Analysis of the acquisition of Yatra by Ebix

• The online travel booking market of India
• Benchmarking Yatra against the largest peer
• The ambitious entry of Ebix in Indian market

In one of our previous Blogs on eBay investing in Paytm Mall, we discussed how the lucrative e-commerce market of India is attracting foreign investors. This Blog covers another acquisition in the e-commerce space of India in 2019 in which another American multinational, Ebix acquired the online travel company, Yatra.

The online travel market of India was worth USD 5.71 billion in 2015 and is expected to reach USD 48 billion by 2020 (Source: EY Report 2019). The online travel market includes websites and Apps that act as brokers to book air-tickets, hotels, holiday packages, buses and train tickets. The Companies in this industry began operations in mid-2000s as start-ups when the internet penetration in India had reached a sufficient level to offer a promising customer base to these Companies. This industry has been oligopolistic with a few players competing against each other. The success in this industry is based on two factors, first the partnerships with airline operators and hotels and second, how good is the Company at using pricing analytics to its benefit. It takes time for any Company to develop a strong network of partners and this has created high barriers to entry in this industry. Some of the major players in the industry have been MakeMyTrip, Goibibo, Yatra and Cleartrip. Other minor players include international companies like Booking.com and Expedia. The industry has witnessed consolidation in the recent past with MakeMyTrip and Goibibo undergoing a merger in 2016 and further such consolidation is possible in the future.

We have benchmarked Yatra with the largest player in the industry, MakeMyTrip in the below charts. We can see that MakeMyTrip has considerably dwarfed Yatra in 2018. MakeMyTrip registered air ticket bookings by 33.34 million passengers whereas for Yatra the number stood at 8.87 million. The revenue from air ticketing segment for MakeMyTrip was almost twice that of Yatra. Positively, even better performance for MakeMyTrip came from the hotel and holiday packages segment that gave a considerable competitive advantage to the company. The growth rate for air ticketing revenue was comparable for both Yatra and MakeMyTrip wherein, during 2015 to 2018 the top-line registered a CAGR of 29.1% and 33.4% respectively. However, the CAGR for the same period in the Hotel and Holiday Package segment for Yatra and MakeMyTrip stood at 18.3% and 28.1% respectively. The number of hotel room nights booked on MakeMyTrip were more than 10 times of the same booked on Yatra in 2018, whereas revenue from the hotel and holiday packages segment for MakeMyTrip stood almost four times as equated to Yatra. No doubt, MakeMyTrip managed significant expansion in the overall bookings and took advantage of the broader growth in the hotel and holiday packages booking sector in the country. Yatra (standalone basis) had a market share of 24% in 2010 but the combined market share of Yatra and Cleartrip was 26% in 2018. While both MakeMyTrip and Yatra have been reporting negative EBITDA and in fact, the EBITDA margin of MakeMyTrip is lower than that of Yatra, it is MakeMyTrip that still offers a relatively promising future with its larger customer base.

Consecutive lower than peer growth into the key business segments for Yatra along with intensifying competition into the already negative margin business was hurting the overall business prospects for the company for some time. There were also news reports that management of the company was looking for an exit, making it one of the good target for multinationals.  Ebix, the company which acquired Yatra is a diversified Company based out of the United States and its growth has been primarily through acquisitions. The Company provides consultancy and develops customized software products for the finance and insurance industry. The Company also operates data exchanges in the field of finance, travel, insurance, employee compensation, insurance underwriting and risk management in the United States, United Kingdom, Australia, New Zealand, India, Middle East and South East Asian countries. The Company also provides business process outsourcing services for insurance companies in the United States and Australia. The Company’s focus on India is now primarily on travel and financial exchange. The Company has made 5 acquisitions in 2017 and 12 acquisitions in 2018 of small and medium sized travel, money transfer and foreign exchanges companies in India towards its goal. Some of the notable ones among these are ItzCash Card Limited of the Essel Group and the online travel company Via.com. The Company has invested around USD 700 million in India in 2017 and 2018 while the acquisition of Yatra was for USD 337.8 million for an all-stock transaction. This acquisition marks the biggest acquisition of Ebix in India till date. Ebix operates in India and other South East Asian countries as Ebix Cash that provides a platform for travel booking, domestic and international money remittance, foreign exchange, utility payments and wealth management. Apart from online channels, it also operates through a network of agents where people can do their required transactions at the physical point of contact. Ebix describes this mode of doing business as ‘Phygital strategy’. Ebix has 320,000 physical distribution outlets in southeast Asia, 212,450+ agents and 9,800 corporate clients in the region through its previous acquisitions. Yatra will also continue to operate independently after the merger.

The Ebix management team is highly optimistic about the deal and strongly believes that there are synergies in the two companies that can be beneficial to both. The marketing and sales promotion expenses form 34% of the total revenue of Yatra and are largely responsible for the losses in the company. With the result of the synergies, the burden of marketing on Yatra is expected to reduce and Ebix can now create an integrated marketing strategy. The deal is expected to give Ebix, the much-needed runway to start flying in the Indian online travel and hotel booking segment, however the distance and the scale of the journey would depend on how the company is able to make efficient use of the existing user base of Yatra and other acquisitions, while also depend on the operational efficiency and business strategies achieved by the company in future.