MakeMyTrip Limited (MMYT) Q4 2023 Earnings Call Transcript

MakeMyTrip Limited (NASDAQ: MMYT) Q4 2023 earnings call dated May. 16, 2023

Corporate Participants:

Vipul Garg — Vice President, Investor Relations

Rajesh Magow — Co-founder and Group Chief Executive Officer

Mohit Kabra — Group Chief Financial Officer

Analysts:

Manish Adukia — Goldman Sachs — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Mihir Shah — — Analyst

Aditya Suresh — Macquarie — Analyst

Manik Taneja — Axis Capital — Analyst

Achal Kumar — HSBC — Analyst

Vijit Jain — Citi — Analyst

Presentation:

Vipul Garg — Vice President, Investor Relations

Good evening, everyone. We’ll just wait for a minute for everyone to join in. Hello, everyone. I’m Vipul Garg, Vice President, Investor Relations at MakeMyTrip Limited. And welcome to our Fiscal 2023 Fourth Quarter and Full Year Earnings Webinar.

Today’s event will be hosted by Deep Kalra, our company’s Founder and Chairman. Joining him is Rajesh Magow, our Co-Founder and Group Chief Executive Officer; and Mohit Kabra, our Group Chief Financial Officer.

As a reminder, this live event is being recorded by the company and will be made available for replay on our IR website shortly after the conclusion of today’s event. At the end of these prepared remarks, we will also be hosting a Q&A session.

Furthermore, certain statements made during today’s event may be considered forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These statements are not guarantees of the future performance, are subject to inherent uncertainties, and actual results may differ materially. Any forward-looking information relayed during this event speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additional information concerning these statements are contained in the Risk Factors and Forward-Looking Statement section of the company’s annual report on Form 20-F filed with the SEC on July 12, 2022. Copies of these filings are available from SEC or from the company’s Investor Relations department.

I would like to now turn the call over to Rajesh. Over to you, Rajesh.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Thank you, Vipul. Welcome, everyone, to our fourth quarter and full year earnings call of fiscal 2023.

Fiscal 2023 has been a robust recovery year of Indian travel industry. We witnessed consumer sentiment to travel improving with each successive quarter throughout fiscal year 2023. Travel industry was quite relieved to see demand for each of the travel segment with leisure business, VFR, that is visiting friends and relatives, students, pilgrimage, MICE, etc., recovering nicely during the year, despite macroeconomic headwinds in the current — in the recent quarters.

We at MakeMyTrip also saw robust recovery of all our business segments, barring outbound travel recovering nicely to pre-pandemic levels. In fact, some of the categories like premium segment of hotels, domestic flights, homestays and domestic packages have already crossed pre-pandemic levels. This demand momentum, coupled with our optimized cost structure helped us deliver strong performance for the quarter and full year.

We achieved our highest-ever annual gross booking value and adjusted operating profit during the reported fiscal year ’23. Gross booking value for the year was $6.6 billion, growth 122% on constant-currency basis, while adjusted operating profit for the year was $70.3 million, growing to over three times as compared to fiscal 2022.

As per WTTC report, over the next decade, global travel and tourism GDP is forecasted to grow at about 5.8%, outpacing the overall economy growth to reach $14.6 trillion by 2032, thus contributing 11.3% to total global economy. India’s tourism sector is expected to grow faster, owing to growing demand from the middle class, higher disposable incomes, favorable demographics and higher investments in travel-related infrastructure.

Emerging technologies will be at the forefront in driving online travel penetration with new innovations to make online travel booking extremely simple and convenient, helping push adoption from smaller cities. We at MakeMyTrip will continue to drive this change and capitalize on the opportunity that lies ahead.

Our debt platforms built over the years are very robust, reliable and scalable, provide secure and delightful experience for the customers on our B2C offerings. More recently, leveraging our core tech capabilities, we’ve built new platforms like myBiz, myPartner to cater to B2B corporate and B2B2C demand segments, respectively. Our platform mindset in building our tech stack has helped us launch all these new offerings over the last few years with amazing efficiency and agility. These investments will help us drive future growth and profitability.

Besides building new platforms and launching makemytrip.ae which is our GCC platform, we have now built almost fully automated, fully self serve model of our post sales interface. As a result, we now offer the best in industry post sales capability across our entire line of businesses, thus improving customer experience for post sales use cases. Our data science and engineering capabilities have enabled us to deliver delightful personalized and contextualized experience to our customer — to our customers.

Leveraging these capabilities, we had insights-driven mindset, enabled us to launch several industry-first features for our consumers. Most of our new offerings are backed by rich data science capabilities, which we employ cutting-edge AI/ML models to bring value-added differentiated features.

Consumer-focused products like zero cancellation, fare lock, trip guarantee, hotel ranking, etc., and supply-focused products like revMax, a paid yield management tool for bus operators, demonstrate our superior capabilities in data sciences, AI and ML. A key part of our growth strategy to drive digital penetration of travel services deeper into the country, beyond Tier 1 and Tier 2 cities.

We recently collaborated with Microsoft to make travel planning more inclusive and accessible by introducing voice assistant booking in Indian languages. The new conversational flow powered by Microsoft Azure, AI and Cognitive Services will converse with the user to offer personalized travel recommendations based on their preferences, curate holiday packages based on variable inputs like occasion, budget, activity preferences, time of travel, etc. And eventually help book these holiday packages.

Similarly, it could help book flight tickets with a few simple conversational steps, including payment. This can drive adoption of online travel ecosystem for almost every strata and demography across the country. Currently, the beta version of this integration has been introduced in Hindi and English for flights and holidays customers.

Apart from tech capabilities, one of our biggest strengths is the brand is the brands that we have created over the years. All three of our brands have the highest top of mind recall when it comes to travel services with accumulative transacted consumer base of over 64 million users. Our engagement metrics and repeat rates are comparable with the global benchmarks which is testimony of trust in our brands.

