RateGain Travel Technologies

Software as a service player in the travel and hospitality industry

Making losses and catering to a highly volatile market with growth potential

RateGain Travel Technologies is engaged in offering travel and hospitality solutions for hotels, airlines, online travel agents (OTAs), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises, and ferries. The company is one of the largest aggregators of data points in the world for the hospitality and travel industry.

The company offers a suite of interconnected products that manage the revenue creation value chain for its customers by leveraging its big data capabilities and integration with other technology platforms helping hospitality and travel providers acquire more guests, retain them via personalised guest experiences and seek to maximize the clients’ margins.

The company delivers its hospitality and travel technology solutions through its software as a service (SaaS) platform and its products are classified into three business units including Data as a Service, Distribution and Marketing Technology.

Data as a Service (DaaS)– Delivers insights including competitive intelligence. The company equips suppliers and demand providers with the ability to connect with data and information to increase acquisition and conversion.

The company offers data under two categories namely Market Intelligence which provides access to pricing and availability data at scale along with analytics to present trends, opportunities and market developments and dynamic pricing recommendations through which the company serve certain segments within the travel industry that have traditionally used a flat pricing or a seasonal pricing structure with its proprietary dynamic pricing technology to help them maximize revenue.

The company operates its data as a service production a subscription model where its customers in the hospitality sector subscribe to its data as a service product such as Optima and Parity+ for a period. For its online travel agents customers and airline, car rental and vacation packages customers, the company operates on a hybrid model where the company charge a minimum subscription fee for use of its products and a pay-per-use charge for accessing additional data.

The company’s competitive intelligence products tracked over 3.61 billion price points across over 2,900 hotels, online travel agents, airlines, cruise lines and car rentals, in the six months ended Sep 30, 2021 and covers points such as pricing, ratings, rankings, availability, room descriptions, cancellation policy, payment policy, discounting and package inclusions. Active Customers in its data as a service business has grown from 945, as of March 31, 2019, to 1,083 Active Customer, as of March 31, 2020, and to 1,160 Active Customers, as of March 31, 2021, while as of September 30, 2021, the company had 1,406 Active Customers.

Distribution –The company provides mission critical distribution including availability, rates, inventory and content connectivity between leading accommodation providers and their demand partners. Distribution also enables delivery of reservations back to hotel systems to ensure smooth operations and accurate reporting by hotels.

In its Distribution segment, the company operate RezGain on subscription basis where customers pay a subscription fee to access the product while DHISCO operates on a transaction model where the company generate revenues from bookings done by online travel agents and GDS operators.

The company covered over 194,000 hotel properties with over 70 demand partners, as of Sep 30, 2021. These connections are available through multiple flow architectures including various combinations and conduct distribution of availability, rates, inventory, negotiated rates, cancellation policy, amenities, attributes, images, and description, all in multiple languages. In FYs 2019, 2020 and 2021, the company’s distribution platform handled 31.22 million, 29.84 million and 9.02 million, bookings, respectively, while in the six months ended September 30, 2021, it handled 6.93 million bookings. The aggregate value of bookings completed using the company’s products was Rs 62,857.92 crore, Rs 48,758.00 crore and Rs 14,186.68 crore, Rs 5760.05 crore and Rs 13603.16 crore in FYs 2019, 2020 and 2021 and in the five months ended August 31,2020, and August 31,2021, respectively, while the average booking value was Rs 20,133.63, Rs 16,339.08 and Rs 15,732.56, Rs 17955.27 and Rs 24,123.35 in similar periods. Aggregate value of bookings and average booking value was Rs 17896.72 crore and Rs 25,821.27 in the five months ended September 30, 2021.

Marketing Technology (MarTech) – The company’sMarTech offering enhances brand experience to drive guest satisfaction, increase bookings and increases guest loyalty. The company also manages social media for luxury travel suppliers allowing them to be responsive to social media engagements 24x7 as well as effectively manage their social media handles and run promotional campaigns.Martech solution is priced on subscription basis.

As a software as a service (SaaS) company, the company’s cloud-based products offer customer improved use, and the company can effectively scale its operations. The scale of its operations and its strength in analytics has helped the company grow in operations and monetize its offerings.

