Marquee global customers with long-term relationships
Rategain has global and diverse customer base with which they have long-standing
relationships. As of September 30, 2021, the customer base stood at 1,462 customers
including eight Global Fortune 500 companies comprising of both travel suppliers
and travel intermediaries including airlines, hotels, cruise lines, car rental companies,
online travel agents (OTA’s), tour operators and wholesalers. Their customers
include 25 out of the top 30 OTAs, several of the world’s fastest-growing
airlines, 23 of the top 30 hotel chains, tour operators & wholesalers and the
largest travel management companies. Rategain also works with seven global car rental
companies and major cruise lines.
Innovative AI driven industry relevant SaaS solutions provider
The company offers a comprehensive platform of industry-specific solutions with
growth and monetization capabilities. Given the fragmented nature of the hospitality
and travel industry, they have developed products that are inter-operable and integrate
across a single platform allowing customers to maximize their revenues along with
cost savings. Rategain has built proprietary AI algorithms and applied it in connection
with its SaaS products to provide customers with next generation of product features.
Their suite of products for rate intelligence include OPTIMA, Parity+, AirGain,
CarGain and FerryGain that offer customers competitive pricing intelligence leveraging
an AI-powered data platform while tracking real-time parity with features such as
advanced dashboards, identification of key violators and reasons, revenue leakage.
Their revenue optimization products, Rev.AI offer revenue management through historical
pricing insights. Rategain’s continuous innovation, as well as strategic acquisition
of technological capabilities, helps them to continuously expand and extend the
addressable market.
Diverse and comprehensive portfolio of revenue maximization and business critical
solutions
The company has developed a comprehensive product portfolio that caters to the technology
ecosystem for the hospitality and travel industry and in particular, to enterprise
and mid-market customers for revenue management decision support, competitive intelligence,
distribution and social media marketing, online reputation and brand engagement.
The scale of Rategain’s operations allows its customers globally to streamline
their operations and increase revenues.
Continued focus to scale DaaS and Distribution offerings through cross-sell and
geographical expansion in existing and adjacent verticals
Over the last 15 years, Rategain has introduced various products that provide access
to rate intelligence to customers in the hospitality and travel industry that gives
them a real-time and accurate view of the market. The company intends to expand
its existing product offerings into segments of the hospitality and travel that
are expected to grow following greater normalization of travel as COVID-19 recedes.
They also intend to leverage their portfolio of products and products under development
to provide additional solutions to existing customers. The interoperability of company
products displaces point solutions with bundled offerings to customers. For example,
to assist customers that require both rate intelligence and distribution capabilities,
it has launched Demand.AI that provides an aggregated, real-time view of demand
based on data-mining across various silos including internet searches, flight activity,
local COVID-19 lockdown rules, booking engine inventory and pricing data.
High customer retention rates:
Company’s AI enabled platform and technology focused offerings, 24x7 customer
support, quick resolution of issues and customer feedback mechanism to improve customer
satisfaction has led to consistent customer retention rates. For example, 7 out
of top 10 customers have been with the company for more than 10 years and certain
key customers including Sabre GLBL Inc., have been associated with the company since
2003. Gross Revenue Retention has consistently remained high at 92.78%/95.46%/89.24%
in FY19/20/21, respectively.
New product development capabilities:
Rategain is substantially investing in existing as well as new products to build
capabilities that will be used by travel companies in the post COVID-19 era. These
AI-led products will offer real time intelligence and make pricing recommendations
for revenue maximization.
Revenue, which is dependent on hospitality and travel industry, can be impacted
by COVID
RateGain substantially derives its revenues from worldwide travel and hospitality
industry. Revenue decreased by 37.1% in FY21, primarily on account of impact of
COVID-19 pandemic on all three business segments.
High revenue concentration from top clients
Revenue contribution from top 10 customers was 40.8%/41.0%/36.9% during FY19/20/21.
Certain customers, including customers that represent a significant portion of Rategains
business, have in the past reduced their spend or terminated their agreements with
the company. Losing few of these top clients may significantly impact financials
of the company.
