TBO Tek IPO review (Apply)

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Review By Dilip Davda on May 3, 2024

•    TTL is one of the leading travel distribution platform and has presence in over 100 countries. 
•    It marked a setback in FY21 following the Pandemic.
•    Its back on track from FY22 onwards and posted growth in its top and bottom lines.
•    The tourism segment is poised for bright prospects as indicated by recent trends.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long term rewards. 

ABOUT COMPANY:
TBO Tek Ltd. (TTL) is one of the leading travel distribution platform in the global travel and tourism industry in terms of GTV and revenue from operations for Fiscal 2023 providing a wide range of offerings operating in over 100 countries (Source: 1Lattice Report) 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 assistances. (Source: 1Lattice Report).

It simplifies the business of travel for suppliers such as hotels, airlines, car rentals, transfers, cruises, insurance, rail and others (collectively, "Suppliers"), and retail buyers such as travel agencies and independent travel advisors ("Retail Buyers"); and 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 its two-sided technology platform that enables Suppliers and Buyers to transact seamlessly with each other. 

TTL's platform allows the large and fragmented base of Suppliers to display and market inventory to, and set prices for, the large and fragmented global Buyer base. For Buyers, its platform is an integrated, multi-currency and multi-lingual one-stop solution that helps them discover and book travel for destinations worldwide, across various travel segments such as leisure, corporate and religious travel. It has two key revenue models for transaction, i.e., B2B Rate Model where it receives inventory from Suppliers on which TTL apply a certain mark-up and pass on to the Buyers and Commission Model where its Suppliers fix the price at which they want to sell to the end traveller on which receive commission from the Supplier part of which the company retain and part of which it shares with the Buyer. 

The mid-2000s saw the birth of India's three leading low-cost carriers which led to an unprecedented aviation boom, eventually leading India to becoming the world's third largest domestic aviation market. (Source: 1Lattice Report) In 2006, TTL conceptualized the TBO platform as a technology tool to simplify the process for travel agents to book airline tickets across multiple airlines. The travel industry is large and fragmented with limited technology adoption. (Source: 1Lattice Report) Sticking to its mission of empowering the travel industry with technology, TTL has been able to grow into a business with global presence and serviced Buyers and Suppliers in over 100 countries as of December 31, 2023.

TTL's booking per day increased from 13396 (FY21) to 40164 (FY23) to 44592 (9M-FY24). As of December 31, 2023, the company had 1717 employees On-roll and 283 Off-roll. In 2023 the travel and tourism industry was US$ 1.9 trillion, and expected to grow at a CAGR of approximately 8.2% to reach US$ 2.6 trillion in 2027. (Source: 1Lattice Report). This indicates the prospects for this company going forward. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of fresh equity shares issue worth Rs. 400 cr. (Approx. 4347824 shares at the upper cap), and an offer for sale (OFS) of 12508797 shares (worth Rs. 1150.81 cr. at the upper cap). Thus the overall IPO size will be of 16856621 shares worth Rs. 1550.81 cr. The company has announced a price band of Rs. 875 - Rs. 920 per equity share of Re. 1 each. The issue opens for subscription on May 08, 2024, and will close on May 10, 2024. The minimum application to be made is for 16 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 15.52% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will spend Rs. 135 cr. for investment in technology and data solutions, Rs. 100 cr. for investment in material subsidiary, marketing and promotional activities, Rs. 25 cr. for investment in sales, marketing and infrastructure to support organization's growth plans for India, Rs. 40 cr. for unidentified inorganic acquisitions, and the rest for general corporate purposes. 

The company has reserved shares worth Rs. 3 cr. for its eligible employees and from the rest, it has allocated not more than 75% for QIBs, not less than 15% for HNIs and not less than 10% for Retail investors. 

The four joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Goldman Sachs (India) Securities Pvt. Ltd., Jefferies India Pvt. Ltd., and JM Financial Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 168.75 - Rs. 506.56 per share (having FV of Re. 1) between March 2012 and February 2015. The company also issued bonus shares in the ratio of 3 for 5 in March 2010, and 9 for 2 in December 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.04, Rs. 0.08, Rs.1.95, and Rs. 59.96 per share. The secondary transactions took place at an average price of Rs. 575.18 per share between promoter groups. 

Post-IPO, company's current paid-up equity capital of Rs. 10.42 cr. will stand enhanced to Rs. 10.86 cr. Based on the upper band of IPO price, the company is looking for a market cap of Rs. 9990.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 176.55 cr. / Rs. - (34.14) cr. (FY21), Rs. 511.93 cr. / Rs. 33.72 cr. (FY22), and Rs. 1085.77 cr. / Rs. 148.49 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 154.18 cr. on a total income of Rs. 1039.56 cr. It suffered a setback for FY21 on account of the Pandemic in line with the general trends for the segment, but from FY22, its back on track and recent performance indicates the prospects ahead for this company.

For the last three fiscals, the company posted an average EPS of Rs. 7.67, and an average RoNW of 24.08%. The issue is priced at a P/BV of 18.66 based on its NAV of Rs. 49.31 as of December 31, 2023, and at a P/BV of 11.06 based on its post-IPO NAV of Rs. 82.99 per share (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO paid-up equity capital, then the asking price is at a P/E of 48.60. Thus, though prima facie the issue appears fully priced, it's a worthy bet. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Rate Gain as its listed peers in India, which is trading at a P/E of 61.5 (as of May 03, 2024) and two global peers i.e. Travel CTM and Webjet Ltd. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 52 public issues in the past three years, out of which 15 issues closed below the offer price on listing date. 

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