As for business segments now, starting with air business, recovery momentum in aviation sector continued during the quarter, despite the low leisure season quarter. There was an uptick in both domestic and international air traffic, especially in the month of March. We’ve been growing faster than the market on the back of our innovative product and brand strength. Also for two quarters in a row, our domestic flown passenger traffic is above pre-pandemic levels. Internationally air bookings have seen an expectedly slow recovery throughout the year. The recovery is now in the 90s and we expect to get back to pre-pandemic volumes in the near fiscal year.

We continue to innovate product features, for instance, we’ve not only scaled-up our fare lock feature to cover 95% of domestic flights, but also launched this feature for international itineraries with about 95% coverage. While according to Center of Aviation, CAPA, next year outlook for Indian domestic aviation sector is quite positive with the projected growth of about 20% year-on-year.

Recently, Go First airlines having a small market share of about 6%, filed for voluntary insolvency resolution proceedings before the National Company Law Tribunal, NCLT in India, seeking interim relief citing failure of the global engine supplier to replace the faulty engines from time-to-time, resulting into grounding of half of their fleet and consequent operational and financial issues. Interim relief was granted by NCLT and the airline is making all possible efforts to resume the operations. In the short-term, this event has affected the supply, although we expect it to be temporary, as the other airlines in the market have started to fill the supply gap with additional deployment of planes on key routes.

Our accommodation business which includes hotels, packages and homestays segment continues to shape up well. Leisure travel has gone beyond pre-pandemic levels and corporate travel has recovered strongly on the back of conferences, exhibitions and events. With our continuous focus on supply expansion, we have surpassed our pre-COVID supply with more than 71,000 saleable accommodations listed on our platform. This has helped us increase our market share and further strengthen our supply more.

With international outbound travel picking up, we have now started to expand our direct contracting for destinations where Indian tourists travel frequently. Vietnam is one such example of a new emerging destination, where we are now building inventory through direct supply contracts to deliver better value to our customers.

Gross booking for accommodation business has surpassed the pre-pandemic levels on the back of strong growth in premium and medium, mid-premium category of hotels. Our endeavor has been to build a platform that is innovative, intuitive, simple and delivers the best value to the customer. During this quarter, we launched book at zero, which is an industry-first initiative, where customer can now reserve their preferred property without worrying about upfront payments and pay closer to the travel date, thus solving for any anxiety related to uncertain travel plans and offering huge flexibility to the customers. This feature is now available for all properties across India and outside India. This is helping us change the consumer behavior to book in advance, which will help better yield management for our partners.

We continue to scale our homestays business with leisure destinations, contributing to most bookings. To discover and promote properties at drivable distance, we launched Hidden Gems. This feature has been built on interactive maps to improve the discoverability. To make decision-making informed and seamless for homestays, we introduced some other features, showcasing information related to food and dining at the property. Our holiday packages business has also continued to scale up and has already surpassed pre-pandemic levels.

Coming to our bus ticketing business, continues to deliver strong results. We are now starting to see some buoyancy in the supplier ecosystem with multiple large operators, confirming new fleet orders to OEMs and addition of new EV intercity buses by newer players. A few large bus operators who had paused or shrunk their operations post the COVID lockdown have restarted during the quarter with an effort to get the full fleet back on the roads. With favorable macro environment like new express ways and highway expansion, demand growth due to more in-office working especially in IT companies in the South India and easing of the supply constraints in motor vehicles production, we expect a capacity expansion in intercity buses during this financial year.

Product-related initiatives continued to focus on driving online penetration for the category and enhancing customer experience. The regional transport corporation bus booking experience has been further improved and customized to each RTC. This has improved the conversion rates for RTC bookings, leading to an increase in the rate of new customer acquisition. Further, in non-traditional bus markets like Central and East India, we have added significant inventory to drive the penetration. We intend to double down on these efforts to make redBus truly pan-national with meaningful business contribution coming from every region in the country. International markets are maintaining their growth momentum and now contribute upwards of 10% of our overall bus revenue.

Our other ground transport services such as intercity cabs, rail tickets, etc., continue to scale well. This segment is helping us acquire new users on the platform. We are investing in this business as we foresee an opportunity to disrupt this segment through technology interventions, innovating offerings and supply consolidation.

We opened our trip guarantee offering for users who haven’t booked their train ticket from MMT platform to further expand our reach to rail users. Our myPartner B2B2C platform where we offer both flight and accommodation booking is gaining positive traction from our affiliate partners. Engagement levels from existing partners are improving as we continue to ramp-up onboarding new partners every quarter.

Business travel is gradually normalizing and we continue to add more capabilities on our both myBiz and Q2T platforms. We recently completed end-to-end integration flow with Darwinbox, giving complete solution to the corporates from travel request to expense management. Our revamped portal of Q2T has now gone live and our myBiz platform is now ranked as second best travel management software globally and first for small business segments SME by G2 to which is a global peer-to-peer review platform. With the scaling up of our corporate and B2B2C platforms, we are now able to target all customer demand segments directly and more effectively.

With this, let me now hand over the call to Mohit for financial highlights of the quarter.

Mohit Kabra — Group Chief Financial Officer

Thank you, Rajesh, and hello, everyone. We are pleased to report another strong quarter, both in terms of business growth and profitability. As mentioned by Rajesh, despite the few macroeconomic headwinds, demand for travel continues to be resilient and robust. We are seeing an improved trend across all our segments, and we believe fiscal year 2024 will be the year of growth over pre-pandemic levels. Though the pandemic impacted years, we have been investing in the areas of future growth and this should strengthen our modes and help us stay ahead of the market.

During reporting quarter four of fiscal year ’23, gross bookings came in at about $1.7 billion, witnessing a growth of over 80% year-on-year in constant currency dorms on the back of strong travel demand. Adjusted operating profit or adjusted EBIT was about $19 million as compared to about $12 million during the same quarter last year, an improvement of over 58% year-on-year.

