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Online travel company ixigo was born in 2007 as a meta-search site for flights. So, its algorithm would trawl websites selling tickets for a search query—say, Delhi-Mumbai flight—and direct users to options like MakeMyTrip (MMT). In 2011, drawn by synergies in that user journey, MMT invested $4.8 million in ixigo. Except in 2019, ixigo started selling its own tickets. Earlier this year, it facilitated a bumper 8X exit for MMT. Now, if it completes its 1,600 crore public issue, ixigo’s next set of plans with the largest cash chest it has ever had could see it square up against its former shareholder.

The likely site for that faceoff will be bus tickets—the mode of transport that is the least penetrated online. MMT, the goliath in Indian online travel with a 60% share, owns RedBus, the leader in online bus ticketing in India. In pandemic-hit 2020-21, MMT sold bus tickets worth $25 million (about 186 crore). This was only 40% of its previous year’s bus revenues, but still about 35% more than the entire revenues of ixigo that year.

This current mismatch in size should be seen in context of two recent developments at ixigo. Earlier this month, ixigo acquired AbhiBus, an online bus aggregator. Further, after raising 270 crore in July, ixigo could add another 750 crore to its cash pile from its public issue ( 850 crore will go to current shareholders). While ixigo founders iterate the importance of capital efficiency, the IPO will reduce the gap to MMT on a metric important in this space: spending power.

Spending Needs

MMT and ixigo are multi-modal online travel aggregators (OTAs). As is EaseMyTrip, the other listed company in this space besides MMT. OTAs broadly cover air, rail and bus ticketing, and hotel bookings. While they all cast a wide net, only MMT has pickings that mirror that wide net. The other two operate in niches they have carved for themselves or are focused on. EaseMyTrip’s focus is air tickets. In 2019-20, 94% of its revenues came from flight tickets. ixigo’s focus is the ‘next billion users’—or users beyond tier-I cities.

In the travel space, discounts and promotional offers to acquire customers, and retain them, is par for the course. Even ixigo has been doing it, and intends to continue doing so. However, in general, it has been more tight-fisted in spending on marketing and advertising than, say, MMT and EaseMyTrip. Going public brings with it the pressure to grow, which will also necessitate spending.

Road to Growth

ixigo sees rail and road, and not air, as its pathway to growth. In 2020-21, in 93% of its transactions, either the origin or destination city was a non-tier I city. This March, its top two cities by monthly active users were Lucknow and Patna. To continue with this focus, it has made two acquisitions this year. In February, it acquired Confirm Ticket, a train utility and booking platform. In August, it acquired AbhiBus, a bus ticketing platform.

In its draft prospectus, ixigo gives three nuggets of data to build its case for road transport. First, of the 100 million journeys Indians make each day, 70% are road and 24% by train. Second, there is 65% overlap between bus and rail routes, suggesting a good user experience can encourage substitutability. Third, during the pandemic, 35% of bus tickets were booked online, against 15% in 2020.

Stock Challenge

Ixigo and EaseMyTrip, by virtue of being smaller and having their niches, weathered the pandemic better. They even managed to grow and do so profitably. By comparison, market leader MMT bore the brunt, seeing revenues downsized to one-third. But MMT also threw down the gauntlet in February 2021, when it raised $224 million via a zero-coupon instrument that is convertible into MMT shares in 2028 at a price of $38.75 per share. This is 55% higher than its current share price of $25.

MMT listed on US exchange Nasdaq in August 2010. In its 11-year history, MMT has built size and clout in the Indian online travel space, but it has not delivered profits or shareholder returns. On its issue price of $14, the compounded annual return works out to 5.4%.

EaseMyTrip, which listed this March, has more than doubled since then. If ixigo lists, how it balances spending and profitability will influence the kind of shareholder returns it is able to deliver in the long run.

(howindialives.com is a database and search engine for public data)

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