Yatra(US:YTRA)2019-07-31 21:13PART I KEY INFORMATION This section presents Yatra's selected consolidated financial data, highlighting a net loss of INR 1,193.6 million in fiscal 2019 and outlining significant merger and industry risks Selected Consolidated Financial Data The company's financial data shows a decrease in total revenue to INR 9,358.6 million in fiscal 2019 due to IFRS 15 adoption, alongside a net loss of INR 1,193.6 million and increased gross bookings to INR 111.15 billion - Effective April 1, 2018, the company adopted IFRS 15, impacting revenue recognition and comparability, as certain customer inducement and acquisition costs are now offset against revenue32 Consolidated Statement of Profit or Loss Data (INR in thousands) | Fiscal Year Ended March 31, | 2017 (INR thousands) | 2018 (INR thousands) | 2019 (INR thousands) | | :--- | :--- | :--- | :--- | | Total revenue | 9,356,813 | 12,248,513 | 9,358,580 | | Results from operations | (1,863,415) | (3,360,133) | (2,578,199) | | Loss for the period | (5,936,963) | (4,051,976) | (1,193,595) | | Basic Loss per share (INR) | (237.89) | (116.41) | (26.37) | | Diluted Loss per share (INR) | (237.89) | (116.41) | (26.95) | Consolidated Statement of Financial Position Data (INR in thousands) | As of March 31, | 2017 (INR thousands) | 2018 (INR thousands) | 2019 (INR thousands) | | :--- | :--- | :--- | :--- | | Total assets | 9,574,434 | 11,616,787 | 12,551,897 | | Total liabilities | 6,384,865 | 11,842,066 | 10,172,727 | | Total equity | 429,472 | (224,918) | 2,359,749 | Key Operational Metrics (Fiscal Year Ended March 31) | Metric | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Gross Bookings (INR thousands) | | | | | Air Ticketing | 57,562,263 | 79,156,190 | 97,638,313 | | Hotels and Packages | 10,435,643 | 13,386,288 | 13,511,914 | | Total Gross Bookings (INR thousands) | 67,997,906 | 92,542,478 | 111,150,227 | | Adjusted Revenue (INR thousands) | 5,202,608 | 7,407,757 | 8,911,013 | | Net Revenue Margin % | | | | | Air Ticketing | 6.4% | 6.3% | 5.8% | | Hotels and Packages | 11.0% | 12.7% | 13.9% | Risk Factors The company faces substantial risks from its pending merger with Ebix, a history of operating losses, intense industry competition, reliance on the Indian economy, and evolving regulatory and tax environments - The merger with Ebix is not assured, subject to closing conditions, and failure to complete it could negatively impact the company, potentially incurring an $8.16 million termination fee4648 - The company has a history of operating losses, including a net loss of INR 1,193.6 million in fiscal 2019, and faces intense competition and high sensitivity to Indian economic and travel sector disruptions65667478 - Operational risks include significant reliance on a few domestic Indian airlines, potential reductions in commissions, and vulnerability to safety concerns, terrorist attacks, health crises, and natural calamities808387 - Evolving Indian laws, including the complex Goods and Services Tax (GST) regime, increase compliance costs, and changes in tax law regarding Place of Effective Management (PoEM) could subject global income to Indian taxation171173182185 - As a Cayman Islands company and a foreign private issuer, judicial precedent on shareholder rights is limited, and reduced SEC reporting requirements may offer less investor protection203210212 INFORMATION ON THE COMPANY Yatra Online, Inc. is a leading Indian online travel company, recently entering a merger agreement with Ebix, operating a multi-channel platform for diverse travel services, and facing ongoing litigation and regulatory challenges History and Development of our Company Yatra Online, Inc., incorporated in 2005, is a leading Indian online travel company that entered a merger agreement with Ebix, Inc. on July 16, 2019 - Yatra is a leading Indian online travel company, serving approximately 9.7 million travelers as of March 31, 2019, and is positioned as India's largest independent corporate travel services provider240 - On July 16, 2019, Yatra entered a merger agreement with Ebix, Inc., under which Yatra will become a wholly-owned subsidiary of Ebix upon completion241 Business Overview Yatra offers a wide range of travel services through a multi-channel strategy on a single technology platform, focusing on customer growth, loyalty, technology investment, and strategic acquisitions, while navigating intense competition and Indian