Through the last few years, our strategic focus has been towards driving profitable growth and we are pleased with the results delivered through FY ’23. While Rajesh has called out that we have achieved our highest annual gross bookings and adjusted operating profit in fiscal year ’23, I’d like to add that we have now been consistently EBITDA positive on a GAAP basis for the last five quarters in a row.

During fiscal year ’23, we delivered GAAP EBITDA of $51 million with a margin of 8.6% as compared to an EBITDA loss of just below $1 million in the previous fiscal year. During the last couple of years, we have made efforts to optimize our cost structure and from here on there will be gradual improvements in profitability on the back of operating leverage as we build scale.

Our Air Ticketing gross bookings for the quarter stood at $1.1 billion, witnessing a growth of 84.9% year-on-year on constant currency terms. Air Ticketing segments grew by 10.3% sequentially, despite weak seasonality on the back of a strong growth in air traffic. Adjusted margin stood at about $74.3 million, registering a growth of 81% year-on-year on constant currency basis.

Gross bookings for the quarter for Hotels and Packages segment came in at $388.6 million, witnessing a strong growth of over 78% year-on-year in constant currency terms and in line with demand trends. Adjusted margin for our Hotels and Packages business stood at $63.5 million during the quarter, witnessing a growth of over 64% year-on-year in constant currency terms.

In our Bus Ticketing business, gross bookings for the quarter were at $213.5 million, growing at over 66% year-on-year on constant currency basis. Adjusted margin stood at about $19.3 million, registering a strong year-on-year growth of about 70% in constant currency terms.

The take rates or margins for all these three reported segments, that is Air Ticketing, Hotels and Packages and Bus Ticketing, continue to be in line with the previous quarter.

Adjusted margin for the Other businesses in the reported quarter of Q4 came in at about $9 million, witnessing a growth of over 73% year-on-year in constant currency terms.

Operating leverage built over the years is now clearly visible, and we continue to be efficient with our marketing and customer acquisition related spends. Our overall marketing and sales promotion expense for the quarter came in at about 5% of gross bookings, as compared to 5.2% in the previous quarter. Most of the other expenses continue to be in line with the previous quarter.

At the end of this quarter, our cash and cash equivalents were about $487 million as compared to $449 million at the end of the previous quarter. That’s an addition of about $38 million during the quarter. The cash addition was stronger than the profitability linked cash generation due to working capital releases in a seasonally weaker quarter. Our balance sheet strength gives us the flexibility to invest and pursue new growth opportunities both organically and inorganically.

And lastly, in the recent past, there have been some media reports about our India IPO plans. I would like to take this opportunity to share our view on the matter. We are an Indian company with a strong India brand and a predominantly India business. So while there could be valid reasons or arguments for us to list in India, we currently have no plans to pursue this talk at this stage given the strong cash position on our balance sheet.

With that, I would like to turn the call to Vipul for Q&A.

Questions and Answers:

Vipul Garg — Vice President, Investor Relations

Thanks, Mohit. [Operator Instructions] The first question is from the line of Manish Adukia of Goldman Sachs. Manish, your line has been unmuted. You can talk — you can ask your question.

Manish Adukia — Goldman Sachs — Analyst

Great. Thanks, Vipul. Hi, team. Thanks for taking my question. So my first question is on the Hotels business. Now, while you did call out that recovery has generally been strong across all travel segments, and within hotels, you said that premium hotels are tracking above pre-COVID levels. But when I look at, let’s say, your overall reported hotels revenue or volumes, they are still tracking reasonably meaningfully below pre-COVID levels. So just trying to understand that from a mix standpoint, how weak is the budget segment still to drive the overall hotel revenues and volumes for MakeMyTrip to be that much below pre-COVID levels? And there, what’s your outlook in terms of demand recovery, let’s say, over the next six months to 12 months? That will be my first question, please.

Mohit Kabra — Group Chief Financial Officer

Sure, Manish. And maybe I can just take that. If you really look at in terms of our mix of bookings room night pre-pandemic, it used to be — budget segment used to contribute close to about mid-40s in terms of the overall mix. Like I had mentioned, currently we are seeing the budget segment contributing close to about a third of our overall kind of bookings. So clearly there is a — this kind of lag in recovery in the budget segment, and we do expect that it will probably take another six months to 12 months for the mix to get restored or get closer to the pre pandemic levels.

Manish Adukia — Goldman Sachs — Analyst

Thanks, Mohit. A follow-up there, I mean, this demand weakness in the budget segment, is it also function of higher ASPs or meaningfully higher ASPs in that category versus what it used to be in the past?

Mohit Kabra — Group Chief Financial Officer

Absolutely. Absolutely, Manish. Very, very relevant and important to bring that out. The ASPs, particularly in this segment, and this segment being lot more price sensitive, the impact on volume recovery has been higher because there has been notice — the historically pre-pandemic, there used to be lot of significant promotions, deep discounting that used to happen from multiple players in this particular segment, which pretty much has kind of gone away. And therefore, the pricing impact in this segment has been sharper compared to the other segments, other price points, and therefore, the recovery has been lagging a bit. And like I said, you know, it’s a segment which is even more price sensitive than the others. And that’s one of the key reasons for the delayed recovery on this one.

Manish Adukia — Goldman Sachs — Analyst

And thanks, Mohit. And should we assume that the take rate that you’ve reported now which is about 16.3%, that should be the new normalized take rate or are you seeing some headroom for that number to move upwards, let’s say, in the course of next few quarters?

Mohit Kabra — Group Chief Financial Officer

I mean pretty much normalized, except for the fact that, you know, like I was mentioning that if the budget segment mix kind of comes back to pre-pandemic levels, there will be marginal scope for improvement over here.