In Fiscals 2019, 2020, 2021 and in the five months ended August 31,2020, and August 31,2021, the company generated 34.65%, 35.06%, 26.34%, 26.02% and 27.19% of its revenues from operations from the sale of services of its transaction-based products while the company generated 30.07%, 40.86%,44.16%,46.43% and 48.35% of its revenues from operations from the sale of services of its subscription-based products in similar periods and the company generated 35.28%, 24.07%, 29.50%, 27.54% and 24.47% of its revenues from operations from the sale of services of its  products which are on a hybrid revenue model of subscription and transaction based pricing.

As of September 30, 2021, the company caters to over 1,462 customers including eight Global Fortune 500 companies. Its customers include Six Continents Hotels, Inc., an InterContinental Hotels Group Company, Kessler Collection, a luxury hotel chain, Lemon Tree Hotels and Oyo Hotels and Homes Private Limited. The company’s clients also include 1,220 large and mid-size hotel chains, 110 travel partners including airlines, car rental companies and large cruise companies and over 132 distribution partners including online travel agents such as GroupOn and distribution companies such as Sabre GLBL Inc., in over 110 countries as its customers, as of Sep 30, 2021. The company servicesits customers in multiple geographies with local go-to market teams and have offices in six countries.

The company’s internal practices have been developed over a decade and has helped it to increase its net promoter score (NPS) and its net promoter score was 8.44, 18.43, 40.78 and 33.33 in FYs 2019, 2020 and 2021 and in the six months ended September 30, 2021, respectively. The company tracks this through an automated and independent process to measure customer health and gather feedback for continuous improvement.

The company is promoted by Mr Bhanu Chopra and Ms Megha Chopra.

Object of the offer

The offer comprises a fresh issue of 8823529 equity shares at upper price band of Rs 425 and 92,59,259 equity shares at lower price band of Rs 405 aggregating up to Rs 375 crore by the company and an offer for sale by selling shareholders Wagner Ltd of up to 17114490 equity shares aggregating Rs 727 crore at upper price band, Mr Bhanu Chopra of up to 4043950 equity shares aggregating Rs172 crore at upper price band , Megha Chopra  of up to 1294760 equity shares  aggregating Rs 55 crore at upper price band , and Usha Chopra of up to 152330 equity shares  aggregating Rs 6 crore at upper price band.

Mr Bhanu Chopra pre-issue shareholding was 49.55%, which shall decrease to 41.67% at the upper price band of Rs 425.Mr Megha Chopra pre-issue shareholding was 15.87%, which shall decrease to 13.34% at the upper price band of Rs 425 and Wagner Ltd pre-issue shareholding was 22.69%, which shall decrease to 5.34% at the upper price band of Rs 425.

Thecompany proposes to utilize the net proceeds of the fresh issue towards repayment/prepayment of indebtedness availed by RateGain UK, one of the company’s subsidiaries, from Silicon Valley Bank amounting to Rs 85.26 crore, payment of deferred consideration for acquisition of DHISCO amounting to Rs 25.20 crore, strategic investments, acquisitions and inorganic growth amounting to Rs 80.00 crore, Investment in technology innovation, artificial intelligence and other organic growth initiatives amounting to Rs 50.00 crore, purchase of certain capital equipment for the company’s data centre amounting to Rs 40.77 crore and the balance  towards general corporate purposes.

Strengths

Thecompany serves a large and rapidly growing total addressable market. Third party travel and hospitality technology are estimated to be a US$ 5.91 billion market in 2021 growing to an estimated U$ 11.47 billion in 2025 at a CAGR of 18%. Enterprise applications focused on guest acquisition, distribution, revenue maximization and wallet share expansion in the hospitality and travel industry have a serviceable addressable market size of $4.34 billion in 2021, expected to be growing to an estimated US$ 8.45 billion in 2025. This is a large and rapidly growing addressable market opportunity for a vertical specific platform company like RateGain Travel Technologies. The travel technology segment is further favoured by industry tailwinds of digitization in the post COVID times. According to Phocuswright, pre-COVID-19 in 2019, the global travel and tourism industry was 10.4% of the global GDP but faces number of challenges, the most critical of them being low digitization and disparate systems that are not inter-operable. COVID-19 has however, accelerated digitization of customer interactions with hospitality and travel companies. These changes are likely to lead to a shift by hospitality and travel companies from in-house solutions to thirdparty software and services.

