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August 17, 2022
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Dear Sir/ Madam,
Subject: Transcript of the Analyst and Investor Conference Call on Q1 & FY23 earnings
In furtherance of our intimations dated August 1, 2022, August 5, 2022 and August 10, 2022 giving intimation on the Q1 & FY23 earning Conference Call for the analysts and investors and pursuant to Regulations 30 and 46(2)(oa) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, please find enclosed herewith Transcript of the Investor and Analyst Conference Call held on August 08, 2022.
This is for your information and records.
Thank you.
Yours faithfully For Thomas Cook (India) Limited
Amit J. Parekh Company Secretary & Compliance Officer
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Thomas Cook (India) Limited
Q1 FY2023 Earnings Conference Call
Aug 08, 2022
MANAGEMENT TEAM
MR. MADHAVAN MENON - MANAGING DIRECTOR, THOMAS COOK (INDIA) LIMITED MR. MAHESH IYER – CHIEF EXECUTING OFFICER & EXECUTIVE DIRECTOR - THOMAS COOK (INDIA) LIMITED MR. VISHAL SURI – MANAGING DIRECTOR – SOTC TRAVEL LIMITED MR. DEBASIS NANDY - PRESIDENT AND GROUP CHIEF FINANCIAL OFFICER – THOMAS COOK (INDIA) LIMITED MR. BRIJESH MODI – CHIEF FINANCIAL OFFICER – THOMAS COOK (INDIA) LIMITED MR. VIKRAM LALVANI – MANAGING DIRECTOR –STERLING HOLIDAY RESORTS LIMITED MR. KRISHNA KUMAR – CHIEF FINANCIAL OFFICER - STERLING HOLIDAY RESORTS LIMITED MR. ABRAHAM ALAPATT - MARKETING SERVICES - THOMAS COOK (INDIA) LIMITED MS. URVASHI BUTANI- INVESTOR RELATIONS - THOMAS COOK (INDIA) LIMITED
Moderator: Ladies and gentlemen, good day, and welcome to the Q1 FY 23 Earnings Conference
Call of Thomas Cook (India) Limited hosted by IIFL Securities Limited. As a reminder, all participant
lines will be in the listen only mode, and there will be an opportunity for you to ask questions after
the presentation concludes. Should you need assistance during the conference call, please signal an
operator by pressing “&” then “0” on your touchtone phone. Please note that this conference is
being recorded. I now hand the conference over to Mr. Akul Broachwala from IIFL Securities Limited.
Thank you, and over to you, sir.
Akul Broachwala: Thank you, Rutuja. Ladies and gentlemen, good afternoon, and thank you for
joining us on the 1Q FY 23 Earnings Conference Call of Thomas Cook (India) Limited. I invite the
company's senior management team, who are here to discuss the results and business strategy.
We'll begin the call with opening remarks by Mr. Madhavan Menon, Managing Director, followed
by the management team. And thereafter, we'll open the call for a Q&A session. I would now like to
hand over the call to Mr. Menon, to take the proceedings forward. Thank you, and over to you, sir.
Madhavan Menon: Thank you. Thank you very much. Good afternoon, ladies and gentlemen. Once
again, thank you for attending this call. I hope we are in a position to answer all the questions or the
queries that you may have.
I just want to kick off by rehashing what has happened over the last several months/weeks. We
started our return journey to normalcy sometime in Q3 FY22. It was interrupted unfortunately in
January and a part of February again due to Omicron. However, since then, we have seen an
uninterrupted recovery and this is the second quarter that we will report profits.
I think the return to profitability, though a bit long, has been contributed by various factors.
Obviously, towards the return of business, we saw volumes come across all our businesses. An
important contributor has been the productivity improvements like cost rationalization, upgrading
of technologies that we implemented over the last 24 months. And when I say this, we are talking
about cost savings very well in terms of payroll, between 37% and 45%. We are talking about having
upgraded technology across the organization, be it customer facing or internal business processes,
we’ve have gone through a whole lot of change, and I think some of the results of this are obviously
evident and contributing to our bottom line, as we talk today.
The primary driver behind all this has been customer centricity, by allowing a customer access to an
omnichannel facility, which allows the customer as well as the agent of the organization to look at
the same screen. And obviously seamless processes, which allow the customer to choose how they
want to interact with us, be it at a corporate or be it at a retail level. And these are important benefits
that we are beginning to see. And the bottom line sees a benefit from all these aspects.
In terms of our medium to long term objectives, one is to maintain the cost savings, and this will be
achieved through greater use of technology, as well as improvement in productivity. Two- expand
our customer base, I think one of the major benefits of this COVID, if I use the word benefit, is the
expanded customer base that we are witnessing today. We want to use technology to get a better
understanding of our customer, and this has been through enhancements that we put in place both
in our businesses as well as in the CRM.
Lastly, trust in the brand of Thomas Cook and SOTC. We see this as very important objective and
I've always said this that, we will always focus on interacting with our customers and leveraging the
strong brand recall that we have across SOTC and Thomas Cook, both of which have a long history.
And, with that, I'll end my comments and hand over to Debasis.
Debasis Nandy: Thank you, Madhavan. Before I start, I just want to mention the people who are
attending this call other than Madhavan, of course. Apart from me, there is Mahesh Iyer, CEO of
Thomas Cook (India) Limited, the standalone company; Vishal Suri, MD of SOTC; Mr. Vikram Lalvani,
the MD of Sterling; and KS Ramakrishnan, CEO of DEI, who will also be addressing today.