Manish Adukia — Goldman Sachs — Analyst

Understood. My next question is on the Air business. Now, there of course the volume numbers that you reported have been quite strong, but what we also noticed in the reported financials is that the promotion spend that you report against the Air segment, that’s consistently moved up from about 2% of gross bookings pre-pandemic, and now being about 3.4% of gross bookings. Is there like a meaningfully higher competitive intensity that you’re seeing in the Air segment now than what you had in the past?

Mohit Kabra — Group Chief Financial Officer

I mean, see, it’s a factor of couple of things. One part of it is clearly kind of linked to competitive intensity, but the other part is also linked to the fact that through the pandemic, the airlines have been kind of promoting the volume build-up on the Air Ticketing side. And therefore, you see that the recovery is much stronger over there. It’s a little bit of a grossing effect, so you would see the take rates kind of, you know, staying strong and firm through the last couple of years and also the kind of promotional expense been slightly higher compared to pre-pandemic levels. So, it’s largely, I would say, a combination of both of these factors.

Manish Adukia — Goldman Sachs — Analyst

Thank you. Just one last quick question. So, margins obviously have remained very strong, cash EBITDA margins now well in double digits. So from here on, again margins, should we expect them to be range-bound? Are you looking to reinvest, let’s say, margins into growth or should margins be expanding from here on as demand recovers further?

Mohit Kabra — Group Chief Financial Officer

So this year has seen very strong kind of growth over the previous fiscal year, right, because last year was kind of impacted to some extent by the pandemic. And therefore the margin expansion has also been significantly higher this year. Going forward, we would expect margin expansion to continue albeit in a smaller measure. But we do expect some small margin expansion to continue.

Manish Adukia — Goldman Sachs — Analyst

Thank you so much for answering all my questions. All the best.

Mohit Kabra — Group Chief Financial Officer

Thanks, Manish.

Vipul Garg — Vice President, Investor Relations

Thanks, Manish. The next question is from the line of Gaurav Rateria of Morgan Stanley. Gaurav, you can ask your question now.

Gaurav Rateria — Morgan Stanley — Analyst

Hey, hi, am I audible?

Vipul Garg — Vice President, Investor Relations

Yes, please go ahead.

Manish Adukia — Goldman Sachs — Analyst

Hi. Congrats on good performance. Couple of questions. The first one is related to the specific event that happened in the airline industry in India. What’s our exposure with respect to any balance sheet advances that could be potentially at risk? And secondly, how should that play out with respect to impact on the overall volume growth for the industry in the next three months to six months?

Mohit Kabra — Group Chief Financial Officer

In terms of the industry event, as far as Go First is concerned, I guess, you would have kind of picked up, you know, NCLT has actually appointed an interim resolution personnel and he has been tasked of kind of getting the airline back to running on an ongoing basis with a going concern concept. And therefore, we believe there is really no risk in terms of our logging balances with the airlines, because as soon as the air ticketing window opens again, this will get utilized very quickly. So I think, it’s more a matter of time, don’t really see a significant exposure over there right now.

In terms of the impact on industry, Go First, like Rajesh had called out, used to be about 6%, 7% of the overall market. But the impact on the market is unlikely to be that large. It’s going to be much more smaller because most of the other airlines are kind of pressing in more kind of slides, and particularly on the key routes where they used to operate. And therefore, the overall impact on the industry is going to be much lesser than the market share that used to have before they kind of closed the operations.

Rajesh, you would like to add anything.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes. No, happy to add, what you said, Mohit. So, Gaurav, what Mohit said is right. The overall share was low, and there are other stronger players in the market. I mean, whether it is IndiGo or Air India or CASA is also trying to ramp up quite nicely actually. And not only planning to, they’ve actually already, as we speak, deployed additional planes. So, I think, there will be obviously temporary sort of demand-supply gap and then that could potentially have an impact on fares as we recently saw as well. But as soon as we have the more supply coming from the other airlines and that the gap gets bridged, and hopefully also, as we are heading into couple of — next couple of weeks, if Go Air is back in the skies, then that should ease out the situation as well.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. Second question, just a data point on market share that you used to share always on the domestic air segment, how that has fared this quarter versus the last quarter?

Mohit Kabra — Group Chief Financial Officer

Yes, little better only, Gaurav. I mean, despite whatever might be happening in the market overall, and this quarter was also — I mean, we have been sort of in the range of 30% to 31%. So if last quarter was 30%, this time it was 30.5% plus. So a little better than the last quarter.

Gaurav Rateria — Morgan Stanley — Analyst

And would it be possible to get a sense of where we stand on market share for international outbound segment?

Mohit Kabra — Group Chief Financial Officer

Actually, it’s very hard, Gaurav, to get to the actual number, because see domestic it’s very easy because they have third-party sort of source data available as you know from DGCA. But for international, given that there is also inbound and there are lot of international players and all, it’s very hard to sort of get to that and we use surrogate all the time. I don’t think there has been any significant change in the market share for the international overall.

And the reason for that is simple. I mean, as we sort of covered in our commentary, the overall international outbound travel, thanks to high fares, maybe mostly for long haul and some of the operational issues related to visa, etc., is still in recovery mode. I mean, it used to be — last quarter if you would recall, was about 70%, 75%. We are getting into 90s now. And firstly, just get out of the recovery mode and get into a growth mode this year and then hopefully there will be some share gains as well.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. Third question is with respect to the new channels that you talked about that you started over the last two years to three years. Cumulatively, all these account for what percentage of the overall gross booking for us? And is there any target from next one-year to two-year perspective? And last question from — for Mohit, like you’ve always given sort of a range for the ad spend as percentage of the total gross booking 5% to 6%, we are pretty much in the lower end of that band for last one year to two years. So, how should we look that number going forward, let’s say, for fiscal ’24? Thank you.