The company has developed a comprehensive product portfolio that caters to the technology ecosystem for the hospitality and travel industry and to enterprise and mid-market customers for revenue management decision support, competitive intelligence, distribution and social media marketing, online reputation, and brand engagement. The company has over the years grown its operations and the scale of its operations allows customers globally to streamline their operations and increase revenues. The company offers a wide range of travel and hospitality solutions across the spectrum of verticals: hotels, airlines, OTAs and METAs, vacation rentals, package providers, car rentals, rail, travel management companies, cruises, and ferries. The company frequently contribute to the travel recovery index published by one of the largest travel industry intelligence platforms providing insights to key sectors of travel.

In a highly fragmented landscape of travel technology providers, the company offers a platform that bridges the data gap across the hospitality and travel industry. The company provide inter-operable products that leverage data across internal and external sources, unlock value through integration and enable better, faster, and automated decision making. Its solutions help hospitality and travel companies find the right guest, decide the right price, distribute it to the preferred channel of the guest and once converted, help them have an exceptional experience.

The company offers a comprehensive platform of industry-specific solutions with growth and monetization capabilities. Given the fragmented nature of the hospitality and travel industry, the company has developed products that are inter-operable and integrate across a single platform allowing customers to maximize their revenues while also resulting in cost savings. The company has built its proprietary Artificial Intelligence algorithms and applied it in connection with its software as a service product to provide its customers with next generation of product features. Its suite of products for rate intelligence includes OPTIMA, Parity+, AirGain, CarGain and FerryGain that offer customers competitive pricing intelligence leveraging an AI-powered data platform while tracking real-time parity with features such as advanced dashboards, identification of key violators and reasons, revenue leakage. The company’s revenue optimization products, Rev.AI offer revenue management through historical pricing insights. Its products are enabled with an intuitive user interface, offer a high degree of personalisation at a subscriber level, and break down market rate and pricing strategy into logical insights.

The company has global and diverse customer base with whom it has long-standing relationships. As of September 30, 2021, the company’s customer base of 1,462 customers including eight Global Fortune 500 companies.

Comprised both travel suppliers and travel intermediaries including airlines, hotels, cruise lines, car rental companies, online travel agents, tour operators and wholesalers.The company serves almost all top players in respective sub-segments such as25 out of the top 30 OTAs, several of the world’s fastest-growing airlines; 23 of the top 30 hotel chains; tour operators and wholesalers; 7 global car rental companies; all large cruise lines, and largest travel management companies.

The company’s customer base has increased over the years. It has added 147 active customers in the last three Fiscals. Its customer base grew from 1,190 active customers as of March 31, 2019, to 1,274 active customers as of March 31, 2020, and to 1,337 active customers as of March 31, 2021, and the company had 1,462 active customers as of September 30, 2021, due to sales and marketing efforts. The company serves customers in over 110 countries, as of June 30, 2021, including in other parts of Asia, Europe, and the United States.

The company earned majority of its revenues from enterprise customers. Such customers who generated revenues of over Rs 0.4 croreeach accounted for 82.98%, 85.47%,78.88%,66.80% and 73.89% of its total revenue from operations in FYs 2019, 2020, 2021 and in the five months ended August 31,2020 and August 31,2021 respectively. Its AI enabled platform and technology focused offerings have led to consistent customer retention rates. As of September 30, 2021, seven of its top 10 customers (by revenue in FY2021) have been associated with the company for over 10 years. Revenue contributed from its ten major customer groups was Rs 110.27 crore, Rs 176.66 crore, Rs 92.81 crore, Rs 35.09 crore and Rs 50.19 crore and represented 42.16%, 44.31%,37.01%, 35.93% and 40.19% of its revenue from operations in FYs 2019, 2020, 2021 and in five months ended Aug 31, 2020, and Aug 31,2021, respectively. Its long-standing relationship with its customers is evidenced by the company’s Gross Revenue Retention that was 92.78%, 95.46%, 89.24%, 94.20% and 92.92% in Fiscals 2019, 2020, 2021 and in five months ended Aug 31, 2020, and Aug 31,2021, respectively.