I'll take you through the financial highlights before I hand over to Mahesh. We returned to
profitability at a standalone level after about 8 quarters and as Madhavan said, the recovery started
from Q3 of last year, and it has finally moved to a stage that we could report a PBT on a standalone
level. Our income from operations at Rs. 2,979 mn for the quarter, represents a 3.8x growth vis-a-
vis the last quarter. The PBT is at about Rs. 59 mn, vis-a-vis a loss of Rs. 384 mn in the previous
quarter. And this was after considering the mark-to-market losses on account of our holdings in
Quess Corp, which is purely non-operating in nature. Hence, if I adjust for that, the effective profit
is actually about Rs. 115 mn.
At a consolidated level, we reported Rs. 9762 mn of income from operations, which is a growth of
87% quarter-on-quarter. At a PBT level, our losses after considering the MTM losses narrowed to
Rs. 23 mn vis-a-vis Rs. 518 mn in the last quarter. And if I do not consider the non-operating MTM
losses, then the actual underlying PBT at a consolidated level is about Rs. 33 mn versus a loss of Rs.
271 mn in the previous quarter.
While our income grew substantially, I think we must also mention, as Madhavan said, that a lot of
our success is due to the cost reduction efforts. We have been able to cut down our cost by 33% as
compared to the pre-pandemic, and I'm talking about numbers for the same quarter, and all of these
cost reductions are likely to stay with us. At the balance sheet level, we had a healthy cash balance
of Rs. 8,500 mn as of 30th of June, and Rs. 6,399 mn as on 31st March. And our loan book at overall
consolidated level is over Rs. 4,736 mn.
With this, I hand over to Mahesh, and he will take you through the FOREX and the travel business.
Mahesh Iyer: Thank you, Debasis. I’ll be quickly giving you a bit of a snap into what has led to this
kind of performance. I think it's important to highlight that, all the businesses within the Group,
whether it's foreign exchange, corporate travel, B2B or B2C side of the travel, I think without
exception, all of them have done well during this quarter. It's also important to highlight here, that
we had also guided the market in terms of the recovery, and I'm really happy to report here that we
have overshot our own guidance in 3 out of the 4 quadrants of business that we operate.
And to begin with, I'll start off with foreign exchange. On the foreign exchange side, our volumes
grew about 40% on a quarter-on-quarter basis, and reflected about 66% recovery to the pre-
pandemic level. You will note here, that we had guided to about 63% recovery when we spoke to
you all the last time around, but our recovery on this front has been much higher. The key factors
driving this recovery, has been the retail business and specific within the retail, education forex and
travel related forex has actually started to bounce back. It's also important to highlight, that retail
is a high-yield business. Our margins in this business is close to about 2.5%, and we are holding on
to the yields in this business very strongly.
The corporate FX side of the FX business is coming back slowly, we've seen about 60% recovery in
the current quarter. But the important highlight here is to look at the card volumes. The card
volumes actually grew 2x from about $80 million to about $154 million, and that's a very strong
comeback. This reflects almost close to 115% recovery to the pre-pandemic level, and we remain
very confident of the rest of the year, as far as the foreign exchange business is concerned.
If I guide you through our projections for the next quarter, we expect about 70%-odd recovery for
the foreign exchange business in the coming quarters and the current trends that we see reflects
the position in that direction.
Moving on to the corporate travel side of the business. Again, a very strong performance coming
from corporate travel. Important to highlight here, that there is a restricted flow or supply of airfares
or rather airline seats, and that capacity is coming back slowly. We are about 90% on to the domestic
side and about 10% to the international. But despite that, our volumes are already crossing the pre-
pandemic level. From a volume point of view, in the month of June in specific, our volumes actually
touched the pre-pandemic level and from a value point of view, we are already ahead of the pre-
pandemic level. Our expectation for the next quarter is about 125% to the pre-pandemic level. And
this, as you know, is buoyed by 2 factors: one, the higher volume that we are seeing and also the
value, which is currently at a heightened level. Important to also highlight here, that we have guided
the market to about 84% recovery, and we actually ended up the quarter at about 87%. So, again,
on this count, we've done well. And our expectation on this side of the business is that we continue
to see this momentum coming.
It's also important to highlight the point that Madhavan made in terms of technology. This is one
business, where we infused a lot of technology into the business. We've actually automated the
entire process of issuing a ticket and submission, because it's a cash guzzler and we have bought in
a lot of efficiency in that process, to ensure that we stay very lean as far as the order book is
concerned.
Coming to the B2B holiday side of the business, which is MICE. Again, we have guided the market to
a 38% recovery, and I am happy to report, that we ended up at about 44% recovery to the pre-
pandemic level. Important to mention here, that we managed some the large groups that we
handled, the Khelo India, the WHO conference, these are large marquee relationships that we have
built over the last 12 months or so, and we see this becoming a very dominant share of our overall
business. Yield from this business continue to be very strong. And that unlike in the past, where we
used to do some amount of digital events, this quarter, we actually did all of it as physical. And that
kind of reflects the mood of the nation where people now want to come back, and travel on the
physical mode, and we see that recovery going very strongly into the next quarter.
We are guiding the market to about 72% recovery in the next quarter, and we believe our current
order book and what we will put into the funnel over the next 2 quarters, should see us ending the
year at close to about 80%, 85% recovery for the full year, as far as the MICE business is concerned.
Coming to the holiday side of the business. As you will realize, the market is a bit slow to come and
also, there are external challenges. External challenges in the form of supply side, from an airline
point of view, supply from a visa point of view, and these continue to be a challenge, as we speak.
While we navigate these challenges, we are taking up opportunities that we see, and those are kind
of reflecting well into the business, and it's comeback, as we see.