Mohit Kabra — Group Chief Financial Officer

Sure. I think on the expense side, I would say, with kind of — pretty much kind of look to remain within that range of 5% to 6%, again depending on multiple things, including competitive intensity, including kind of — what kind of promotional expense come in particularly from the supplier side, etc. We believe we should continue to be in that same range of 5% to 6%, and we should continue to see some amount of margin expansion also happening at the bottom line while maintaining this range of spend. So that is how I would look at it. Probably, there will be more kind of higher mix of kind of brand-related spends going forward out of the entire customer acquisition costs. So that’s probably the only small tree that I see going forward. But no overall kind of shift in the range per se.

Gaurav, if you could just kind of point me back to the previous question before…

Rajesh Magow — Co-founder & Group Chief Executive Officer

Maybe I’ll take that one. I can take that. It was about the new channels. So, Gaurav, maybe I can take that. So, the way we are looking at Gaurav in all fairness the new channels is that the first couple of years is always onboarding and ramping up, scaling up, and engaging either the corporates and acquiring [Phonetic] corporates, or let’s say onboarding travel agents for all my partner platform. And from all those metrics, they have been doing really, really well. Now, it’s just a question of — and of course on our platform, we have been adding more capabilities in terms of product offerings and so on. And early signs of traction on engagement, and as well as the transactions happening, get onboard sort of SME segment and the large corporates on myBiz is pretty robust.

Now, given that they have just started and it’s just a couple of years and we will wait to sort of get that to scale for us to be able to sort of give you any more color in terms of what’s their current contribution, more importantly, how are we sort of looking at it — them contributing. See, right now our focus is very simple. The focus is that we want to just reach out from a reach standpoint to every possible demand segment. And with that intention and goal from a mid-term and a long-term goal standpoint, we’ve made these investments. And we are quite happy with the progress so far in terms of, sort of, all these key KPIs that early a part of the journey, they become very, very relevant, and they are doing really well.

Let’s just wait for some more time for us to be able to get to the actual numbers of in terms of business, how much of the contribution happening.

Gaurav Rateria — Morgan Stanley — Analyst

All right. Very useful. Thanks a lot and all the best.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Thank you, Gaurav.

Vipul Garg — Vice President, Investor Relations

Thanks, Gaurav. The next question is from the line of Mihir Shah. Mihir, you may please ask your question now.

Mohit Kabra — Group Chief Financial Officer

Hi. Are you able to hear me?

Vipul Garg — Vice President, Investor Relations

Yes, yes, we can hear you

Mihir Shah — — Analyst

Thanks. Thanks, Vipul. Rajesh, maybe a question for you. Just on ONDC, right, the open network for digital commerce, the scope and vision of the platform seems fairly broad. It could overlap with some of the categories that you play in. Could you just talk a little bit about how you’re looking at it, what are the opportunities and risks to keep in mind. And it will be great if you could talk about it separately for air buses, hotels because maybe the concentration could be different.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes. No, I think, it’s an interesting observation, Mihir, and ONDC has been in the news for a while now. And may be off-late a lot more in the public domain. And we’ve been actually watching that space very, very carefully. Not only watching, we’ve been sort of often on engaged with the ONDC management also. Just to continuously keep sort of understanding from their point of view, how are they looking at revolving their own platform, to be honest, and it’s all in the public domain. This news is that the categories that they have launched so far, they are obviously waiting for that to sort of scale up, get full traction, etc.

From mobility standpoint, I mean, anything related to travel and tourism is later. But before that, I think, it’s right now there is some soft launch on the mobility side for us, because that’s a high frequency item, and we wanted to probably solve that for — first before they get to the actual travel, and let’s say, flight bookings or hotel bookings later in all of that, because I think there could be also a realization that these are fairly complex products at some level, especially the hotel bookings or let’s say international flight bookings for that matter, relatively domestic flights might be easier.

So, at this point in time, it’s basically wait and watch and just see how the other categories and all the seller side and the buyer side sort of operate and how do they solve for the overall post sales customer experience, the — from product commerce stand point, the delivery and all the related issues that come along with it. And they’ve been sort of grappling and there have been some reports again. Again in the public domain from their point of view that — there are issues where not necessarily everything is sort of very smooth and friction less. So, I think, it’s going to take some time for it to evolve.

Can it sort of offer for the long tail of sellers, a good platform, again on that big and sort of past participation in e-commerce. Perhaps, the answer is yes. Can this possibly scale this up to bring in more categories? We’ll have to wait and see. And more from just solving the end to end sort of experience problems because we do believe the travel is very experience-oriented, and therefore, while it might look pretty simple on the front-run from a bookings standpoint, but it’s fairly sort of complex when it comes to the post-sales experience as well. So, I think, at this stage, net-net, I would say, keep watching this space carefully. And see how it sort of the volumes and then accordingly sort of plan your moves on it.

Mihir Shah — — Analyst

No. I appreciate it. Thanks a bunch here. And maybe one for you, could you just talk about the current mix of international flights? How much was it as a percent of the flights business? And as it normalizes, would that be a tailwind for your margins in the in the air business.

Rajesh Magow — Co-founder & Group Chief Executive Officer

It should definitely be a tailwind, particularly in terms of incremental contribution of growth coming in. And like Rajesh called out, the recovery on the international side has been lacking. And also we see lot more kind of potential future growth in that particular segment of slides. Just kind of give a color in terms of pre-pandemic versus current mix, pre-pandemic international was contributing close to about 38%, 40% of the overall air ticketing margins and currently it is at about 25%. So clearly a lot of headroom over there. We should be a tailwind for the coming years as that supply kind of improves and the prices kind of come in a little better.

Mihir Shah — — Analyst

Appreciate it. Thanks a bunch.

Mohit Kabra — Group Chief Financial Officer

Thank you, Mihir.

Vipul Garg — Vice President, Investor Relations

Thanks, Mihir. The next question is from the line of Aditya Suresh from Macquarie. Aditya, you may please ask your question now.

