Sailing High: Factors Driving Ixigo IPO Over-Subscriptions and the Anticipated Future For Travel Tech Startups!

The Ixigo IPO opened yesterday, and with this, one of the most unique startups in the Indian ecosystem is jostling with listed competition in the stock market. It is unique because it marks a great milestone in a venture-funded startup’s 18-year journey. Few venture-backed entities have displayed similar persistence, surviving repeated recession cycles and reaching profitability as Ixigo has. After three startups went public in May, Ixigo now has an opportunity to continue the IPO wave in June. The Ixigo IPO is now up for subscriptions, and it will again test public market investors’ appetite for new-age technology stocks.

How much return will the IPO give to the investors?

The IPO includes a fresh equity sale of Rs 120 crore and an OFS (offer for sale) of up to 6.66 crore shares worth INR 620 Crores. 

1. Elevation Capital (earlier SAIF Partners), Peak XV Partners, Aloke Bajpai, Rajnish Kumar, Micromax Informatics, and Placid Holdings, will all offload a part of their holdings through the OFS. 
2. Venture investor Elevation Capital, an investor in publicly traded startups including Paytm, Justdial, and Indiamart, injected INR 63 crore in Ixigo across multiple tranches. Elevation Capital owns 8.83 crore shares in the travel aggregator, which it purchased at an average cost of Rs 7.14 per share. Their original investment of Rs 63.04 crore is predicted to increase to Rs 822 crore, reflecting tremendous growth.
3. Peak XV Partners Investments is expected to get impressive returns, with a 1,200 percent gain. Their first investment in 2016 was Rs 67 crore, with an average acquisition price of Rs 11.32 per share. Currently, this investment is worth Rs 550 crore.
4. Micromax Informatics, a formerly famous smartphone brand, now owns 3.08 crore shares in Ixigo, purchased at an average cost of Rs 8.55 per share. Their investment will increase from Rs 26.31 crore to Rs 286 crore.
5. The Ixigo IPO is projected to gift considerable profits for both founders, Aloke Bajpai, Chairman, Managing Director, and Group CEO, and Rajnish Kumar, Director & Group Co-CEO. With the issue price of Rs 93 per share, the market value of Aloke Bajpai’s 3.08 crore shares is expected to increase from Rs 2.65 crore to Rs 286 crore. The average acquisition price per share was Rs. 0.86. Rajnish Kumar owns 3.22 crore shares, purchased at an average price of Rs 0.37 per share. At the top of the price range, the market value of his shares will be Rs 299.22 crore.

Like many IPOs planned earlier and shelved off, Ixigo also had a similar history.

Witnessing a noteworthy spike in revenge travel after the effects of the pandemic began to fade and tempted by India’s buoyant IPO market, travel tech firm Ixigo filed for an INR 1,600 crore IPO in August 2021. However, to everyone’s shock, the company cancelled its IPO preparations. Interestingly, a simple look back at what happened next reveals that the company’s decision was most likely a “stitch in time.” The disappointing high-valuation IPO of Paytm, and the hurting market value loss of other 2021 heavyweight listings in 2022, including Zomato, PB Fintech, and Nykaa, acted as a wake-up call for all IPO-ready startups.

With the overall market displaying greater resiliency in 2024, Ixigo refiled its DRHP with the SEBI in February for an IPO of INR 120 crore. With the IPO season in full swing and the Ixigo IPO being live, let’s take a look at Ixigo’s IPO, including merits and disadvantages.

Now, the market is becoming more cautious, and so are the companies.

As previously stated, the firm planned to offer new shares worth INR 750 crore in 2021, in addition to another INR 850 crore from the OFS during its IPO. However, according to its current plans, the IPO would contain a fresh offering of just INR 120 crore and an OFS component of 6.66 crore shares. This may be because, since Paytm’s IPO, the market has become more conservative regarding the size and valuation of future IPOs.

So, what was the performance on Day 1 and Day 2?

Le Travenues Technology, the parent company of online travel platform Ixigo, successfully sailed its IPO on its first day, with the issue subscribed 1.95 times. According to BSE statistics, investors bid for 85.5 million shares, compared to 43.7 million available. Retail investors subscribed 6.21 times, while non-institutional investors subscribed 2.78 times. Qualified institutional buyers (QIBs) bid 0.12 times the number of shares on offer.

Ixigo was subscribed to 4.69 times at 12:45 IST on Tuesday, the second day of subscription. The retail individual investor category was booked to 12.32 times, while non-institutional investors got 8.20 times as many subscriptions. The component for QIBs was subscribed at 39%.