To just give you some sense on how the domestic and international side of the holidays have played
out in the current quarter, on the domestic side, we have seen a 78% recovery, but we are very
confident that the recovery to the end of the year will actually surpass close to 100%. Our forecast
for the next quarter is about 94% recovery, and we see that coming back very strongly. While there
are destination-related challenges and airfare related challenges, but despite that, the pent-up
demand continues to be very, very high, and we see that auguring very well for the domestic
business.
On the international side, there are 2 parts to it, and we've spoken about it in the past, the short
haul and the long haul. While the momentum on the short haul side is very strong, the long haul
continues to be really subdued, because there are these challenges that relate to visa, and I'm sure
all of you all know about it, whether it's the European or whether it is British, I think all these Visa
challenges continue to kind of impact the growth that we see there. But despite that, we kind got
across to a projected number. We spoke about a targeted recovery of about 19%. We came close
to about 18%. But looking into the next quarter, our recovery seems to be very, very strong. We are
looking at about 42%. Our current guidance for the full year is about 65% to 70% recovery, and we
see our volumes to be trending in that direction.
It's also important to call out here that, we've done a lot of work in terms of bringing new products
to the market, being tactical in terms of the festivities and at the same time, continue to build on
the technology. The footprint that Madhavan mentioned, whether it is the distribution or it is the
servicing side of it. We continue to invest in technology to make the entire experience for the
customer very seamless.
Before I end, I just want to quickly talk about one bit of work that we have done on the foreign
exchange side. We've built this entire portfolio around the Study Abroad, whether it is study buddy
content that we are creating, about 130-plus videos, and we are now taking an industry-leading
position there, as India FOREX specialists, and we believe that that will augur very well for the
business in times to come.
On that front, I'll now hand over to Vikram, for his inputs.
Vikram Lalvani: Good afternoon. My name is Vikram Lalvani, and I represent Sterling Holiday
Resorts Ltd. as Managing Director and Chief Executive Officer. I'm also joined by Mr. L.
Krishnakumar, Chief Financial Officer at Sterling Holidays Limited.
It's a privilege to interact with all of you this afternoon. We are delighted to announce that Sterling
continues its profitability streak for the sixth consecutive quarter, while also recording revenues in
excess of Rs. 100 crore in a quarter for the first time and an EBIT of Rs. 324 mn. This reflects and
reaffirms our renewed growth strategy that involves #1, scaling up of the hotel and leisure guest
business at our resorts, thus impacting room revenues. #2, increasing spend in terms of average
room rates and food and beverage spend, at the resort. #3, increasing cash generation in the
membership business.
The key factors, if I just highlight them, that propelled growth in Q1 of this financial year. To start
with, we have had higher volumes at 73% occupancies in our resorts, as compared to 52% quarter-
over-quarter. We have had a very healthy growth in our average room rate. They have also
surpassed the peak pandemic levels by 35%. We had Rs. 5,100 average room rate in Q1FY20 and
has gone up to Rs. 6,900 in Q1 FY '23. Our growth in guest occupancy percentage and rates, we had
a 42% in Q1 FY 20 gone up to 60% in Q1 FY 23, in terms of the guest occupancy.
Our improved focus on F&B revenues, reflecting increases over last year, and even over pre-
pandemic levels, from Rs 176 mn in Q1 FY20 to Rs 226 mn in Q1 FY 23. This is because of a
multipronged strategy to improve our participation, as well as spends at our dining outlets in our
resorts. At the same time, improving the experience to increase our bar revenues by offering a wider
choice of local food and beverage options to our guests and members.
The cost optimization exercise that had been undertaken since 2020, and the cost line continues to
be maintained in Q1 FY 23, resulting in a reduction of fixed costs by around 18% when compared to
pre-pandemic levels. Offering our guests and members a wider array of leisure activities to choose
from, which includes new products like picnic, and pet friendly resorts, 12 of our resorts are pet
friendly now, thus driving improved volume and incremental revenues at each of the resorts.
In the membership business, the focus continues on driving profitable sales and improving our cash
generation from the membership business. We did this by constantly improving our on-site sales,
which is a zero-based fixed cost sales, and lower variable cost sales channel, thus delivering higher
profitability in Q1. With the continuous focus on variable sales model and strategy, our on-site sales
have actually grown from 15% in Q1 FY 20 to 44% in Q1 FY 23, the sales channels resulting in an
increased average unit realization, with a growth of over 7%, since the pre-pandemic level. Also, we
have increased our down payments to 47% as against 33% in the pre-pandemic level, thus resulting
in improved cash flows.
In line with our strategy of expansion, we continue to expand Sterling Resorts, using an asset-light
model of expansion. To this, we have actually launched 2 new destinations this quarter. One is in
Madurai and second is in Kalimpong. Madurai in Tamil Nadu is a pilgrimage cum corporate
destination and is one of the fastest-growing destinations in Tamil Nadu. This resort was launched
in April 2022. Kalimpong networks well with our resorts already present in Darjeeling and Gangtok,
where we have a large presence with over 150 rooms, thus completing the destination circuit in that
region. This resort is a heritage resort since 17th century, and has been completely renovated and
Sterling launched it in May 2022. We also have a strong lineup of other properties and other
locations that we are exploring, and signing them on during the course year.
Our outlook is pretty buoyant for the remaining part of the year. The Q2 and Q3, when we have
quite a few holiday seasons, that we can capitalize on and Sterling is very confident of its results for
the remaining part of the financial year, too. Thank you.