Weaknesses

Substantial portion of the company’s revenues are derived from the worldwide hospitality and travel industry and factors that negatively impact that industry could have a material adverse effect on the company’s business, prospects, financial condition, and results of operations. The worldwide hospitality and travel industry is highly sensitive to general economic conditions and trends. One of the most significant factors that has affected, and is continuing to affect, travel and the global economy is the COVID-19 pandemic, which has resulted in a significant fall in demand for travel worldwide.

The software underlying its platform and products, particularly in DaaS and Distribution business, is complex and may contain design issues, defects, or errors, that could be difficult to detect and correct, particularly when first introduced or when new features or capabilities are released. In addition, its platform and products depend on the ability of the software to store, retrieve, process, and manage immense amounts of data. Any real or perceived defects, errors, failures, bugs, or vulnerabilities could result in negative publicity, cybersecurity breaches and other data security, privacy, access, retention issues, performance issues and customer terminations and may impair its ability to enter client contracts for our platform, products, and solutions in the future. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after code has been released for external or internal use. The costs incurred in correcting any defects in the platform and products may be substantial and could adversely affect results of operations.

The company’s future success will depend on its ability to adapt and innovate. To attract new customers and increase revenue from the existing customers, it will need to continuously enhance and improve existing platform and introduce new products, features and functionality based on continuing changes in technology, industry standards and client preferences. Enhancements and new products may not be introduced in a timely or cost-effective manner, may contain errors or defects and may have interoperability difficulties with it platform or other products. In the past the company has experienced delays in internally planned release dates of new products, features and functionality, and there have also been instances where it was unable to make product enhancements in line with market’s expectations.

If the company suffers a cyber security breach or other security incident or unauthorised parties otherwise obtain access to its customers’ data or its own data, the company’s platform and products may be perceived as not being secure. As a result, reputation may be harmed, demand for its platform and products may be reduced and it may incur significant liabilities.

The market for software as a service solution in the hospitality and travel industry is new and evolving, and if the market develops more slowly or develops in a way that the company does not expect, than the business of the company could be adversely affected.

The company has over the years acquired technological capabilities that has helped expand its product offerings and scale its operations. Pursuant to its overall strategy to continue scaling its business, the company intends to keep pursuing strategic investments and acquisitions which are complementary to its business, and which will enhance its product and service capabilities. However, if the acquisition does not match up to its expectations and it can be value destructive. Of the total fresh issue, Rs 80 crore is set aside for acquisitions.

The company has reported losses in the last two financial years as also in the first five months of the current year. It expects rise in costs and recurrence of losses in future also.

Valuation

For 5 months ended Aug 2021, consolidated sales were up by 28% to Rs 125.27 crore. OPM declined 576 bps which led to 51% decline in operating profit to Rs 4.54 crore. Other income declined by 26.1% to 5.95 crore while interest cost decreased 51.1% to Rs 2.17 crore and depreciation decreased 31.6% to 12.96 crore. Loss before exceptional items was down 25% to Rs 4.64 crore.Issue-related expenses of Rs 4.73 crore has been treated as exceptional.Loss before tax after exceptional items widened by 52.5% to Rs 9.37 crore. Tax credit was Rs 1.03 crore against tax expense of Rs 1.71 crore in previous period. Net loss stood at Rs 8.34 crore as against net loss of Rs 7.86 crore during the same period last year.

For FY 2021, consolidated sales were down by 37.1% to Rs 250.79 crore. Decline in revenues was due to covid-led slowdown. OPM declined 474 bps to 2.46% which led to 78.5% decline in operating profit to Rs 6.16 crore. Other income declined 77.4% to 13.3 crore while interest cost decreased 8.1% to Rs 8.2 crore and depreciation decreased 62.8% to Rs 35.88 crore. Loss before tax widened by 38.7% to Rs 24.63 crore. Tax expenses increased by 68.5% to Rs 3.95 crore. Net loss stood Rs 28.58 crore as against net loss of Rs 20.10 crore.

At the higher price band of Rs 425, the offer is made at around 18.09 times P/ (S FY2021). There are no listed peers for the company in India.