Keeping the two-day market reaction, one may think about the strengths of Ixigo. And they can be the following.

Profitability.

Ixigo saw around 32% growth in the fiscal year ending March 2023, even as the firm returned to profitability following losses in FY22. The operating revenue increased to Rs 501 crore in FY23 from Rs 380 crore in FY22, according to consolidated financial figures obtained from the RoC. Convenience fees and commissions from rail and airline reservations accounted for 93% of the firm’s total revenue from operations, which rose by 29% to Rs 467 crore in FY23. The remaining income came from advertising and technical support services. Booking train tickets generated the most revenue (61%), followed by flights and buses, which contributed 21% and 18%, respectively, to the scale in FY23.

Employee benefits were the greatest cost centre, accounting for 26% of total expenditure, as is typical of most late-stage IT businesses. This cost rose 32.6% to Rs 126 crore in FY23 from Rs 95 crore in FY22. Other operating overheads included advertising and promotion, information technology, partner assistance, distribution, customer refunds, and payment gateway costs, which increased Ixigo’s overall spending by 20.4% to Rs 484 crore in FY23 from Rs 402 crore in FY22.

Ixigo’s notable growth and controlled expenditures helped it turn a profit. The company’s profit in FY23 was Rs 23 crore, compared to a loss of Rs 21 crore in FY22. Its ROCE and EBITDA margins rose to 6% and 7%, respectively, in FY23. On a unit basis, it spent Rs 0.97 to generate 1 rupee of operational revenue.

Also, for the nine months ending December 2023, Ixigo’s revenue from operations increased 31% year-on-year to Rs 497 crore, up from Rs 364.3 crore the previous year. Net profit increased to Rs 65.7 crore from Rs 18.7 crore in the previous year.

Penetration in the market.

Ixigo operates two types of apps: one for rail reservations and another for flights and hotels. It also pursued a “house of brands” strategy, purchasing the train ticketing platform ConfirmTkt and the bus, rail, and hotel booking platform Abhibus. In their DRHP, Ixigo states that its multi-app approach enables it to appeal to both sophisticated Tier 1 travellers and aspirational Tier 2 and lower market passengers. It’s worth mentioning that Ixigo acquired ConfirmTkt in February 2021, and the deal appears to have gone quite well for the Gurugram-based company. After this transaction, Ixigo became the largest third-party train booking platform.

MOAT.

Ixigo has a strong MOAT in the train ticketing sector, which was untouched by investors after IRCTC. Ixigo’s emphasis on Tier II and smaller areas has been a critical strategy, helping it establish a strong position in the train booking segment, which is a distinct value proposition that its competitors lack. While major rivals like EaseMyTrip, Yatra, and MakeMyTrip focus on flights and hotels, Ixigo has seized the rail booking sector.

According to the startup’s DRHP, the main reason for Ixigo and Confirmtkt’s significant lead in Indian rail market shares is their focus on improving user experience with elements like live train tracking, PNR prediction, station alarms, AR (augmented reality) coach position, and free cancellation.

Train ticket revenue as a percentage of Ixigo’s total ticketing revenue increased dramatically to 46.83% in FY23, up from 21.15% in FY21. Train ticket revenue accounted for 45.3% of total income in the nine months ended December 2023, totalling INR 265 crore. During the same time, Ixigo’s total gross ticket revenue was INR 585.8 crore.

Analysts say that by focusing on the railway and Tier II markets, Ixigo has created a narrative that has helped it stand apart. Otherwise, investors may wonder why they should select Ixigo over an already-listed firm like MakeMyTrip. A discussion with market specialists suggested that Ixigo receive a solid public market reaction. Aside from its profitability, the company distinguishes itself from its other listed competitors, like EaseMyTrip, Yatra, and MakeMyTrip, by focusing on railway ticketing and expanding into Tier II and smaller markets, which analysts expect to be significant contributors to the success of its IPO.

But no company is foolproof of drawbacks. So what are they in the case of Ixigo?

MOAT is not always the GOAT!

Ixigo’s competitive advantage in the railway ticketing market is a double-edged sword. IRCTC is Ixigo’s most significant partner, but it is also its main competitor. In the online travel aggregation area, Ixigo competes with existing players like EaseMyTrip, MakerMyTrip, and Yatra. In its DRHP, the firm states that its agreement with IRCTC permits it to function as a non-exclusive leading service provider for booking reserved online train tickets using the IRCTC website. The deal is presently active until April 30, 2028. 

