IPO Analysis: RateGain Travel Technologies Ltd

IPO Rating: AVOID  

About the issue:  

The company is engaged in providing technological solutions mainly in the travel and tourism sector. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 per equity share. The maiden offer comprises a fresh issue of Rs 375 crore and an offer for the sale of shares worth Rs 960.74 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 405 to Rs 425 per equity share. The IPO opening date is December 7, 2021, while it will be closing on December 9, 2021. The issue will be listed on the exchange on December 17, 2021. The IPO market lot size is 35 shares. A retail-individual investor can apply up to a maximum of 13 lots (455 shares or Rs 193,375).  

The objects of the offer are:  

Repayment and/or prepayment of indebtedness availed by RateGain UK.  

Make a payment of deferred consideration for the acquisition of DHISCO.  

Strategic investments, acquisition, and inorganic growth.  

To invest in technology innovation, artificial intelligence, and other organic growth initiatives.  

Purchase capital equipment for the company's data centre, and,  

Meet general corporate purposes.  

RateGain IPO Details: 

About the company:  

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.  

RateGain Travel delivers travel and hospitality technology solutions through the SaaS platform through three business units; 1. Data as a Service (DaaS), 2. Distribution, and 3. Marketing Technology (MarTech). As of June 30 2021, the business serves over 1400 customers including 8 Global Fortune 500 Companies. Six Continents Hotels, InterContinental Hotels Group, Kessler Collection, Lemon Tree Hotels, Oyo Hotels, and Homes Pvt Ltd are some of the marquee customers served by the company.  

Competitive strengths: 

Strong customer base with 1434 customers including 8 Global Fortune 500 Companies as of June 30, 2021.  

Innovative Artificial intelligence-driven industry-relevant SaaS solution provider.  

Comprehensive product portfolio solutions for the travel and hospitality industry.  

Strong financial performance with an established track record of successful acceleration post-acquisition.  

Diversified management team with domain expertise.  

Company financials:  

The revenues of the company have declined by 3 per cent in FY21 when compared with FY19. The EBITDA has declined by 71 per cent since FY19 to Rs 6.2 crore in FY21. The company has been making losses for the last couple of fiscals mainly due to covid led pandemic. 

Recommendation:  

The company serves a large and rapidly growing total addressable market. Third-party travel and hospitality technology is estimated to be a Rs 443 billion market in 2021 growing to an estimated Rs 860 billion in 2025 at a CAGR of 18 per cent. The travel and tourism sector is the most affected sector of all due to the pandemic. COVID-19 has, however, accelerated the 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 third-party software and services according to Phocuswright Report. As COVID-19 cases recede, key service sectors including hospitality and travel have resumed in major parts of the world, leading to higher confidence and consumer spending globally across advanced economies and emerging markets. To realign our cost structures, the company negotiated with all its vendors globally including vendors that provide hosting and proxy services, curtailed travel expenses, rationalised sales and marketing expenses, and temporarily froze new hires and salary raises.  

The company generates most of its revenues outside India. It serves in almost 110 countries as of June 30, 2021. Also, the company has maintained a strong long-standing relationship with its customers over time. It has maintained a focus on capital efficiency and has grown without incurring material indebtedness, and the conservative approach of operating with low debt has enabled it to remain in a good position during the COVID19 crisis.  

Although there is no listed peer for the company, the company faces strong competition from its unlisted peers. Considering the industry in which it operates, the introduction to the new covid variant (Omicron) can have a significant impact on it. In short term, the company is subject to uncertainty regarding price movements. We recommend waiting until the uncertainty dies down and AVOID investing in the IPO.