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Deep Dive | EaseMyTrip soars over 7 times in a year: Should you buy the stock

Deep Dive | EaseMyTrip soars over 7 times in a year: Should you buy the stock

Deep Dive | EaseMyTrip soars over 7 times in a year: Should you buy the stock
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By Dipti Sharma  Jul 12, 2022 4:09:59 PM IST (Updated)

EaseMyTrip investors seem to be lapping up shares of India's second-largest online travel company EaseMyTrip. Listed under the name Easy Trip Planners, EaseMyTrip stock has soared 622 percent since the past year. But more than three-fourths of the company's gain has come this year.

EaseMyTrip, listed under the name Easy Trip Planners (ETP), is India’s second-largest online travel platform in terms of air ticket bookings. Shares of this New-Delhi-based company have soared 622 percent since the past year and has jumped 478 percent year-to-date.

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The stock closed 1.4 percent lower at Rs 384.25 on the BSE on Tuesday, July 12.
About the company
New Delhi-headquartered ETP commenced its operations in 2008 by focusing on the B2B2C (business to business to customer) distribution channel and providing travel agents access to its website to book domestic travel airline tickets in order to cater to the offline travel market in India.
Source: Company's website
The company said it has witnessed a strong recovery in demand across segments and is optimistic about the demand scenario going ahead, on the back of the ‘No Convenience Fee’ strategy, deeper internet penetration and rising demand for air travel and hotels due to higher income levels and the reopening of the economy.
The travel company in its latest result update said that it “believes the next few years are set to be the golden period for Indian OTAs (Online Travel Agencies) as the travel and aviation industry, with significant support from the government, will witness a strong growth trajectory. As a result, ETP is set to continue its dream run of delivering consistent profits while supporting the revival of the travel ecosystem”.
ETP joined the elite club of India’s first 100 unicorns as the company’s market capitalisation crossed over $1 billion in September 2021.
The company’s management said the pent-up demand is extremely strong which is why this is the best time for travel and tourism in India. Despite the rise in fares, flights and hotels are running at full capacity, and with the emergence of new airports and new airlines, online travel agencies are being preferred more compared to the direct captive ones or offline travel agents.
Additionally, COVID has forced people to book online rather than approach travel agents offline, ETP is expected to benefit from these structural changes in the sector, market participants believe.
The management believes ETP will become the leader in the air travel bookings segment in India in the next three-four years.
Here's a snapshot of the company's consolidated financials:
Fundamentals
The outperformance of the stock price is largely attributed to the sharp rebound in their tourism segment post unlocking of the economy.
"Further, the company has continued to maintain its lean cost structure that has helped in expanding its operating margin," said Rashes Shah, Analyst, ICICIdirect.
"The reopening of the world economy has changed the fortunes of the travel service company as pent-up demand after two long years of controlled inland travelling," said Prashanth Tapse, Vice President (Research), Mehta Equities.
Before the pandemic, in 2019, the average monthly domestic air traffic was 1.2 crore while in May 2022, total domestic air traffic reached 1.2 crore. This indicates that air traffic is improving rapidly, and the current COVID wave has hardly had any impact on air travel, according to Edelweiss Wealth Research.
“We believe, this would boost GBR (Gross Booking Revenue) of OTAs, including EMT (EaseMyTrip),” the domestic brokerage firm said.
The significant pick up in domestic as well as international air travel is seen benefiting ETP.
“As a result, the company is expected to record strong volume/transactions along with gross booking revenue in the current quarter (Q1FY23),” added Edelweiss Wealth Research.
The company generates its GBR largely from domestic air travel. As per the management, pre-pandemic domestic air bookings accounted for nearly 80 percent of the consolidated air segment, which increased during the pandemic due to air travel restrictions.
Edelweiss Wealth Research is of the view that ETP will continue its growth in GBR with an increase in market share in the segments it operates in and will continue to be the only profitable company among domestic online travel agencies.
Tapse believes, “Fundamentally ETP is well placed among the peers to tap the high growth travel sector with an asset-light consistent profitable business model which is highly scalable without much investment cycle required for generating 45-50 percent+ ROE (return on equity). Domestic air traffic has been witnessing strong month-on-month growth, which till now was largely fuelled by leisure travelling while revival in business travel is also helping ETP to improve its profitability”.
He expects growth across all travel segments be it air, which accounts for a lion’s share in the travel company’s business, followed by hotel bookings, which is witnessing shining demand coming from tier II and tier III cities.
“The overall performance across the businesses such as hotels, bus, trains, holidays are going to be high as holiday season, corporate business travel demand has been rising in last 3-4 months and with a market share of 6.5 per cent of the gross booking revenue in the air tickets market, the company is a strong investment player for the long term,” Tapse said.
“We continue to remain positive on the company and expect strong performance going ahead supported by healthy domestic travel trend, its foray into the international market and also the addition of new tourism business verticals like bus and hotel room booking segment,” Shah believes.
As this business requires minimal capital expenditure for growth, analysts believe that ETP being a zero debt and cash-rich company is like cherries on the cake.
Valuations and technical standpoint
Tapse said, “At this moment the valuations seem overpriced with one year forward Price-Earnings in the range of 65-75 times after the upmove seen in the price. I believe the pent-up demand is at the peak levels and could see some kind of consolidation in the short- to the medium-term horizon”.
He expects Rs 330-350 level would be a good range of accumulation for long-term investors.
Meanwhile, Kush Ghodasara, an independent market expert, said, “On the charts, the stock is poised for a good rally in the short term as the 200-day average is acting as a strong investment point. Currently, the 200-day average is at Rs 318 and stock trading near to this support is a good opportunity for investors to make an entry”.
Ghodasara said that the current stock price discounts the future and business is that travelling sector should do well in coming quarters.
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