This high reliance on IRCTC, and its non-exclusive nature, may represent a significant danger to the IPO-bound travel behemoth in the future. In its DRHP, the startup stated that any change or termination of its agreement with IRCTC might negatively impact its company, financial condition, operating performance, and cash flows.

The landing on new soil needs attention!

The company started as a meta-search website before becoming an online travel agency (OTA). Alokee Bajpai and Rajnish Kumar founded Ixigo in 2007 as a travel search service to help people compare airline fares. In FY20, it became an OTA, earning income by providing a variety of travel services like flights, trains, bus tickets, hotel reservations, and vacation packages.

It has limited experience working as an OTA. Any failure to maintain satisfactory performance of its technology infrastructure, including the OTA platforms, particularly those that result in service disruptions, could have a significant and negative impact on the company’s reputation, and its business may suffer if its technology infrastructure or technology is damaged, fails, or becomes obsolete.

Careful analysis of new launches!

To improve user experiences, the company introduced products and features, including Ixigo Assured, Ixigo Assured Flex, and Abhi Assured, and they want to keep introducing new features and products. Suppose the launch of new products and services, features, innovations, and strategies does not meet their objectives or customer expectations. In that case, it may hurt their company and financial status. Also, if they fail to maintain and enhance their brands “Ixigo,” “ConfirmTkt,” and “AbhiBus,” or if they fail to maintain the quality of customer service, the company may struggle to keep existing consumers and gain new ones, causing their business to suffer.

The suspicious ratio of fresh issue and Offer for sale component!

Furthermore, some industry commentators are sceptical about the significant quantity of OFS in Ixigo’s proposed IPO. Some investors may be concerned about Ixigo’s possibly smaller fresh issue size (compared to OFS). It is often seen negatively if a firm does not raise funds to invest in its growth.

The competition from peers!

Many people feel that competition would be Ixigo’s biggest hurdle, with firms such as EaseMyTrip, MakeMyTrip, Yatra, Flipkart-owned Cleartrip, and Paytm, Amazon, PhonePe, and others offering travel ticketing services. The likes of EaseMyTrip, Yatra, TBO Tek and others may have tapped some of the liquidity of significant investors in the previous two years, and nobody wants too much exposure to travel given the current geopolitical environment across the world, says one travel industry expert. 

In fact, travel technology is one of the most competitive industries in India, and the market remains underserved due to the widespread usage of ticketing agents and travel agencies for corporate bookings in smaller towns and even major cities. According to some experts, this may be a source of worry because investors may not rush to buy Ixigo as soon as they hear about the IPO. Many investors have established a solid travel portfolio over the last two years, so this may be a possible stumbling block for Ixigo, although the IPO is well oversubscribed. 

What lies ahead?

Over 15 years after its beginning as a site ensuring the best flight ticket possibilities, Ixigo has gone a long way, not only becoming a full-stack travel site but also profitable. Known for its quirky messaging, its full-stack strategy may seem like a simple way to grow, but it introduces a whole new set of issues. While competition is unavoidable, identifying the next champion in a market, like train tickets, will be more difficult. An IPO with such strong returns may appear to be a sweet exit for some and long-term insurance for others, but the company has demonstrated that it is unafraid of the odds.

Learn from history.

It should be remembered that during the 2021 IPO boom, EaseMyTrip was listed on the BSE at a premium of more than 10% and on the NSE at a premium of more than 13% above its listing price. In contrast, Yatra made a poor start on the bourses in 2023, listing at a 10% discount to its issue price. 

Net proceeds from the IPO are expected to be used to support working capital requirements, technology expenditures, inorganic expansion through acquisitions and other strategic initiatives, and general business reasons. Analysts say the firm should continue to improve its technological skills and expand its market reach in Tier II and beyond to achieve long-term success. Overall, the travel tech ecosystem is seeing promising growth throughout the world, which is projected to be boosted even further by the introduction of AI-powered automation that makes travel reservations and other associated services more personalised and easy.

According to one report, the worldwide travel tech industry would be worth $21 billion by 2032, rising at an 8.6% CAGR from 2023 to 2032. Aside from the OTAs, India recently witnessed the B2B travel portal Travel Boutique Online, or TBO Tek, make a solid launch at a 55% premium. The IPO was 86.7 times oversubscribed.

Previously, in 2021, despite travel tech SaaS startup Rategain making a lacklustre public market debut, its shares have been on a huge upswing since the middle of last year. Rategain’s stock price increased by 156% in 2023. So let’s hope it’s good for the Ixigo also.