regulations - Yatra operates through B2C, B2E, and B2B2C go-to-market strategies, leveraging a single technology platform to serve diverse market segments244279 - The company emphasizes a "Mobile First" model, with mobile platforms accounting for approximately 81% of total consumer visits in fiscal year 2019, and mobile traffic growing 14% year-over-year248283 - Key growth strategies include cost-effectively expanding the customer base, increasing customer spending through its multi-channel approach and eCash loyalty program, investing in technology, and pursuing strategic acquisitions310313314315316 - The company faces significant legal and regulatory challenges, including ongoing arbitration and a criminal complaint related to the ATB acquisition, and multiple tax investigations from Indian authorities358359375377 Organizational Structure Yatra Online, Inc., a Cayman Islands company, is the parent entity with key subsidiaries in India, Cyprus, and the USA, managing its diverse travel service operations - The organizational chart shows Yatra Online, Inc. (Cayman Islands) as the parent company with a network of subsidiaries primarily located in India, Cyprus, and the USA410 OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes Yatra's financial condition and operations, detailing the impact of the Ebix merger and acquisitions, presenting key metrics like INR 111.1 billion Gross Bookings and INR 8.9 billion Adjusted Revenue in FY19, and discussing liquidity and cash flows Results of Operations In FY2019, total revenue decreased 23.6% to INR 9,358.6 million due to IFRS 15, while Adjusted Revenue grew 20.3% to INR 8,911.0 million, and the net loss narrowed to INR 1,193.6 million primarily due to a gain on warrants Fiscal Year 2019 vs. 2018 Performance (INR in millions) | Metric | FY 2018 (INR millions) | FY 2019 (INR millions) | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 12,248.5 | 9,358.6 | (23.6%) | Adoption of IFRS 15, reclassifying promotional costs | | Adjusted Revenue | 7,407.8 | 8,911.0 | 20.3% | Growth in Air Ticketing, Hotels & Packages, and Other segments | | Marketing Expenses | 4,153.9 | 810.0 | (80.5%) | Reclassification of promotional costs to revenue under IFRS 15 | | Loss for the Year | (4,052.0) | (1,193.6) | 70.6% | Reduced operating loss and a significant gain on the fair value of warrants | - Adjusted Revenue from Air Ticketing increased 13.9% in FY2019, driven by a 23.3% increase in gross bookings, though Net Revenue Margin decreased from 6.3% to 5.8% due to business mix and Jet Airways' cessation517518 - Adjusted Revenue from Hotels and Packages grew 10.8% in FY2019, with an 11.6% increase in standalone hotel room nights, and Net Revenue Margin improved to 14.0% from 12.7% due to favorable business mix520 - Personnel expenses decreased by 12.1% in FY2019, primarily due to a significant reduction in employee share-based payment expenses from INR 729.9 million in FY2018 to INR 282.9 million in FY2019524 Liquidity and Capital Resources The company's liquidity is supported by INR 2,161.0 million in cash and INR 1,029.5 million in term deposits as of March 31, 2019, despite net cash used in operating activities increasing to INR 3,542.1 million in FY2019 due to working capital changes Cash and Liquidity Position (INR in millions) | As of March 31, | 2018 (INR millions) | 2019 (INR millions) | | :--- | :--- | :--- | | Cash and cash equivalents | 2,465.1 | 2,161.0 | | Term deposits | 1,012.1 | 1,029.5 | | Pledged term deposits | 831.7 | 1,010.3 | Summary of Cash Flows (INR in millions) | Fiscal Year Ended March 31, | 2018 (INR millions) | 2019 (INR millions) | | :--- | :--- | :--- | | Net cash used in operating activities | (881.9) | (3,542.1) | | Net cash from/(used in) investing activities | 1,221.1 | (650.3) | | Net cash from financing activities | 577.2 | 2,904.6 | - The significant increase in cash used in operations in FY2019 was primarily due to a working capital increase of INR 2,217.2 million, driven by a INR 1,316.4 million rise in trade receivables and a INR 920.9 million decrease in trade payables583 - The company made capital expenditures of INR 874.9 million in fiscal year 2019 and expects to spend an additional INR 200 million to INR 300 million in fiscal year 2020, primarily on technology infrastructure and platform upgrades592 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details Yatra's board and senior management, including CEO Dhruv