Q4FY23 Review: RateGain Travel Tech: Healthy growth with faster margin expansion

RateGain (RATE) reported Q4 revenue of Rs1.8bn, growing 70% YoY (~32% organic) tad — below IIFLe of 76% YoY. Growth was driven by DaaS and Martech, while Distribution was steady. Ebitda margins rose to 17.6% (+100bps QoQ) — higher than IIFLe of 15.3%. New contract wins came in at record Rs414mn, while pipeline expanded to Rs3.8bn (+36% YoY). RATE expects revenue growth in FY24 to be 55-57% YoY (~15-20% organic), led by DaaS segment and Ebitda margins to expand ~200bps in FY24. Integration of Adara is progressing as per plan; management is confident of delivering 15% growth in Adara and 15% Ebitda margins in FY24. 

DaaS continues to drive organic growth: 

RATE reported revenue growth of 70% YoY, driven by continued momentum in DaaS (+69% QoQ, ~14% organic as per IIFLe) and Martech (+38% QoQ, mostly inorganic). Management continues to see strong demand for Travel across its key geographies, which combined with the strong deal wins and pipeline, gives them confidence to deliver 55-57% revenue growth in FY24. Q1 is likely to be impacted by the usual seasonality.

Margin improvement continues to surprise positively: 

Ebitda margin for Q4 stood at 17.6% (+340bps YoY/+100bps QoQ) — above IIFLe of 15.3%., despite the consolidation of Adara and investments in building sales teams. Management expects further ~200bps of margin improvement in FY24 YoY due to operating leverage; while Q1 margins likely to be impacted by seasonality in revenues and wage hikes. Over the medium term, management expects 200-300bps margin expansion every year; they forecast Ebitda margins to reach 20% by FY25.

Valuation still has room for upside; Maintain BUY: 

Analysts of IIFL Capital Services forecast RATE to clock revenue/PAT Cagr of 34%/53%, over FY23-25. They maintain BUY, with a 12-month TP of Rs510 (was Rs490), based on 35x 2YF P/E (unchanged) on roll forward. Key risks: Impact of macro events on travel, M&A integration, competition.

Analysts of IIFL Capital Services change their FY24/FY25 EPS by 2%/-5% on tad higher margins/lower revenue assumptions. Their 12-month TP increases to Rs510 (was Rs490), based on 2YF P/E of 35x on roll forward. Maintain BUY.