K. S. Ramakrishnan: Hi. My name is KS Ramakrishnan, and I'm the Managing Director and CEO of
Digiphoto Entertainment Imaging. A very good morning to all of you all, and let me start by firstly
congratulating all my colleagues on the wonderful performance they’ve done across the Group. And,
I guess, we have just added an extra flavor to the same group by our performance, which has been
fairly consistently growing from the time we are back out of pandemic. Because we are spanned in
about 18 odd countries across the world, the pandemic hit us the first, as we are operating in China,
where it first started and also lasted till today, we are still continuing in China. Having said that,
overall, DEI had a substantial not only a recovery, but the growth in the last 3 quarters.
So, Q1 FY 2022 is when we started our recovery. And from there, in Q4 FY22, we had a substantial
not only recovery, but growth. Today, overall, we have actually reached beyond the pre-pandemic
level in certain countries. Our predominant countries that have helped us to grow our business is
UAE and the U.S., and then a few pieces of Asia. While China has still not come out of the pandemic
and still struggling in and out, Hong Kong, Macau has still not come out of it.
Our overall revenue has already beaten our pre-pandemic levels. And the most important reason of
doing that, is through the pandemic, we worked through a strong ZBB-ZBO process, that really
helped us to grow both our top line and add more to our bottom line, and that is being shown on
our EBIT levels pre-pandemic to post pandemic. We’ve added nearly about 30% to 35% growth in
our EBIT levels from pre-pandemic itself, which has been one of the biggest, I guess, and the best
achieved in our industries, as far as photography goes.
The key highlights that we've grown our geography through the pandemic, we've added 2 new
countries, predominantly Korea and also sell model in Congo in Africa. So, now we operate in 19-
odd countries as we speak. Looking ahead, we see the next few quarters being better. So, in our line
of business, as per the Indian financial calendar year, quarter 2 and quarter 3 are the biggest
quarters, they constitute to 60% of the revenue. So, we are very exciting looking forward for 2 strong
quarters right now. That's predominantly because the global holidays fall during these quarters,
from July to September and then from October to December. In fact, our last October to December
quarter, nearly covers about 35% of our annual revenue. So, we are all set for a fairly interesting
future.
In addition to all that, we have invested strongly into technology, which is taking from Madhavan's
comments and the rest of my colleagues' comments, we have taken this opportunity to revamp and
rehash our entire digital platform. So, a strong change that's going to happen to us in the next 2
years, is going to be from being a B2B2C, we are developing a platform that makes us B2C direct,
which kind of opens a whole new plethora of opportunities on imaging and photography, that goes
beyond the realms of just serving photography in theme parks.
So, the main gains of this will be that we're now not restricted only to those people who come to
the park and come back to our counter to buy our pictures, and thereafter go online. But with this
new platform and technology, they would have the choice to have the platform on their phones
even before they enter the park. And therefore, through the park experience, through the visit
experience to all our attractions, they'll be getting the image that's real time downloaded on their
phones, and they can play and move it. And above all beyond the experience, once they go back
home, they have chances to still buy and continue the buying opportunity, which doesn't happen
currently as we speak. So, that is a huge investment the company is doing. We have appointed one
of the big 5 firms, Tech Mahindra to do that for us. And all of us are very excited to look at 2024 &
2025 of where will we grow from here. So that's a bit about the geography and about our
technology.
From an efficiency perspective, we've gone through the pandemic, a lot of cost saving and cost
cutting process have been done, that has brought our EBIT to a better level. Our cost of both labor
and cost of materials, which are our 2 main costs, have been very well structured right now, and
that's helping us drastically on our come back to profitability.
The last but not the least, also the pandemic helped us to renegotiate their terms with our partners,
which we are holding good so far even after the comeback. Above all, I think the biggest opportunity
right now that we have, is in expanding our geography. We have a huge focus on this- we're doing
in the U.S. for the next 2 years, where our market share is at the lowest. In the rest of the world, we
have a market share of about anywhere between 50% to 80% of the countries that we operate in.
In the U.S., we are less than 10%. So, U.S. is a big opportunity, and we are looking at focusing on
that for the next 2 years. While we do that, we are eagerly awaiting the comeback in China, as we
opened 2 of our largest attractions in China, both the Universal and Disney through the pandemic.
So, once that comes back, there is again going to be a sizable growth opportunity out there. That's
all from my side. Thank you very much.
Moderator: We will now begin the question-and-answer session. The first question is from the line
of Sandeep Varghese, an Individual Investor.
Sandeep Varghese: Referring the slide on segment revenues and segment EBIT, right? Right now, if
you see with that financial services, we are looking at like a 26% increase, Travel at 149% ,
Sterling32% and Digiphotoat 7%. What are the EBITs, given the cost reductions that you all have
successfully completed and hope to maintain in the future? I mean, what are the EBIT percentages
we can look forward, going forward?
Debasis Nandy:. So, on the cost reduction, we have said that in the last meeting as well, that we
intend to hold on to the cost gains that we have done during the COVID period. You can see from
our results that there has been a 33% reduction compared to pre-pandemic. And we expect to hold
on to almost all of it. Now in terms of the EBIT ratio, it is difficult for me at this stage to f give a
forward-looking number. However, you can see that, if you compare the results of the last quarter
versus this quarter, the increase in the top line, the gains in the top line on the revenue has gone
straight to the bottom line. So, I think it's a fairly easy thing to say, that any gains that we do in the
net revenue, which is sales minus cost of sales, most of that would translate down into the EBIT
number. And therefore, it will be a pass-through. So, it is right now, what your focus will be on
holding on to the cost levels that we have achieved and increase the top line. Does that answer your
question indirectly?