Aditya Suresh — Macquarie — Analyst

Thank you for taking my questions. I had a few questions, but maybe the first one was just the industry structure itself, right. So, you now obviously have talked Tata more active, you have woofers with issues. The specific question was with regards to your blended commission or take rates and the all kind of different levels of engagement with the suppliers, whether it be GDS or direct, so can you help us understand what the current industry structure does for your blended commission or take rate?

Mohit Kabra — Group Chief Financial Officer

So, Aditya, the industry has kind of been seeing consolidation over the years. So it’s not a new phenomenon. And if you really look at the share of IndiGo over the years. It’s been kind of steadily increasing, right. And keeping that in mind, we have been kind of guiding what we believe could be sustainable air ticketing rates and we kind of pretty much in that range right now, slightly more kind of contraction in the air ticketing margins could possibly be driven by, I would say, lower kind of payment gateway costs — or kind of lowering our payment gateway costs over the years. As that happens, there is clearly a potential for some of the — some more margin compression over here.

But otherwise, we feel we’re kind of in a — reasonably kind of in a stable margin kind of a phase and this is actually more across segments, not just air ticketing across all the other segments as well, whether it is Bus Ticketing, whether it is Hotels and Packages, we do believe margins will largely remain stable.

Aditya Suresh — Macquarie — Analyst

Mohit, just a classification will be that like if IndiGo did take share, right, incrementally, I would have thought that that would be dilutive to your blended air take rate. Would that be a fair comment or are there offsets?

Mohit Kabra — Group Chief Financial Officer

Probably, not necessary. Not necessarily, Aditya, because in the manner that the take rates are kind of buildup for the industry in India, at least for the OTA industry, a large part of the take rates kind of come in as fees from the customer side and not necessarily as commissions from the airlines. In fact commissions from most airlines, the upfront commissions have been down to zero for a fairly long period. So that hasn’t really kind of changed the structure very significantly. Yes, if you would see probably like about eight years, 10 years back, I mean, it was predominantly a commission-led model. We have seen a change coming from that model to the current one. But over the last few years, it’s been — it’s largely been stable on these lines.

Aditya Suresh — Macquarie — Analyst

Thanks, Mohit. The next one was just in terms of — you mentioned operating leverage, etc., right. So just as a conceptual dynamic, not to kind of argue to any specific number, but — and I think, I asked this question last quarter itself, but let’s say that we incrementally add $100 million of revenue next year, what sort of incremental EBITDA margin do you expect to make? And I guess there is really inherent operating leverage, given that you’re key kind of lines via customer spends, employee costs, which seem fairly — those are lines you can kind of keep in check if required, right. So can you just give us any thoughts or color on that?

Mohit Kabra — Group Chief Financial Officer

Aditya, like I had mentioned last time also, we don’t kind of give, either growth guidance or profitability guidance. We’ll leave some for you to kind of make it out of the trend lines.

Aditya Suresh — Macquarie — Analyst

Maybe just as a — like for example, staff costs, right. So, that’s a very big part…

Mohit Kabra — Group Chief Financial Officer

Like I said, you know, I’d leave this for you to kind of make out of the trends. We don’t really issue the guidance on future kind of growth or profitability as such.

Aditya Suresh — Macquarie — Analyst

I appreciate that, Mohit. The question was more in terms of how should we be thinking about your employee base? Are you looking to add more staff to kind of cater to this growth? Are you looking at staff salaries in, say, double-digit kind of inflation territory, like how are you thinking about staff salaries, for example?

Mohit Kabra — Group Chief Financial Officer

Like I have been calling out, consistently even the last time when asked this, we’re not really looking at adding any significant employees to the team. It’s largely going to be more inflation-led or kind of, you know, increases and not any significant headcount addition. And that’s been the trend over the last few years if you see as well.

Aditya Suresh — Macquarie — Analyst

Thanks, Mohit. Thanks for classifications.

Vipul Garg — Vice President, Investor Relations

Thank you, Aditya. The next question is from the line of Manik Taneja of Axis Capital. Manik, you may please ask your question now.

Manik Taneja — Axis Capital — Analyst

Thanks for the opportunity. I hope I’m audible.

Vipul Garg — Vice President, Investor Relations

Yes, please go ahead.

Manik Taneja — Axis Capital — Analyst

Yes. So I basically had question related to the adjusted EBIT line and you partially answered on providing the outlook on how we should be thinking about margins. But given the [Indecipherable] that we are at about 1% to 1.1% of GBR [Phonetic] and the fact that our stock composition has been coming off. If you could give a sense — some sense of how we should be thinking about the ESOP cost, as well as the adjusted EBIT margins, please?

Mohit Kabra — Group Chief Financial Officer

Yes, like I said, on the margins, whether adjusted EBIT or adjusted operating, like I just kind of mentioned on the previous question, don’t necessarily kind of give guidance either on growth or on the net margins. But when it comes to share-based compensation, I can share some color that we expect it to kind of largely remained in line. We don’t really kind of see this increasing in the coming years, albeit it might only see a little bit of a reduction going forward, very unlikely that it will kind of see an increase. So, therefore, from an operating leverage point of view, it is one of those lines which will contribute to some operating leverage.

Manik Taneja — Axis Capital — Analyst

Thank you and all the best for the future.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Thanks, Manik.

Vipul Garg — Vice President, Investor Relations

Thanks, Manik. Next question is from the line of Achal Kumar of HSBC. Achal, you may please ask your question now.

Achal Kumar — HSBC — Analyst

Yes, hi. Thank you, Vipul. I hope I’m audible.

Vipul Garg — Vice President, Investor Relations

Yes, please go ahead.

Achal Kumar — HSBC — Analyst

Perfect. First question was around the competitive intensity. So, of course, you know, EaseMyTrip has rapidly captured a significant market in airlines. And now we are talking about capturing share in the hotel side. So, what’s your thought on that? How can you protect here your market share in airlines, but also in the hotels? So if you could please share your thoughts around that?

