Deep Kalra - Group Chairman, Group Chief Executive Officer and Founder Rajesh Magow - Co-Founder, Chief Executive Officer - India and Director Mohit Kabra - Group Chief Financial Officer.

Lloyd Walmsley - Deutsche Bank AG, Research Division Manish Hemrajani - Oppenheimer & Co. Inc., Research Division Gaurav A. Malhotra - Citigroup Inc, Research Division Ashwin Mehta - Nomura Securities Co. Ltd., Research Division Chad Bartley - Pacific Crest Securities, Inc., Research Division.

Deep Kalra, Rajesh Magow and Mohit Kabra. Please proceed..

Thank you, and welcome, everyone, to our fiscal 2015 First Quarter Earnings Call. Let me begin by sharing some of the positive developments within our industry that has started providing deal wins for our business.

During the quarter, we witnessed year-on-year growth in the domestic air industry, as discounted fares offered by domestic carriers helped stimulate air travel in India. In June, AirAsia India launched its operations, which we believe will help continue this positive growth trend.

This last week, the DGCA also cleared away a license issuance objections for Tata Airlines, a joint venture between the Tata Group and Singapore Airlines and announced that it will grant additional licenses to other new air operators within India. We welcome such moves to further liberalize India's underserved civil aviation market.

Furthermore, the new government is focused on driving inbound tourism growth in India and is committed to establishing electronic visa on arrival facilities across 9 airports in the latest annual budget. On top of the recent positive development within travel, we are also seeing the mobile Internet revolution play out in India.

Today, the country has approximately 118 million mobile Internet users out of an estimated 240 million total Internet users. Going forward, smartphone shipments are expected to rapidly grow by over 40% annually for the next 5 years. We believe there's tremendous headroom for mobile to drive the rapid growth of India's new Internet users.

In fact, we are already seeing mobile contributing meaningfully within our business, which I'll talk about in just a minute. In the seasonally high travel quarter, MakeMyTrip affirmed its market leadership by achieving strong growth in all core business segments.

We accelerated the growth in the strategically important hotels and holiday packages business by enhancing customers' end-to-end experience, deepening our domestic and international supplier relationship, and investing in targeted marketing.

Concurrently, we made further progress on mobile adoption, as we work to provide the best-in-class app and mobile site experience.

As a result of these efforts, in constant currency terms, our quarterly gross bookings increased by 36.7% year-over-year to record $432.2 million, while our net revenue, or revenue less service costs, rose 43.8% to more than $35.5 million in the quarter.

During this past peak travel season, where the mix of hotels and holiday bookings is typically higher compared to the lean quarters, we were successful in improving the mix of H&P segment to just over 50% of our total net revenue. Now let me share the progress that we've made on the mobile front.

To date, we have over 3.2 million mobile apps downloaded across the popular operating systems. More than 29% of our monthly unique visitors and 14% of all online transactions are now coming via mobile. For domestic flights, mobile bookings accounted for roughly 13% of total online transactions in the quarter.

Mobile users also contributed 25% of our total online domestic hotel transactions, and we continue to witness strong mobile transactions growth on a sequential quarter basis.

To accelerate this important growth channel, mobile will remain an important strategic priority for our business, and therefore, we are allocating more efforts and resources towards enhancing mobile user experience to improve mobile adoption.

During the past quarter, our team continued to introduce native responses and adaptive designs into our mobile channels. Our development team launched an improved mobile payment experience and these enhancements had a positive impact on conversions. That said, we continue to further improve the speed of our mobile platform.

Additionally, we are also refining our analytics capabilities to provide a more personalized experience to our mobile bookers, all while optimizing our costs. Now I'd like to request Rajesh to share the highlights of the past quarter..

Thanks, Deep, and hello, everyone. I'm glad to share that the team at MakeMyTrip delivered strong operating and financial results in line with our plan in the fiscal first quarter. We achieved this growth, as the macro environment and domestic air industry showed signs of improvement during the quarter.