Sandeep Varghese: It does. I think I can sort of garner from what you just said. My next question is,
at least referring the same slide, when do we expect at least travel and related services to be sort
of back in the black from an EBIT standpoint?
Mahesh Iyer: So, as I mentioned, we've given some guidance for the next quarter. As I mentioned
before, the momentum this quarter was more on the domestic side, the international recovery was
slow. And when I say recovery was slow, it was not for the lack of demand, but for the problem on
the supply side, which was augured by the supply side constraints from airline, the capacities not
being full, and also challenges with regards to visas. But if you look at our forward-looking guidance,
we are already saying that we would see a much better quarter coming forward. And that increase
in volume should translate that into profitability. The point that Debasis made, we are retaining a
large part of the cost efficiency that we have bought into the business, automated many of our
processes, which would then mean that, any incremental costs that will go in acquiring the volumes
will only be related to discretionary marketing costs, which are the only expenses that we incur.
Therefore, it should flow through and our expectation is that, in the coming quarter and the quarter
after that, we should see this business getting back into the black, as we would think so.
Debasis Nandy: I'd just like to add one more point to what Mahesh is saying. We also have a large
amount of overseas business as of now and the inbound business in India, not all of which has
started firing. For example, the inbound business in India, the season starts only in late October and
goes on till April. Therefore, it has not yet started operations, they’re still in the contracting or the
procurement period. So, we'll see that coming back in action in the third quarter of the financial
year. Likewise, for the DMS business, the Destination Management Services business, some of these
units have started coming back to life, so to say. And for a few of them like the unit in U.S.A. and
Kenya, this current quarter, which is Q2 is likely to be a big quarter. Likewise, for Asian trails, which
handles Southeast Asia, the business is restarting now, but will really peak in the next quarter. So,
we can see results coming in from India, as well as from the overseas units.
Sandeep Varghese: Just 2 very quick questions. First on the P&L, in the other expense section, point
#2, there's a reference of about Rs. 100 crore. Could you shed some light on what that amount is?
Debasis Nandy: You are talking about the consolidated?
Sandeep Varghese: Yes, the consolidated one. In point #2 of other expenses, there is an amount of
Rs. 100 crore for this quarter? Can you share some idea on what that is?
Debasis Nandy: So, see, all the costs relating to establishment, travel, conveyance, marketing, all of
that goes in there. Anything which is not covered by us, non-employee costs or which are the cost
of services that is being provided to the customer, which is cost of sales, everything else actually
gets clubbed in there.
Sandeep Varghese: And what percentage of the marketing cost might be of that Rs. 100 crore?
Debasis Nandy: Around 6%.
Sandeep Varghese: Last question, and this is more for Mr. Menon. Mr. Menon, I mean it's really
positive to see such a huge cash balance of around Rs. 850 crore. What might be the plan for that
cash for that year? Like is there a significant amount of investment planned out?
Madhavan Menon: Look, I think we are in a consolidation phase across the Group. And here, I talk
on behalf of DEI, Sterling, Thomas Cook and SOTC. I think we will continue to consolidate in the near
future and look at opportunities as and when they arise. But my primary focus at this point of time
is to consolidate and rebuild the cash flow that we had pre-COVID.
Moderator: The next question is from the line of Nirmal Shah from Seraphic Management. Please
go ahead.
Nirmal Shah: I have one question with respect to Travel vertical. Sir, if you can just give us some
broader strength, at what sort of revenues we can see the travel vertical as a breakeven? Because
if we go by the slide presentation, what you have shown, probably there is almost 2.5x to 3x sort of
a revenue growth on a Q-o-Q basis, and we are at a loss level at EBIT. But if I compare from Q1 FY
'22 to Q4 FY '22, which is there in your presentation, your revenues just moved up by like less than
2x, but your losses actually were halved. So, how do we look at this as a vertical, how do we look
from a break-even perspective, can you give some perspective on that?
Debasis Nandy: See, as Mahesh mentioned and as you know, that the travel vertical is composed of
many sub-segments and includes leisure, B2B & B2C, the inbound and the DMS business, as well as
the corporate travel business. So, at the overall level, so each of these will have different levels of
different range of costs and cost and revenues and gross margin percentages. And therefore, we
cannot sort of club and say one common number. Having said that, the reason that you see the loss
is still there, while overall sales has moved up from Rs. 270 crore to Rs. 675 crore. Your question is
that, why has the losses not gone away completely? It has gone down from Rs. 46 crore to Rs. 17
crore, but it's not gone down further? As we are mentioning, that some of the units are still not
really operating or operating at a very minimal level. So, the business in India has bounced back, and
the media reports are very clear on that. And the same has happened for some of the other
geographies, the same has happened in places like Dubai or Kenya, for example. But there are other
places where the business has either not started or starting in a minimal way. Also, there is a whole
lot of seasonality involved in all of this. We expect that this element will go away over the next 2
quarters. Mahesh did allude to that while he was speaking earlier, so we expect that to go away.
But I don't think it's right to just give a number at a word, rather because the business are very
diverse, while we club everything under travel, it is a business very diverse.
Nirmal Shah: So, if I have to just guess for my understanding, out of your total travel vertical, the
domestic, then outbound, then you have a DMS. So, if you can just give us a sense, which are the
businesses which have broken even within the travel vertical? Like, I've seen your press release, you
have mentioned that SOTC has broken even. You have the domestic holiday piece, I don't know
what is the sort of profitability you have. But on a standalone results, I can clearly see you've broken
even. So, on the DMS side, if you can just give us a sense what sort of cost which is impacting your
profitability? Because that is the piece which seems to be having the impact on your overall
profitability, right?