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes, maybe I can take that, Mohit. So, Achal, I don’t think it will be fair to comment on a specific competition. I don’t think it’s fair. I think maybe you should sort of ask them their strategy and their questions around, how are they looking to expand, etc. But if you look at sort of MakeMyTrip in the numbers that we’ve reported out and the track record of the market share numbers also that we’ve reported out, we have only been gaining market share. Pre-pandemic on domestic flights, we used to be at 27%, we are now at 30%, 30.5%. And similarly, our hotel business recovery has been very, very robust. And there is — actually the reality is that at this point in time, the kind of hotel product that we have in terms of supply, depth and breadth and the product and the scale and the size of the business, no one really in India does that if you look at just the OTA market.

So, I think, it will be fair to say that we have been able to maintain our market leadership consistently, and have a substantial sort of lead in and not necessarily on our flights business, but also on hotel business and as well as ground transport business. So from our perspective, the way we look at it is, while we are quite happy to have the healthy competition in the market, because it’s always good for the ecosystem, but very focused on how are we going to drive our strategies, where are we going to make the investments to make sure that we stay always ahead.

Achal Kumar — HSBC — Analyst

Perfect. Thank you. My second question was around change in the customer behavior. I mean, whenever I speak to the hotels or the airlines, I think there are couple of things or couple of customer changes they talk about, the change in the customers’ behavior. I mean, first is how the customers are actually clubbing work with leisure trips? So basically, the gap between the weekend and the weekdays is actually squeezing or reducing because people prefer — previously they used to travel Saturdays and Sundays and then now they travel any day of the week and they can work two days on the hotel and then — so there is a change in the customers’ behavior and that is quite helpful for the hotels industry.

And on the other changes that now the — now post-COVID, I think the people are taking too many short breaks — short frequent trips and then they prefer to drive down to the nearby places. So what are your thoughts around that? I mean, you being in the industry, I think you got a sense about the change in the customer behavior and how that is impacting the industry or benefiting the industry rather?

Rajesh Magow — Co-founder & Group Chief Executive Officer

Actually, Achal, couldn’t agree more with you on both. These are exactly the insights that we’ve also noticed. In fact picking up these insights early, we have launched like a product called Staycation to cater to exactly the insight, the first insight that you mentioned. And that not necessarily people are waiting for long weekends to travel because there is flexibility today to operate from wherever you can operate from if, you know, all what you have to do is to have a WiFi and you can log into Zoom or Microsoft Teams or any of the other video conferencing tool and then you can operate from that place, right. So, we’ve seen that trend increasingly picking up and it has continued. If there is something that has continued as the business has been recovering coming out of the COVID, from a consumer trend standpoint, it is this.

And then the other point that you mentioned is also very valid. We’ve also seen that the frequency of taking breaks have gone up and short breaks that have gone up, specifically. So while — if those historical trend was that there is the summer break April, May, June quarter or winter break OND quarter, and within that you will plan a longer duration holiday. Now across the year, even for the non-seasonal quarters you will see the trend of more frequent short vacations that are being taken by the consumers.

So, on both the trends, and these are very positive trends for the travel industry in India. And largely, and so far, it has been India traveling within India. And as more and more sort of international travel also eases out in terms of just fares getting rationalized. Overtime, it might even be international travel. So we’ll wait for that to see how it happens. But in terms of just positives coming from the consumer trends, these are two big positives

Achal Kumar — HSBC — Analyst

Okay, perfect. Thanks, Rajesh. My next question was around your loyalty programs, I think you had it in the last quarter, if I’m not wrong. So could you please talk a little bit about your — how the loyalty performance — loyalty programs is performing or rather more importantly, how the return rate of the customers have been? I mean, is it increasing, is it decreasing? Could you please share your thoughts around that?

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes, for sure, Achal. So we do have our loyalty program and doing very well. It’s called Black program. IT’s called MMT Black. And like you rightly pointed out, the metric that we track for this is that how loyal are these customers, what is the sort of repeat rate as compared to a normal non-Black customer. And we’ve — quarter-on-quarter, we’ve seen sort of improvement on Black members coming back or the number of transactions that the Black members do in a year on our platform versus a non-Black member has only been increasing in favor of Black members. So, yes, so we are very keen to sort of continue to keep expanding that program and also keep the value proposition very strong for Black members.

Achal Kumar — HSBC — Analyst

Do you have any grit [Phonetic] by a chance which shows that, you know, what is the, I mean, top 50% of customers or next 45%, whatever it is showing that what is the return rate or how many bookings do they make top 15%, top 20%, something like that. Do you have set that kind of grit?

Rajesh Magow — Co-founder & Group Chief Executive Officer

No, no, Achal, when we look at it obviously at the operating level and I’m sure teams are sort of monitoring some of these detailed KPIs as well. But at a strategic level, I think what is important and sort of maybe sufficient to know is that, let’s say, a cohort of non-Black members and if they were doing x and I’m making numbers upright and not — and these are not the exact numbers. But let’s say if they were doing x number of transactions in a year, the Black numbers — Black members would be doing 1.5x for example. So that’s the sort of difference that we’ve seen.

Achal Kumar — HSBC — Analyst

Understand, understand. Perfect. Thank you so much and wish you good luck.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Thank you, Achal.

Vipul Garg — Vice President, Investor Relations

Thanks, Achal. The next question is from the line of Vijit Jain of Citi. Vijit, you may please ask your question now.

Vijit Jain — Citi — Analyst

Yes, hi, thanks. Thanks, Vipul. Can you hear me?

Vipul Garg — Vice President, Investor Relations

Yes, please go ahead.