During the peak holiday season quarter, Hotels and Packages transactions grew by over 106% year-on-year in Q1 and we achieved 71% growth in revenue led service costs on a constant currency basis.

This high growth was followed by domestic and outbound hotels and holidays, as well as international hotels bookings growth, which were partly aided by the consolidation of our EasyToBook.com acquisition.

As a result, the H&P contribution to the net revenue increased to an all-time high of 50%, as against last fiscal year's 41.7% during the peak season quarter, where the contribution of hotels and holidays booking is typically higher in the overall mix.

Let me now be more specific about some of our growth initiatives, starting with our continued progress in the domestic and international standalone hotels business. In the past couple of quarters, we had been working on our plans to cap the growth opportunity in high category of hotels, which paid off in this reported quarter.

We are also witnessing good growth in international hotels booked across our various branch validating our royalty supply acquisition strategy. For our customers, using mobile devices to accept our services, growth in standalone hotels mobile bookings was very robust, as convergence continued to improve.

We also launched our new mobile website with a responsive interactive design and native apps on Android and iOS mobile platforms. This will help enhance the user experience on any device across multiple screen sizes and form factors, which will in turn help the conversion rates.

On the domestic supply side, we expanded our hotel base to over 13,000 domestic properties, including hotels, guest houses, and vacation villas, up from 11,400 properties reported last quarter. Furthermore, we now offer plenty of hotel choices for our outbound customers with more than 184,000 properties within our group network.

In our holiday packages business, we saw high transaction growth during the quarter for domestic holiday travel in line with the seasonality trends in the business.

We believe that our customer first approach as well as our ability to work with suppliers to design attractively priced packages to match demand with the availability during the peak season contributed to this healthy growth during Q1.

Our international outbound holiday also experienced healthy growth, as travelers have become more comfortable with the stability of the rupee exchange rate.

Additionally, we also offer competitively priced packages to gain market share in key outbound destinations in Southeast Asia and Europe, as outbound travel remains a large long-term opportunity for us.

Moving to our Air Ticketing business, where we continue to hold the industry-leading domestic air market share of 12% as per the latest available DGCA data. During the quarter, air net revenue increased by 23.9% year-on-year, as we grew transactions by over 16% year-on-year.

Overall, air transaction growth was driven by international air, where we were able to drive share shift from offline channel, the small growth in domestic air, largely gained from special fare offers launched by the domestic carriers during the quarter.

In summary, our continued push to innovate and enhance our offerings on mobile platform, combined with our very strong focus on customer experience is helping to further strengthen our brand and sustain our market leadership.

We remain focused on short-term execution while keeping an eye on our long-term vision, and remain well positioned to capitalize on the immense opportunities we see ahead for MakeMyTrip. Now let me hand the call over to Mohit to share our quarter's financial results in greater detail..

Thanks, Rajesh. In Q1, we delivered net revenues of $35.5 million, representing a constant currency growth of 43.8%, which was in line with our internal count and part of the strategy to accelerate growth in the Hotels and Packages business during the peak holiday season quarter.

Overall, the disciplined expense growth, particularly general and administrative expenses allowed us to invest aggressively in marketing to drive stronger top line growth, while delivering nominal registered operating profit in this high season quarter. Let me now elaborate on the financial performance of our key business segments.

During the first fiscal quarter of 2015, net revenue from the Air Ticketing business grew 23.9% year-on-year in constant currency terms.

As Rajesh did briefly mentioned, this growth was largely driven by very strong transaction growth in our international Air Ticketing business, which carries high-value per transaction, as we continue to benefit this largely off-line segment of these markets.

In addition, domestic air transaction also grew by over 12% year-on-year as customers took advantage of the seasonal fares, special fares offered by domestic carriers towards the end of the quarter. In Q1, we achieved net revenue margin of 5.8%, which was in line with the margins earned in the same quarter a year ago.