Debasis Nandy: The DMS business spans across multiple countries, in South East and Middle East
Asia, in Kenya, South Africa, Australia and as well as U.S. So, while as I said, some of the units have
started filing, others haven't. So, as of now, across the various units that I talked about, the DMS
business for this quarter, at EBIT level loss about Rs. 23 crore. While this was a substantial reduction
on the losses they made earlier, they' did not break-even.
It is also pertinent to note that this is not the season for many of these places. For example, Middle
East which had actually bounced back, this is the summer season, and therefore, there are very little
travel revenues. Not too many people would go into Dubai during the April-June quarter. Likewise
for U.S.A, the travel season actually starts from end June, early July. Similarly, the peak season for
Kenya is actually July-August. Thus, there is a bit of seasonality and it is not a straight through sort
of thing that it will be even amount of sales across the quarters, it will be a little different. So, you'll
see that's why I'm trying to say that you'll see a very different set of results probably in the next
quarter as far as the DMS is concerned.
Nirmal Shah: And just, sir, last question on the domestic holiday side. In the initial comments, it
was mentioned that there is a supply side issue with respect to the airline tickets or even the
inventory of hotels, so you expect those issues to get resolved in the coming 2 quarters because of
which your recovery indicators are not still over to a pre-pandemic level? Can you just give some
comments on that?
Mahesh Iyer: We expect some of the bottlenecks to be addressed over a period in time. If you ask
me, it's going to disappear in the next 1 quarter, I would be a little cautious about it. I guess over
the next 2 quarters or so, we should see this coming down. Obviously, the supply side challenges
will come down. You've seen new airlines come in, Akasa just started off and they will be filing for
new routes also, new aircrafts coming in. There's Jet which is likely to come back in the third quarter
of the current calendar. Hence, obviously, we're going to see some more supply coming in.
But those constraints are definitely likely to get a little more eased as far on the domestic side, but
I think we should be mindful here to say that 2 years, the aviation industry has gone through a lot
of losses there. And I think there is this opportunity to skim some amount of revenue, right? So, yes,
everyone is having and customers are willing to pay. Thus, I think the supply side is a good problem
to have. We have to look for the pearls within this and start picking up what works for us, and that's
what we are trying to do.
Nirmal Shah: Sir, so the overall perspective, most of the hotel chains are actually showing
occupancy which are sort of a pre-pandemic level occupancies or higher than that. You have also
shown some sort of that relationship in Sterling Holidays. But for domestic holidays, then what is
the barometer for us to look at? Because on one side, the hotels are showing very good occupancies.
But when I look at your vertical, that we can't corroborate with the same thing. So, is there some
other indicators where we can actually track that your growth in the domestic holiday would mirror
some sort of those macro indicators, because hotels is already showing a very good growth, they
are already above pre-pandemic levels, right?
Mahesh Iyer: So, you've got to look at it, because it comes to us as a bundle of service. We put
domestic, international, short haul and long haul both to the customer as an offer to choose from.
Now you will appreciate that as market opens up and if domestic is going to be pricey, people will
choose to shift their preferences from domestic to short-haul/long-haul destinations. I mean today,
traveling anywhere domestically is going to cost per person at least Rs. 50,000. Given that kind of
persons, people will shift from one to another. What we are seeing is not the amount of customers
coming to travel which is going down, but we are seeing also that customers are shifting. If domestic
holiday is going to cost him Rs. 50,000, and he can put Rs. 20,000 and go for a Far East holiday or a
Dubai holiday, he would prefer to do that because he has got more value out of that and then you
can actually go and brag that with his friends and relatives, so we see that trend coming in.
And as we have guided here also, we expect our next quarter, which is Q2 FY '23, we expect that
recovery to be close to about 95% on the domestic side of it. This quarter was a strong one. We had
seen about 78% recovery. And we had within the 78%, this is a quarter number, we had within this
months where we have seen close to about 100% recovery also. But on a blended basis, we are at
about 78% for the quarter. Our expectation for the next quarter is about 94%, 95%, and we expect
that to trend in the direction.
Moderator: The next question is from the line of Mithun Aswath from Kivah Advisors.
Mithun Aswath: Just wanted to go in line with a couple of questions earlier, if we go back to your
March 2020 numbers, I think at the travel-related segments, you did about Rs. 850 crore, and you
broke even at that point. So, I just want to understand, when we reach the Rs. 850 crore type of
numbers even now in the subsequent quarters, will that profitability be better or would it be
similar? Because this quarter was about Rs. 650 crore, you've seen a negative EBIT of 3%, so that
was my first question.
Debasis Nandy: I will not dwell up on the numbers specifically with comparisons. But just to give
you an understanding. There are two things that we have done during the two years of the
pandemic. One is the improvements in technology and the improvements in our cost structure,
particularly in the India business, both of which Mahesh spoke about. And the result of both of that
is that our cost levels are likely to remain at the same level as where we are. So, the growth in
profitability or the reduction of loss whichever we want to see it, will come purely from the
improvement in revenues.
Now Jan-March '20 is a very different season from April-June '22. Travel business, as we'll
appreciate has a great deal of seasonality. And when I say seasonality, I also means that it's becomes
very country specific. Also various segments of the travel business do not operate at the same level
of profitability, some of the segments have higher profitability than others, which is essentially the
nature of that business. Therefore, the mix part of the answer, like in the fact that the mix for April-
June '22 would be very different from the mix that we had in Jan to March '20. So, the comparisons
are not really like-for-like.
