared by the company through accounting software is something very few people would be cognisant of. The huge number of transactions and different streams of revenue and costs associated add to the complexity of understanding a travel company. If only we could get the data and information like we got during DRHP (draft red herring prospectus), 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 two 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 that 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 that has the least margins, promotes themselves as a no-convenience fee company, on an acquisition spree, stopping business (Maldives) through front-page ads to prove their nationalism and then silently restarting the business, in an industry 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, are 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 has written off a substantial amount too. This is an online travel company that 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 film titled The Curious Case of Benjamin Button.
Disclaimer: I am a SEBI registered investment adviser, and the information here 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.
1 month ago
Good one!
2 months ago
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