Vijit Jain — Citi — Analyst

Yes, thanks. So just my question is on the hotel side. Starting with the premium segment, Rajesh. So have you seen competition here increase from the likes of booking Agoda, etc., more recently. And given these — my understanding is these companies are always more dominant from a India inbound perspective, now that travel is recovering and maybe the hotel partners are seeing more traffic from these global OTAs. Is that changing your take rates with premium hotels or is it changing your negotiation to the premium hotels on the platform?

Rajesh Magow — Co-founder & Group Chief Executive Officer

Sure, Vijit. As far as your first question goes, nothing unusual. To be honest, I mean this competition was always there. And like I said, healthy competition is always welcome. And this is very competition forward on the back of the product, the experience and the service, etc., which we, from our point of view absolutely low sort of competing on those aspects. And that’s wonderful, and nothing unusual that has happened.

In terms of opening up inbound traffic, of course, travel has opened up and there has been more inbound traffic. And they do bring inbound traffic to the country. And they definitely are bringing, but has that sort of made any impact on our sort of relationship, engagement, commercial, etc., with a partner, the answer is no, because there is this large pie of the travel is still domestic and will continue to be domestic because the size of the pie is pretty big and all kind of segments of the travel. Again on that and, you know, that’s recovering nicely, and have actually shown lot of pent-up demand as well like I was just mentioning in terms of lot of the exhibition conferences, given corporate offsites, etc., happening. And that — and lot of the preference there is — there is domestic and for more than one reasons. Clearly, the — it is relatively cost effective, because the fares on international destinations are pretty high.

But even, let’s say, they get rationalized and in the steady-state, there is the — the relative size of the pie for the domestic market is really, really big. And so, therefore, from that point of view, the contribution — our contribution is only going to be significant and continue, we will continue to improve. And therefore, I think, there is placed for Board without sort of impacting each other.

Vijit Jain — Citi — Analyst

Got it. Thanks, Rajesh. Rajesh, my second question is, now, if I remember right, last quarter also you mentioned that these hotel — some of the premium hotels in India have obviously all raise their average daily rates, and that the occupancy had still some way to recover. Now, a few of these hotel companies which have recorded 4Q, we can see that there’s bit of — little bit of normalization there and occupancies have gone up. Have you seen that more broadly? And from an FY ’24 perspective, do you think that is the direction in which we’re headed in the non-budget segment that is the ADAS go down, occupancies go up.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Actually, you know, what you said, Vijit, is right, right. I mean, actually the data is out there. But if you hear some of the commentary also, from the hotel partners who are public, and you would notice that there is lot of optimism in terms of the Indian consumers’ ability to sort of pay more than what they used to pay every before. And therefore the rates are likely to be firm in all. So we will have to wait and see. See, so far, that has played out really well. We will have to now see in the context of, because it’s obviously a function of demand momentum continuing which is linked to therefore occupancy. And then what should be the pricing strategy from the hotel partners standpoint. And we’ve seen that in the past, even in pre-pandemic that, for example, seasonality versus off-season, there could always — there will always be the difference and so on, right, which is underneath that is clear function of demand and supplier, right, from a seasonality perspective. And I don’t think conceptually it is going to be any different.

So if the demand continues to be robust, and then there is a possibility that we will, especially for the mid and premium segment that the rates would continue to sort of stay there at level and firm up. But if there is a demand slowdown at some level or — and the pent up is slowing down and becomes like a steady-state, and more suppliers in the market, then there may be some rationalization that might take place. So, I think, it’s purely a function of demand and supply and how they sort of manage their overall yield management.

I think one important point that we should keep in mind, the reality also is that if you compare it with pre-pandemic for the last three years, I mean, except for the last year, I would say, last two years and even before that, the rates had not really gone up. So there has to be some natural annual inflation that we should definitely factored that in which would mean maybe in over two years, three years, about 15-odd-percent and that should be a normal sort of increase in the fares or the rates. But anything beyond that will be a function of demand and supply.

Vijit Jain — Citi — Analyst

Got it. My last question, Rajesh, if I can, on the budget side now, we — as you’ve pointed out earlier, the super budget segment has been affected badly because, obviously, the discounts went away and everything. But it’s been a while since the economy has fully opened up and the budget hotels would have opened up. So I’m just wondering, if you strip out the impact of — impact on the super budget space from the budget category, are you seeing momentum on the supply side or on the demand side, more recently, and is it going to still take a while before the segment kind of takes — grows faster than the premium segment that is?

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes, Vijit, on the supply side and the momentum part of it, absolutely. And you know — and actually, even for the budget segment, it’s just the ultra-budget segment, maybe less than INR1,000 a room night or INR700, INR800 a room night. And then that there may be some [Indecipherable] because the end-user price pre-pandemic was as Mohit was sharing earlier, what was deeply discounted etc., and it’s coming back. And by the way, I don’t think it will be fair to say that it’s not coming back, it’s coming back actually nicely. It’s improving quarter-on-quarter. And it’s just taken more time might take maybe another quarter or two. I’ll comeback and eventually will come back. So I’m not necessarily worried, especially in the context of the impact that it has on the P&L overall because of the [Indecipherable] levels, right. So — but at the same time if you would see anything above INR1,000, the recovery has been in the momentum has been very robust.

Achal Kumar — HSBC — Analyst

Got it. Thanks, Rajesh. Those are all my questions. Thank you so much.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Thank you, Vijit.

Vipul Garg — Vice President, Investor Relations

Thank you, Vijit. We are already out of time. So anybody who has any questions, please mail us, mail it to us and we will take it separately. This brings us to the end of the call. Rajesh, closing comments from you.

Rajesh Magow — Co-founder & Group Chief Executive Officer

Yes. Thank you, Vipul. And thank you, everyone, for your time, thank you for your patience and we’ll stay in touch. Thanks.

Vipul Garg — Vice President, Investor Relations

Thank you, everyone. You may please disconnect now.

Mohit Kabra — Group Chief Financial Officer

Thank you so much.