Madhavan Menon: Debasis, can I just add a comment here. I think if you look at Jan-March '20, the
primary contributor are the two DMS businesses, which is in Asia and in India, which have not
functioned this year. So, that is not functioning at the moment. And right now, what you're
witnessing is the outbound, domestic, as well as the corporate travel businesses, which are really
contributing to that number.
Debasis Nandy: Very correct Madhavan, absolutely right.
Mithun Aswath: So, just to add to this, you mentioned they are not comparable. So, would you say
the businesses which were there in March 2020, which are not there now, when they come back,
so overall profitability will improve because those segments are more profitable?
Debasis Nandy: Certainly today, what's happening effectively is that we are paying for the cost of
those businesses, but they're not generating any revenue or generating very little revenue. So, once
they come back to business, the business picks up, then we start reviving, there will be no additional
costs that will be incurred, except maybe some degree marketing costs or some degree of travel,
but other than travel for the staff, I mean other than that, there will be no significant cost that will
be incurred. So, again, the revenues will translate straight into profitability.
Mithun Aswath: My second question was on the domestic travel. You mentioned that we are still
targeting only 94% of pre-COVID levels. However, I think the Sterling business would have crossed
pre-COVID levels and much beyond. What is hampering our domestic travel business not reaching
the pre-COVID levels and more than that? Because that would not have issues on supply and Visa
and all those issues?
Mahesh Iyer: I think I kind of clarified to the previous question also, it's not like anything hampering
the, as I keep saying, any challenge that come in the marketplace is an opportunity for you to look
for. We are trending in that direction. If you look at the quarter-on-quarter volumes, I think there's
2 ways to look at this business. One is to look at it in terms of volume, that's number of passengers,
the other is to look in terms of value.
In terms of value, if I start talking to all of these numbers, they will definitely look much, much, much
better. But I think it's also important to compare in terms of volume, because that's the real health
of the business. If I just put in terms of value, quarter-on-quarter comparison, we've actually grown
3x in terms of our domestic business. And that's been the trend that we witnessed all through the
pandemic, because that's the only market that was opened, there were lesser restrictions, I would
say, in terms of travel. And we continue to see that trend going forward also.
But I think it's important to highlight here that from a domestic point of view, our comeback has
been very, very strong. It was a portfolio that we were not that dominant player there on the
domestic space. We were always looked upon as an international operator. And over the last 2, 3
years, we've spent enough amount of marketing bucks in terms of getting this business on track and
we are beginning to see that kind of things playing out. I wouldn't actually make a comparison here
to Sterling, but yes, it's a good data point as to look for us to compare to see as to how that
occupancy rate is coming back and trending.
And I think Vikram spoke about it. And I think we are seeing that trend and we believe that our
businesses are also trending in that direction. So, about 70%, 80% and in cases for the next quarter,
we believe that we will see about 90%, 95% recovery, and that will come back as the business goes
forward. So, honestly, to be very frank, a single line answers there is that, we don't see any
impediment to growth. It's all about how much of that opportunity you want to take and move
forward with. And we have been very cautious about it. We're not spending tons of money and
trying to lose money in terms of gaining market share.
Mithun Aswath: My last question was on the cash guidance, you mentioned Rs. 850 crore, and your
debt is Rs. 470 crore, so would your net cash to be Rs. 400 crore? And I just wanted to understand
what would your CapEx plans be for the rest of the year? And do you see net cash levels from that
Rs. 450 million move up appreciably as these businesses start generating a lot of cash. By the end
of the year, do we see that Rs. 450 million trending up to a much higher level? I just wanted to get
a sense of that.
Debasis Nandy: To answer the first question, our CapEx is not likely to be significant. As you know
that we are an asset-light business. We like to operate in that fashion. The only CapEx that we'll
have is probably for the technology upgrades that are happening across the various units. So, that's
the only significant part of the CapEx. As far as the cash balance is concerned, yes, the profits that
we generate will translate into cash. Some of that obviouslywill also be deployed into working
capital because as a business volumes increase that amount of cash, cash does get deployed there.
But other than that, rest of the cash is flowing to that bucket.
Mithun Aswath: Okay. So, the net cash number is around Rs. 370 crore, right?
Debasis Nandy:Yes. If you're taking out the debt
Moderator: Thank you. The next question is from the line of Senthil Manikandan K from ithought
PMS.
Senthil Manikandan: Sir, my question is on the consumer sentiment. So, with the inflationary
economy across the globe, so how does the consumer sentiment going to impact or what's your
outlook on that?
Mahesh Iyer: Senthil, I'll take that question, and I'll get Madhavan to add me if he has to. So,
Senthil, I think we kind of indicated in terms of our guidance for the next quarter, I think that's a
reflection of how we see the customer sentiment in here. Yes, there are inflationary pressures,but
I think we've seen this for over a little over 1.5 quarters now. And I think despite all odds, we've
been seeing the momentum being very strong, people want to travel. Case in point, the next
weekend is going to be a long weekend. And if you want to be searching for any hotel, you won't
find any decent 4-star property in any place, less than about Rs. 10,000 or Rs. 12,000 per night.
If you were to pick up for a return flight to any destination, whether it is Tier 1 or Tier 2, you are not
going to a return airfare for less than Rs. 20,000. Now that augurs well in terms of the industry that
we operate. While there are inflationary pressures, whether this is a discretionary category and I
think people have kind of saved enough over the last 2 years and now want to open their purse and
go out on travel.