Now I would like to present the financial highlights from our Hotels and Packages business, the segment of strategic focus for MakeMyTrip.

Our revenue less service costs in H&P came in at nearly $17.9 million for the first fiscal quarter, which represents a 70.9% growth year-on-year in constant currency terms, and this growth was largely driven by 106.5% growth in transactions. Transaction growth was largely propelled by robust growth in standalone hotels transactions.

This was a result of strong uptake in domestic hotel bookings, particularly from our ever improving mobile platforms, as well as a strong growth in international hotel bookings, which has been benefiting from the consolidation of our EasyToBook acquisition since Feb '14.

Furthermore, we also witnessed robust quarter-on-quarter growth in the domestic and outbound holidays business during this peak holiday travel quarter, which helped the business for the first time in its history to have a larger non-air mix.

On our net margin in the H&P business was 11.9% for the first quarter, which is almost in line with the net margin of 12.1% in the previous quarter. While focusing on transaction and revenue growth during this peak holiday quarter, we also delivered adjusted operating profit of $267,000.

This modest profit was in line with our plans, as we continue to invest behind building robust mobile platforms and also invest behind strategic marketing to drive online transaction both in domestic hotels, as well as in international hotels, powered by our recently acquired pure-play hotel brand.

We are glad to report that the business also generated cash during the quarter beyond the capital expenditure and investment needs of the business to add to the cash on the balance sheet. We will continue to leverage the strength of our balance sheet and invest in these areas of strategic interest.

Let me now talk about the growth guidance for the full fiscal year. In line with our plans for the current fiscal, in Q1, we were encouraged by the growth momentum achieved in our Hotels and Packages business and by the rapid adoption of our mobile offerings across various key business segments.

However, we continue to remain cautiously optimistic of revenue growth in the domestic air business. Therefore, we would like to narrow our fiscal 2015 annual constant currency growth guidance to 25% to 28% resulting in revenue less service costs guidance of $133 million to $136 million. We would now like to open the call for Q&A. Operator, please..

[Operator Instructions] And your first question comes from the line of Lloyd Walmsley with Deutsche Bank..

Wondering if you can just elaborate a bit more on the strength in the H&P segment. How much of that was contribution from EasyToBook? And then what are some of the other core factors driving your bookings growth there? It sounded like, I think, you said something to the effect of some better competitive pricing on outbound.

If you could kind of, I guess, explain if that may have been part of that take rate moving slightly down, but I guess incorporating that into perhaps the booking strength..

Sure, Lloyd. This is Rajesh. Let me take this. So the first question was how much is it coming from EasyToBook and how much is the growth from the existing business. So the simple answer is, as you know, that we've been reporting consolidated financials, but the growth -- last part of the growth, actually, came from India business.

And the EasyToBook number, although, it is part of the consolidated financial, but it wasn't a material number. And in the India business, all key segments standalone hotels, holidays, even air business specifically as highlighted in the script earlier, international Air ex India, where there has always been a lot more headroom.

All of these segments grew and also some part of the growth kind of came back on domestic air as well.

As far as on the outbound side, I guess, can you just repeat your second part of your question?.

Yes, I mean, it looked like the take rate in the H&P business declined slightly. Was that in part due to some discounting or aggressive pricing on outbound? I think, you all had mentioned in the script..

Yes, no, it's a great observation, but it's just a very small, small number. And as you would go back in history and analyze, typically, in the high season quarter, there would always be a little bit of a trade-off on transaction growth that you would -- one would do it tactically.

But in terms of just from a trend perspective, more on a full year basis, whatever we've been talking about, historically, just to kind of incrementally improve the overall H&P margin on a full year basis, we think we are on track to do that. So I don't think there is anything to kind of get concerned about that at all..

Also Lloyd just to add to what Rajesh has mentioned, typically in the high season travel quarter, our holiday season quarter, because of the increased mix of packages, which is typically adding a lower margin on account of transport mix. The overall H&P margin tends to be slightly softer than the off season quarters..

