Rategain Travel Technologies coming with an IPO to raise upto Rs 1355 crore

Rategain Travel Technologies

• Rategain Travel Technologies is coming out with a 100% book building; initial public offering (IPO) of 3,18,78,318 shares of Rs 1 each in a price band Rs 405-425 per equity share.
  
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
  
• The issue will open for subscription on December 7, 2021 and will close on December 9, 2021.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 1 and is priced 405 times of its face value on the lower side and 425 times on the higher side.
  
• Book running lead manager to the issue are Kotak Mahindra Capital Company, IIFL Securities and Nomura Financial Advisory and Securities (India).
  
• Compliance Officer for the issue is Sachin Verma.
  

Profile of the company

The company is among the leading distribution technology companies globally and it the largest Software as a Service (SaaS) company in the hospitality and travel industry in India. It offer travel and hospitality solutions across a wide spectrum of verticals including hotels, airlines, online travel agents (OTAs), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries. It is one of the largest aggregators of data points in the world for the hospitality and travel industry. It offer a suite of inter-connected 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 personalized guest experiences and seek to maximize their margins.

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. It 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 and companies find the right guest, decide the right price, distribute it to the preferred channel of the guest and once converted, helps them have an exceptional experience.

Proceed is being used for:

• Repayment/prepayment of indebtedness availed by RateGain UK, one of its Subsidiaries, from Silicon Valley Bank.
  
• Payment of deferred consideration for acquisition of DHISCO.
  
• Strategic investments, acquisitions and inorganic growth.
  
• Investment in technology innovation, artificial intelligence and other organic growth initiatives.
  
• Purchase of certain capital equipment for its Data Center.
  
• General corporate purposes.
  

Industry overview

The tourism industry represented 10.4% of global GDP in 2019 and continues to be one of the largest industries worldwide. Like many industries, success as a supplier of travel services relies on many things, but once you have settled on the product you want to sell, some of the most important elements are: (1) distribution, (2) the ability to attract customers, (3) pricing and revenue management. Distribution in the travel world refers to all the mechanisms that lead to the display of a supplier's product on a for sale “shelf.” Electronic distribution began back in the 1960s and along the way, a vast network of intermediaries sprang up to take advantage of opportunities to streamline connections, provide new capabilities or obtain advantaged pricing. The result is a labyrinthine mass of connectivity options between suppliers and distributors, each with its own pros and cons, capabilities and deficits. Complex distribution systems allow for lots of anomalies, and without a disciplined distribution strategy and careful monitoring, it's easy to lose sales or encounter suboptimal profitability. Making decisions about where to distribute, how to distribute, and how to price your products is a daunting task.

Within the hotel industry, distribution is considered to be communication of sales-oriented information about a hotel. This encompasses its presence, facilities, brand affiliation (if it has one), accommodation availability and rates - conveyed in words, photos and videos - to form a positive perception of the hotel in the mind of the information recipient (the potential guest), and to prompt a reservation request. Yet even though hotels have embraced technology for distribution, they remain a laggard for overall digitization, an increasingly important competitive requirement. The upside opportunity is very significant.  Traditionally, hotel operators have focused on “High Touch”; “High Tech” was regarded as a potential distraction from, if not an outright threat to successful guest service delivery. In the global hotel industry, “High Touch, not High Tech” has been replaced by “High Touch through High Tech”. The following paragraphs discuss the technologies, and specific hotel systems, that hotel operators are using to meet their guest service and business performance goals.

Pros and strengths

Marquee global customers with long-term relationships: The company has global and diverse customer base with whom it have long-standing relationships. As of September 30, 2021, its 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. Its customers include 25 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, all leading car rental companies, all large cruise lines, and the largest travel management companies. In the hotel segment, the company works primarily with large and mid-size chains including the InterContinental Hotels Group, Kessler Collection, luxury hotel chain, Lemon Tree Hotels and Oyo Hotels and Homes along with independent hotels. Besides hotels, the company also works with leading OTAs such as GroupOn. 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, as a result of its sales and marketing efforts. The company serves customers in over 110 countries, as of September 30, 2021 including in other parts of Asia, Europe and the United States.

Innovative AI driven industry relevant SaaS solutions: The company offers a comprehensive platform of industry-specific solutions with growth and monetization capabilities. Product and technology innovation is at the core of its success. 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 AI algorithms and applied it in connection with its SaaS products to provide its customers with next generation of product features. Its suite of products for rate intelligence include 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. Its 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.

Diverse and comprehensive portfolio of revenue maximization: The company has developed a comprehensive product portfolio that caters to the technology ecosystem for the hospitality and travel industry and in particular, 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 contributes to the travel recovery index published by one of the largest travel industry intelligence platform providing insights to key sectors of travel.

Strong financial performance with track record of successful acceleration post acquisitions: The company has maintained focus on capital efficiency and has grown without incurring material indebtedness, its conservative approach of operating with low debt has enabled it to remain in a good position during the COVID-19 crisis. Its balance sheet position enables it to make strategic investments by acquiring stakes in certain companies, and consolidate its position by acquiring brands, complementary technologies and product lines. It has established a track record of successful inorganic growth through strategic acquisitions to supplement its product offerings, diversify its revenue streams, and integrate such acquired businesses to further strengthen its portfolio. It has historically introduced operating efficiencies, revenue growth and/or increased profitability in its acquired businesses, resulting in increased operating margins.