So, while we remain cautiously optimistic about it, I wouldn't think it will make any dent at least in
the next 2 quarters. And I think there is enough reports also in the market to say that the inflationary
trend seems to be inching downwards, we need to watch it. RBI has done enough to rein in the
pressure on the Rupee. And I think all these measures should help the discretionary category that
we operate under.
Madhavan Menon: Mahesh, thanks. Madhavan here again. Let me just comment. I think if you go
back several months, input costs in the tourism industry, which are obviously airfares, hotel costs
have already gone up. So, in reality, inflation pressures have not registered themselves because our
input costs are higher. This did not stop travel, as Mahesh referred, besides all these input costs
being higher, people have been travelling. Additionally, if inflation remains stable or is brought
down, I think that we will continue to see travel. And this is reflected again in the numbers that
Sterling has reported. Higher input cost despite which their occupancy rates are at high levels, the
highest levels, Vikram, correct me if I'm wrong. And this is going to continue for some time. So, I
don't think inflation in India is at the moment at least a determinant. And my expectation is that this
trend will continue. Thank you.
Vikram Lalvani: Absolutely, Mr. Menon. In fact, if I may just add on. At the resorts or at the hotel
level, we do face the inflationary pressure in terms of input costs, like input food and beverage costs,
other landing costs of raw materials at our resorts. The way we actually counter it is by bringing
more efficiencies through menu engineering, which we've actually implemented, so that the impact
of inflationary costs actually do not impact the customer. We have to get a lot more efficient through
menu engineering, through preventive maintenance of our digisets because our diesel costs are
going up. So, those are the measures that we take also to reduce the impact of the inflationary cost
during our Q1.
Senthil Manikandan: My second question is with respect to the DMS entities. So, like quarter-over-
quarter, I think the demand may fluctuate between one region to the other. But if you can give an
outlook for a yearly basis, so any strategic initiative we have taken for the DMS entities or any
turnaround happening over the next 1 or 2 years?
Madhavan Menon: Yes, I'm going to take it. The destination management entities, and I will
specifically comment on Asian Trails, which is based in Southeast Asia and TCI, SITA, which is based
in Delhi. The reality is, look, we can do everything we want, but this is essentially a B2B business.
Travelers have to feel comfortable traveling long haul again. And I can tell you what we have
witnessed so far is that, it is early stages. Secondly, we are not in season because if you look at the
monsoon that is overtaking India, which is witnessed across India right now, Southeast Asia has also
got its rainy season on over the next few months.
And by what Debasis said earlier is that, we're seeing forward bookings closer to the last quarter of
this calendar year, which is the October, December as well the first quarter of calendar year '23.
Hence, my expectation is that the DMS businesses will come back. We are geared and ready in terms
of our quotations. There are constant queries. The pace of queries are only increasing day by day
across these territories.
Having said that, we witnessed a turnaround in the Middle East. We've witnessed a turnaround in
East Africa, South Africa and the United States already because their seasonal activity has started.
So, it's a bit of a mixed bag, but it's only better days from here on based on the forward bookings
that we are witnessing across all the businesses.
Moderator: As there are no further questions from the participants, I now hand the conference over
to the management for closing comments.
Madhavan Menon: Thank you, everybody, and those are the some very interesting questions that
we saw. Very good ones and pointed. I think I'm just going to address a couple of things which I did
miss out in my introduction, so I wanted to cover as a part of my closing comments. Sterling has had
a sterling performance. I'm sorry, Vikram, I'm using a bit of a pun here. But the reality is Sterling is
doing extremely well. And this is something that we visualized when we made the acquisition years
ago. And I think through all the restructuring, the business has come into its own and it's there.
SOTC, a second company that's clearly benefiting from the integration benefits with Thomas Cook,
the cost savings that have been through movement of office and a variety of other activities to seek
the benefits of both technology, as well as a customer-centric focus. A point that came up with the
question is the sustainability of costs. I think this was not just a reduction in head count, but it was
a reduction of what we believe could be replaced by technology. And therefore, there has been a
very specific mapping exercise. So, businesses no longer need to come back and say, I'm short of
this headcount and therefore I need to focus on it.
The second point, which I want to mention, is the current sort of shortage that each and every
industry in India is facing in terms of skilled labour. We have also seen this attrition, but something
that we have done at SOTC, Thomas Cook has been that we have gone in and hired freshers, we are
in the process of training them and we will fit them into jobs. The principal focus here has been that,
yes, freshers are far more nimble footed in terms of using new technology. Therefore, we thought
that, that would be a way to sort of manage and which should help us control our costs. In terms of
the destination management businesses, I think we have addressed that question.
The third point is market share. If you look at Sterling, they enhance their market share. They are
now talking about doubling the rooms, which Vikram and Sterling have been talking about. If you
look at TCIL, SOTC, we're seeing a whole lot of new customers coming. Similarly, if you talk about
some of the DMS businesses, we're also seeing a change in their customer segment. So, in reality, I
think it's a welcome sign for us that we are actually able to expand our market focus. And hopefully,
in some of that, we are seeing increased market share.
Lastly, inflation I think input costs in our industry lend this one. So, we've not seen other than the
F&B, which Vikram referred to. Otherwise, we've seen a lot of these costs being in existence for
some time. We hope that with the taming of inflation, we will actually see a reduction in input costs.
The positive of that is going to be driving increased business in our direction.
So, thus, with that, I will conclude. Again, ladies and gentlemen, thank you very much. Mahesh,
Debasis, Vikram, Vishal, Ram, thank you very much for answering the questions. Have a good day
and a good week.
Moderator: Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank
you for joining us, and you may now disconnect your lines.
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