TBO Tek Ltd. (Subscribe)

Highlights

TBO Tek Limited (TBOTL) incorporated in 2006, is one of the leading travel distribution platforms in the global travel and tourism industry in terms of GTV and revenue from operations for FY23 providing a wide range of offerings operating in over 100 countries by providing Buyers with a comprehensive travel inventory according to the needs of their customers; and supporting a wide range of currencies along with forex assistance.

They simplify the business of travel for suppliers such as hotels, airlines, car rentals, transfers, cruises, insurance, rail and others (collectively, Suppliers), & retail buyers such as travel agencies and independent travel advisors (“Retail Buyers”); & enterprise buyers that include tour operators, travel management companies, online travel companies, super-apps and loyalty apps (“Enterprise Buyers”, together with Retail Buyers, “Buyers”) through their 2 sided technology platform that enables Suppliers and Buyers to transact seamlessly with each other.

In 2006, They conceptualized the TBO platform as a technology tool to simplify the process for travel agents to book airline tickets across multiple airlines. Sticking to their mission of empowering the travel industry with technology, they have been able to grow into a business with global presence and serviced Buyers and Suppliers in over 100 countries as of 9MFY24.

They have 2 key revenue models for their transaction, i.e., (i) B2B Rate Model where they receive inventory from Suppliers on which they apply a certain mark-up and pass on to the Buyers and (ii) Commission Model where their Suppliers fix the price at which they want to sell to the end traveller on which receive commission from the Supplier part of which TBOTL retain and part of which they share with the Buyer.

Out of the total proceeds of Rs. 15,508 mn, Rs. 1,350 mn would go towards investment in technology and data solutions by the company. Rs. 1,000 mn would go towards investment in their Material Subsidiary, Tek Travels DMCC, for onboarding platform users through marketing and promotional activities; and hiring sales and contracting personnel for augmenting their Supplier and Buyer base outside India. Rs. 250 mn would go towards investment in sales, marketing and infrastructure to support organization’s growth plans in India. Rs. 400 mn for unidentified inorganic acquisitions. Rs. 1200 mn would go towards general corporate purpose and Rs. 11,508 mn would go towards existing selling shareholders.

Key Highlights

• In 2023 the travel and tourism industry recovered, growing 18.2 pct YoY from 2022 to reach USD 1.9 trillion, and expected to grow at a CAGR of 8.2 pct to reach USD 2.6 trillion in 2027. The travel industry faced a lot of challenges during COVID-19 and has bounced back from 2020, with 2022 contribution to GDP being USD 7.7 trillion and approximately USD 9.5 trillion to the global GDP in 2023.
• The company use go-to-market strategy for both Supplier and Buyer onboarding. Their Supplier onboarding is largely technology driven. They have a built a technology stack with connectivity to most major sources of travel supply, such as GDS, airline host systems, new distribution capabilities (NDCs) and channel managers. This allows them to onboard any new Supplier with limited incremental effort.
• Their platform is integrated with all major airline GDS such as Amadeus and Travelport, as well as with a number of low-cost carrier host platforms, such as Navitaire. They use a variety of airline APIs, content aggregator APIs and NDCs to facilitate direct and real-time access to airline content, inventory and booking capabilities. In all, their platform creates access to search and book over 750 airlines, covering over 300,000 origin-destination combinations, as of 9MFY24.
• One of the key value propositions of their platform for both, Suppliers and Buyers is providing them instant access to a global network of partners on the other side of the transaction. As their buyer base grows, TBOTL channel additional demand and therefore conduct more transactions through their platform. This attracts more suppliers, which in turn, enables them to offer better pricing, wider range, and higher volume of supply across both, existing and new products.
• The company’s strategies include (i) to Expand Buyer and Supplier base (ii) Continue to amplify the value of their platform (iii) Grow their operations through selective acquisitions and use their data as a corporate currency.
• Sales of the company have grown by ~173 pct CAGR during the period FY21-23. During FY23, the company reported sales of Rs. 10,645 mn which increased by ~120 pct YoY, while EBITDA increased by 532 pct YoY to Rs. 1,818 mn as EBITDA margin improved from 5.95 pct in FY22 to 17.08 pct in FY23. As of FY23 the company reported profit of Rs. 1,484 mn which was increased by ~340 pct YoY. During 9MFY24 the Sales/EBITDA/Profit came at Rs. 10,237 mn/Rs. 1,926 mn/Rs. 1,541 mn which was up by 30 pct YoY/32 pct YoY/28 pct YoY.

Key Risk

• Their revenue is substantially dependent on the hotels and ancillary bookings. Factors that may negatively impact their hotels and ancillary bookings could have an adverse effect on the business.
• They operate in a highly competitive industry and their inability to compete effectively may adversely affect the business and business margins.
• TBOTL derives a substantial portion of their sales from their material subsidiary, Tek Travels DMCC. Any events that impact the business of their material subsidiary, could adversely affect their business and the results of operations.
• They have certain contingent liabilities that have not been provided for in their financial statements, which if they materialize, may adversely affect the financial condition.

Financial Performance

Peer comparison FY23

Valuation

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TBO Tek Ltd is one of the leading travel distribution platforms in the global travel and tourism industry in terms of GTV and revenue from operations for FY23 providing a wide range of offerings operating in over 100 countries. At the upper end of the price band, the issue is quoting at PE of 48x its annualised FY24E earnings, while its peer Rate Gain Travel Technologies Ltd. is trading at a PE of 58x based on annualised FY24E earnings. Thus, the issue appears fully priced. However, considering that the tourism segment is poised for bright prospects, as indicated by recent trends, investors can subscribe from a longer-term perspective.

Also read: What Is Asset Allocation And Why Is It Important?

Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.