Risks and concerns

Business depends on customers renewing their contracts: The company’s ability to maintain continuing relationships with its customers is essential to the growth, profitability and its results of operations. In order to maintain or improve the results of operations, it is important that the company establish, maintain and expand its relationships with new and existing customers and that its existing customers renew their contracts when the contract term expires or otherwise expand the scope of their contracts with the company. Some of its customers have in the past elected, and may in the future elect, not to renew their contracts with the company or otherwise reduce the scope of their contracts. In addition, the company does not have any exclusive arrangements with its customers. The growth of its business depends in part on its customers expanding their use of products and solutions, which can be difficult to predict.

Market for SaaS solutions in hospitality and travel industry is new and evolving: The company’s large majority of revenue comes from contracts in relation to its SaaS products and the company’s success and growth will depend to a large extent on the widespread acceptance and adoption of SaaS solutions in general, and of DaaS, Distribution and MarTech products in particular. The company’s advertisement and sales promotion expenses towards SaaS products was 1.79%, 1.63%, 0.22%, 0.38% and 4.06% respectively, of company’s total revenue from operations in Fiscals 2019, 2020 and 2021, the five months ended August 31, 2020 and August 31, 2021, respectively. The market for SaaS solutions in the hospitality and travel industry is relatively new and rapidly evolving, and if this market fails to grow or grows more slowly than currently anticipate, demand for SaaS products could be adversely affected. The travel SaaS solutions market is subject to rapidly changing user demand and trends and as a result it is difficult to predict enterprise adoption rates and demand for SaaS products, the future growth rate and size of market or the impact of competitive solutions.

Subject to certain liability as part of contracts with customers: As part of contracts that the company enter into with its customers, are subject to indemnification obligations or are liable in the event the company are unable to comply with its obligations under such contracts and in particular in relation to violation of third party intellectual property rights. The company’s liability under such contracts is typically limited up to an amount equivalent to 50% of the service fees paid to the company in the last 12 months prior to the liability arising or in certain instances is capped to $100. While there have not been any instances in the past where the company has been required to indemnify its customers, make payments on account of termination of contracts or make any royalty payments to third parties, there can be no assurance that the company will not be subject to similar payment obligations in the event of termination of its contracts.

Exchange rate fluctuations may adversely affect results of operations: The company is exposed to foreign exchange related risks as a significant portion of its revenue from operations are in foreign currency, including the US Dollar, Euro and Pound Sterling. Revenues from sale of services outside India was Rs 2,57.68 crore, Rs 3,94.99 crore, Rs 2,48.89 crore, Rs 97.07 crore and Rs 1,24.48 crore, and represented 98.51%, 99.07%, 99.24%, 99.15% and 99.37% respectively, of its total revenue from operations in Fiscals 2019, 2020 and 2021, and the five months ended August 31, 2020 and August 31, 2021, respectively. A portion of its expenses, including salaries and wages payable and rental expenses, are denominated in currencies other than Indian Rupees. Although its global operations provide some degree of natural hedging, its operations are exposed to exchange rate fluctuations. The company may also be required to make provisions for foreign exchange differences in accordance with accounting standards, particularly when preparing its consolidated financial statements, given its financial statements for its various international subsidiaries are in foreign currency and are required to be converted to Indian Rupees at a period end exchange rate.

Outlook

Rategain Travel Technologies is one of the leading distribution technology companies globally and the largest Software as a Service (SaaS) provider in the travel and hospitality industry in India. The firm offers travel and hospitality services across different verticals like hotels, airlines, online travel agents, meta-search companies, package providers, car rentals, cruises, and ferries. The business provides inter-connected products to manage the revenue creation value chain leveraging big data capabilities and integration and over the period, expanded product portfolio to artificial intelligence and machine learning capabilities. The company’s product development philosophy is based on helping drive scale and reducing the total cost of ownership for its customers by building cloud-first products and following agile development practices. It provides competitive intelligence and parity intelligence to help hotels and travel suppliers stay competitive and optimize their revenues. On the concern side, the company may be required to change its pricing model from time to time, including as a result of competition, global economic conditions, general reductions in its customers’ spending levels, pricing studies, or changes in how its products are broadly consumed. Besides, the software underlying the company’s platform and products, particularly in its 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.

The issue has been offered in a price band of Rs 405-425 per equity share. The aggregate size of the offer is around Rs 1291.07 crore to Rs 1354.82 crore based on lower and upper price band respectively. On performance front, total income decreased by 42.29% from Rs 457.61 crore in Fiscal 2020 to Rs  264.09 crore in Fiscal 2021 primarily due to the impact of the COVID-19 pandemic and its effect on its customers in the travel and hospitality sector. The company recorded a loss for the year of Rs 28.57 crore in Fiscal 2021 compared to Rs 20.10 crore in Fiscal 2020. The company will continue to expand its enterprise sales infrastructure in specific segments to increase its penetration in areas such as MarTech and certain categories within DaaS and Distribution. It intends to leverage its portfolio of products and products under development to provide additional solutions to its existing customers. It also plans to expand into adjacent verticals within the travel industry that rely on the same product set to guide their businesses. It intends to leverage its well-entrenched relationships with its customers to add additional verticals that will allow it to grow its revenues at minimal customer acquisition costs. It will look to expand further into the car rental segment.