Yes, it looked like last year was your strongest quarter but....

Yes, Lloyd. No, so I would like to just clarify on that. You're right. I mean, last year it was like 12.9% same quarter. But last year if you would remember it was also a bit of a slowdown. And so during the slowdown period, it kind of changes and typically you will have high margin and less transaction growth.

And also the mix was strongly in favor of more hotels because leisure business is what it kind of take because, relatively speaking -- but I -- as we've been talking about in the past as well and when it comes to analyzing the overall margins, I think, we should perhaps be more full year picture rather than just a quarter-on-quarter picture, because there would be tactical moves within a particular quarter for one reason or the other, which we've done it historically.

We would continue to kind of do it, because that's important. Again, more like technical moves, but as we growing our web -- we continue to grow our volumes, as you can see on the H&P segment, we definitely think that we will continue to keep improving our margin on an overall basis portfolio..

Yes, okay. That's one, and another if I may. Granted it's early in your fiscal year, but the first quarter is really strong and the guidance implies slower growth in the remainder of the year.

Is there anything in particular that you see that could slow things down or is it just a general conservatism in wanting to really not get ahead of yourself?.

Yes, I think it's more the latter, Lloyd. There has been, of course, a big turnaround on the political side. We have a government with a single large majority. So there are signals all around. I think on the air side, as we know, it takes a little longer and it takes some time for them to play out.

We've finally see the launch of AirAsia, something we've been hearing and talking about for a long time. Tata-Singapore Airlines on the annual, but it takes time. At the same point of time, some of the incumbent airlines are still under duress, not in the best of financial health.

So I think, it takes a little -- it will take a little bit more time there. We would be very bullish about and what we are actually confident in seeing month-on-month more growth is actually new users coming to mobile, and that's the positive development.

In fact, to the earlier point also, there's a good deal of, as you noticed, standalone hotel transaction through mobile, which has crossed 25%. And there are some amount of incentives being given through that channel to get some of the new users out there. So I think, on H&P, there are very positive signs.

On air situation, I think, it's getting better. But I wouldn't say that the air industry or the air ecosystem is completely out of the woods yet..

And your next question comes from the line of Manish Hemrajani with Oppenheimer..

Strong hotel numbers, I know that there's been talk about a lot, but can you touch upon the #1 factor that's driving transaction growth in hotels? And what's the median ticket size for hotels currently?.

Manish, thanks. This is Rajesh here. So it's actually a combination of factors quite frankly. Fundamentally, as you know, that the standalone hotels market has been fairly under penetrated, and therefore, from our push perspective, we've been trying to actually cover this space 360 degrees.

From supplier to user interface to just improving the content, and also a lot more actually push is coming from mobile as well. As you can notice, I mean, if there is any -- between air and hotel, actually lot more transactions are coming in on the mobile platform from a percentage of total business perspective through mobile platform as well.

So that's kind of contributing as well. So bunch of factors. But if you look at overall Hotel and Packages together, the season was a good season quarter for even the domestic holiday [indiscernible] as well as outbound holiday as well.

And if you compare it with the last year, same quarter, there has been lot more concern about the currency movement, and therefore, long-haul bookings kind of were getting impacted because it's becoming a lot more expensive. And there has not been that much fluctuation on the currency of late. So that kind of helps as well.

So I won't say there is one single factor that drove this. These are some of the factors that kind of helped the growth overall..

Manish, just answering your question on the average ticket size. The average ticket size on the hotel site, has been increasing both quarter-on-quarter and also year-on-year. So that you’re seeing an improving trend as far as average ticket sales is concern.

And more so because of the improving mix of international hotels in the overall hotel bookings..

Okay, you mentioned that you had 184,000 total properties, right, in your network.

How many were domestic?.

No, no. So the domestic number is actually 13,000, Manish, up from....