Shringi and the impending CFO resignation, executive compensation of INR 103.0 million in FY2019, equity incentive plans, board practices, and significant share ownership Directors and Senior Management The company's leadership includes co-founder Dhruv Shringi as CEO, with Alok Vaish as CFO and Manish Amin as CIO, noting the impending resignation of CFO Alok Vaish effective mid-October 2019 - The executive team is led by co-founders Dhruv Shringi (CEO) and Manish Amin (CIO), along with Alok Vaish (CFO)631632633 - Chief Financial Officer Alok Vaish has informed the company of his intention to resign effective mid-October 2019632 Compensation Non-executive directors receive a $15,000 annual fee, while aggregate compensation for executive director and senior management was INR 103.0 million in FY2019, excluding equity, with various stock options and RSUs granted under two equity incentive plans - Aggregate compensation for the executive director and senior management for the year ended 2019 was INR 103.0 million, excluding equity compensation643 - The company has two main equity plans, the 2006 Plan and the 2016 Plan, with 614,418 options outstanding as of March 31, 2019, and a significant portion of RSUs having deferred vesting until October 31, 2019644653658664666 Board Practices The board of directors consists of six members, with a majority independent and divided into three staggered classes, supported by Audit, Compensation, and Nominating and Corporate Governance committees, adhering to home country governance practices as a foreign private issuer - The board is comprised of six directors and is divided into three staggered classes (Class I, II, and III), with each class serving a three-year term673675683 - The board has three primary committees: Audit, Compensation, and Nominating and Corporate Governance, with all audit committee members being independent and Murlidhara Kadaba designated as the 'audit committee financial expert'680681685688 Share Ownership As of March 31, 2019, major shareholders include entities affiliated with Nathan Leight (15.18%), Macquarie Group Limited (12.43%), and Altai Capital Management, LLC (10.01%), with all directors and officers collectively holding 4.73% of outstanding shares Major Shareholders (as of March 31, 2019) | Name of Beneficial Owner | Percentage of Outstanding Shares | | :--- | :--- | | Entities Affiliated with Nathan Leight | 15.18% | | Macquarie Group Limited | 12.43% | | Entities Affiliated with Altai Capital Management, LLC | 10.01% | | RCH Ltd. | 7.55% | | Reliance Infrastructure Limited | 6.43% | | Entities Affiliated with Vincent C. Smith | 5.95% | | E-18 Limited & Capital18 Fincap Private Limited | 5.38% | | Entities Affiliated with Norwest Venture Partners | 5.16% | | All directors and officers as a group (8 persons) | 4.73% | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details major shareholders and significant related party transactions, including an Investor Rights Agreement granting registration and board nomination rights, an exchange agreement for Yatra USA Class F shares, and service agreements with influential entities - The company has an Investor Rights Agreement granting certain shareholders demand and "piggy-back" registration rights, along with rights to nominate directors and designate board observers713714 - An exchange and support agreement allows holders of Yatra USA Class F Shares to exchange them for the company's Ordinary Shares on a one-for-one basis, a right effective from November 16, 2017, until December 16, 2021716 - The company engages in arm's length transactions with related parties, including providing and availing travel services to and from entities with significant influence, such as Reliance group companies715 FINANCIAL INFORMATION This section refers to consolidated financial statements, highlights ongoing legal proceedings regarding the ATB acquisition and tax matters, and states no current plans for dividend payments, intending to retain earnings for business expansion - The company is involved in significant arbitration proceedings with ATB sellers over the final acquisition payment, alongside a related criminal complaint deemed false and frivolous724727728 - The company has no current plans to pay dividends on its Ordinary Shares, expecting to retain all future earnings for business operations and expansion730 ADDITIONAL INFORMATION This section covers exchange controls and