Company has contingent liabilities that have not been provided in financial statements
As on FY21, the company had contingent liabilities worth (Indirect Tax expenses)
Rs 68 crores. If a significant portion of these liabilities materialize, it could
have an adverse effect on RateGain’s financial performance.
Major portion of the IPO is OFS:
Although the company is raising funds to meet a number of objectives, major portion
of the IPO consists of OFS, where the selling shareholders will receive the money.
Steep valuation given current market conditions:
At the upper price band of Rs 425, the IPO is valued at ~18x FY21 sales.
Rategain Travel Technologies is among the leading distribution technology companies globally and the largest Software as a Service (“SaaS”) company in the hospitality and travel industry in India. The company offers travel and hospitality solutions across a wide spectrum of verticals including hotels, airlines, online travel agents (“OTAs”), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries. They are one of the largest aggregators of data points in the world for the hospitality and travel industry. Rategain also offers a suite of inter-connected products that manage the revenue creation value chain for customers by leveraging big-data capabilities and integration with other technology platforms helping hospitality and travel providers acquire more guests, retain them via personalized guest experiences and seek to maximize their margins. As of September 30, 2021, the company serves 1,462 customers including eight Global Fortune 500 companies.
Rategains superior product portfolio integrated across all value chain partners enables it to access data at granular level which cannot be easily replicated. Also they have a highly predictable and scalable business model. COVID had impacted their business in FY21, however, we do not expect COVID third wave to significantly impact the business operations this time. At the upper price band of Rs 425, the IPO is valued at ~18x FY21 sales. Hence, we recommend investors to SUBCRIBE to the IPO for long term.
Use of Proceeds:
The offer comprises of a fresh issue and an offer for sale. Out of the fresh Issue
of Rs 375 crores, Rs 82 crores is proposed to be utilized for repayment and/or prepayment
of debt availed by Rategain UK, Rs 25 crore for payment of deferred consideration
for acquisition of DHISCO, Rs 80 crore for strategic investments, acquisition, and
inorganic growth, Rs 50 crores for investment in technology innovation, artificial
intelligence, and other organic growth initiatives, Rs 41 crores for purchasing
capital equipment for the company's data center and the balance Rs 94 crores
is to be used for general corporate purposes. The balance ~Rs 960 crores of the
issue would be through offer for sale by the shareholders and proceeds would go
to such selling shareholders.
Book running lead managers:
Kotak Mahindra Capital, IIFL Securities, Nomura Financial Advisory and Securities
Management:
Mr. Bhanu Chopra is the founder and executive chairman of RateGain. He has rapidly
grown the company since 2004. The senior management team has over a decade of experience
each in contribution to revenue growth in SaaS and hospitality and travel sectors.
They have extensive go-to market and product development experience. Given that
senior management team is located across three continents, Rategain benefits from
teams across multiple geographies including go-to market teams that are located
near enterprise and mid-market customers allowing it to maintain relationships with
them.
Yr End March (Rs Cr) | FY19 | FY20 | FY21 |
---|---|---|---|
Net Sales | 261.57 | 398.71 | 250.79 |
Employee Cost | 120.83 | 205.80 | 151.26 |
Other Expenses | 118.99 | 164.21 | 93.37 |
EBITDA | 21.75 | 28.70 | 6.16 |
EBITDA Margin | 8.00% | 7.00% | 2.00% |
Depreciation & Amortization | 20.22 | 96.44 | 35.88 |
EBIT | 1.53 | -67.74 | -29.72 |
Other Income | 11.13 | 58.90 | 13.30 |
Interest & Finance Charges | 3.18 | 8.93 | 8.20 |
Profit Before Tax - Before Exceptional | 9.48 | -17.77 | -24.62 |
Tax Expense | -1.55 | 2.34 | 3.95 |
Effective Tax rate | -16.00% | 26.00% | -16.00% |
Net Profit | 11.03 | -20.11 | -28.57 |
Net Profit Margin | 4.00% | -5.00% | -11.00% |