Q1FY24 Review: Rategain Travel Tech: Strong growth in a seasonally weak quarter

8 Aug 2023 , 10:37 AM

RateGain (RATE) reported Q1 revenue of Rs2.1bn, growing 17% QoQ/80% YoY (~25% organic) above IIFLe of 60% YoY. Growth was driven by faster growth in Adara and continued demand in DaaS, while Distribution was steady. Ebitda margins were flat QoQ at 17.6% (+760bps YoY) — higher than IIFLe of 14.0%. New contract wins tripled YoY to a record Rs593mn (+43% QoQ), while pipeline remained healthy at Rs3.6bn (+17% YoY). RATE expects to beat its previously guided FY24 revenue growth 55-58% YoY (~20% organic) and beat its Ebitda margins guidance of ~17%. Additionally, it aspires to double its revenues over FY24-27. The Board also approved raising of up to Rs6bn through issues of shares by way of a QIP, to build a war chest for potential M&A opportunities. Analysts of IIFL Capital Services increase their FY24-26 EPS by up to 5% on higher revenue forecasts. Their 12-month TP increases to Rs580 (was Rs510), based on 2YF P/E of 35x on roll forward. BUY. 

Adara turnaround surprises positively: 

RATE reported revenue growth of 17% QoQ/80% YoY in a seasonally weaker quarter, driven by faster than expected growth in Adara (+58% QoQ). Within segments, DaaS (+139% YoY) and Martech (+87% YoY) led growth. Management continues to see strong demand for Travel across its key geographies, which combined with the tripling of deal wins and healthy pipeline gives them confidence of beating there previously guided 55-58% YoY revenue growth in FY24. 

Another quarter of margin beat: 

Ebitda margin for Q1 stood at 17.6% (+760bps YoY/flat QoQ) — above IIFLe of 14.0%., despite wage hikes during the quarter and continued investments in building Sales teams. Given the strong start to the year, management is confident of beating its previously guided FY24 Ebitda margin of ~17%. Over the medium-term, management expects 200-300bps margin expansion every year; analysts of IIFL Capital Services forecast Ebitda margins to reach 20% by FY25. 

Valuation re-rating can continue given solid execution; Maintain BUY: 

Analysts of IIFL Capital Services forecast RATE to clock revenue/PAT CAGR of 37%/56%, over FY23- 25. They increase their FY24-26 EPS estimates by up to 5% on the back of higher revenue forecasts. They maintain BUY, with a 12-month TP of Rs580 (was Rs510), based on 35x 2YF P/E (unchanged) on roll forward. Key risks: Impact of macro events on travel, M&A integration, competition.