taxation, outlining Indian regulations affecting foreign ownership and dividend payments, and detailing U.S. and Indian tax consequences for shareholders, including potential Indian capital gains tax on share sales (short-term at 40%, long-term at 10%) due to substantial Indian assets Exchange Controls The company's operations are subject to Indian exchange controls (FEMA and FDI policy), which may restrict investments and impact dividend payments from its Indian subsidiary, Yatra India, subject to Indian law and dividend distribution tax - India's Foreign Exchange Management Act (FEMA) and Foreign Direct Investment (FDI) policy regulate foreign ownership and may adversely affect the company's ability to make investments in India740741 - The ability to pay dividends to shareholders depends on receiving dividends from the Indian subsidiary, Yatra India, which are subject to Indian legal restrictions, including a 15.0% dividend distribution tax plus cess and surcharge743 Taxation This subsection details U.S. and Indian tax consequences for shareholders, including the company's expected foreign corporation status (not PFIC/CFC) for U.S. tax, and potential Indian capital gains tax on share sales (short-term at 40%, long-term at 10%) due to substantial Indian assets - For U.S. tax purposes, the company believes it should be treated as a foreign corporation under Section 7874 of the IRC, though this is subject to complex rules and potential IRS challenge758761 - The company does not expect to be classified as a Passive Foreign Investment Company (PFIC) for the current taxable year, but this determination is made annually and is subject to uncertainty778 - Gains from the sale of the company's shares may be subject to Indian income tax due to substantial value derived from Indian assets, with long-term capital gains taxed at 10% and short-term gains at 40% for foreign companies, plus surcharges798799805807 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to credit risk from trade receivables, liquidity risk managed by maintaining sufficient cash and credit facilities, and foreign currency risk from transactions in non-functional currencies - The company is exposed to credit risk from operating activities, primarily trade receivables from customers and suppliers817 - Liquidity risk is managed by maintaining adequate cash reserves and banking facilities, with current resources believed sufficient for at least the next 12 months819822 - Foreign currency risk arises from transactions denominated in currencies other than the functional currencies of its subsidiaries in India, Singapore, and the United States, and the company does not currently use hedging agreements823 PART II CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 31, 2019, with the assessment excluding the recently acquired TCIL - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019833 - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2019, with the assessment excluding the newly acquired Travel.Co.In Limited (TCIL) as permitted by the SEC837838 - As an "emerging growth company," Yatra is not required to provide an auditor attestation report on its internal control over financial reporting839 PART III FINANCIAL STATEMENTS This section contains the audited consolidated financial statements of Yatra Online, Inc. for fiscal years 2017-2019, prepared in accordance with IFRS, and includes an unqualified auditor's opinion from Ernst & Young Associates LLP - The independent auditor, Ernst & Young Associates LLP, issued an unqualified opinion on the consolidated financial statements, affirming fair presentation of financial position and results of operations in conformity with IFRS873 Consolidated Statement of Profit or Loss (INR in thousands) | For the year ended March 31, | 2017 (INR thousands) | 2018 (INR thousands) | 2019 (INR thousands) | | :--- | :--- | :--- | :--- | | Total revenue | 9,356,813 | 12,248,513 | 9,358,580 | | Results from operations | (1,863,415) | (3,360,133) | (2,578,199) | | Loss for the year | (5,936,963) | (4,051,976) | (1,193,595) | | Total comprehensive loss for the year | (5,900,106) | (4,066,715) | (1,203,955) | Consolidated Statement of Financial Position (INR in thousands) | As of March 31, | 2018 (INR thousands) | 2019 (INR thousands) | | :--- | :--- | :--- | | Total assets | 11,616,787 | 12,551,897 | | Total liabilities | 11,842,066 | 10,172,727 | | Total equity | (225,279) | 2,379,170 |