13,000, 1-3, up from 11,400..

84,000 is in international hotel now..

Right.

So in terms of bookings, what would your mix between international and domestic for hotels for H&P?.

As far as bookings are concerned, both domestic as well as international bookings kind of now contribute almost equally, particularly in the peak season quarter. So it's kind of directionally moving well on those lines.

And particularly as Rajesh was mentioning during the call, the large part of the growth is kind of coming in from international segment, whether Indian air versus international air, which is kind of ex-India, which is kind of growing the fastest.

And similarly, international hotel bookings is the other segment, which is kind of growing the fastest as well..

Okay.

And then on your conversion rates, how do your conversion rates on the mobile platform compare with the desktop?.

So, fairly comparable actually, Manish. When it comes to hotel booking specifically. And we have some ground to cover when it comes to the air bookings and we are kind of working on that. But on the hotel side, fairly comparable..

Got it.

And on the mobile front given where we are in very early stages in terms of penetration levels, what are the technological investments that you're making at the back end to see that up again?.

Maybe I can just take that, yes, Manish. So Manish, in India, as you know, there is a very large proportion of independent. Most of these hotels are not actually using sophisticated systems as one would imagine.

So a lot of investment has gone in actually getting the hotels to work either directly through our extranet or for our extranet to actually talk to the channel managers, which have now become quite popular among the domestic hotels. So we have been working quite hard on that side.

So on the mobile point of view, also, just averaging the whole mobile opportunity like you were saying, we now are working on solutions where the smaller hotels can actually move directly onto a mobile platform.

We have seen a very typical use case of hotel owners, managers, not really being on large phones and managing a lot of their inventory and the kind of booking profile ahead through the phones and that's where we are -- we have efforts which are going on, they're underway. And we think that's going to help us significantly as well.

I think in the next couple of quarters, we'll see a significant shift of people just working on the solution. They can still work on the solution for the mobile, but it's not really built for a mobile first solution as of now, but there's work going on there..

Got it. One last one for me on the take rates. Take rates down on air, as well as hotels. Hotel is down 11.9%, take rates on air were 5.8%.

Is there some user discounting that you guys are undertaking to drive volume growth here, which has impacted take rates?.

Not particularly very high on discounting. But the difference is not yet year-on-year compared it -- when you compare, it's a drop, probably a material drop. But I would rather compare this quarter-on-quarter where it's almost flattish. And except for mobile, where for early adoption you would do some tactical discounting and stuff like that.

That is all -- aiming during the high season when you have kind of momentum on the growth of transactions, you would like to probably be a little more invested on pricing, very tactically. And nothing beyond that.

So this has nothing to do in terms of production coming in from suppliers into it or from the contracting side, this is just in the high season quarter where the transaction growth was pretty high, you would just make some technical moves, but I won't lean particularly too much into it that this trend is going to continue.

From a trend perspective on a full year basis, I think we should be able to make the incremental improvement from last year..

So then how should we look at directionally for both air and hotels, up from here? Is that what you're suggesting?.

Yes, so Manish as we've been talking about within the parts of our air. From a long-term perspective, we've always been saying that it will settle at some point in time between 5% and 5.5% and as it's going towards that.

And as far as H&P is concerned, last year we did about 12%, and we will see some improvement given our volumes are growing on a full year basis. Like incremental improvement maybe half a percentage points or something. So that's how we should think about that..

And your next question comes from the line of Gaurav M with Citigroup..

Good set of numbers, just had 3 key questions. Firstly on Air Ticketing. Now that is a trend, obviously, as Rajesh said, would the net margins would be trending down, but are the margins falling faster than what the expectations have been in the, say, last 6, 9, 12 months. That's one.

Secondly, on Hotels and Packages, this quarter if I understood correctly, the proportion of packages was higher because of its -- the net margins went down by 20 bps quarter-on-quarter. Is that correct? And would we expect the margins to move backup, say, between 12% to 13% range in the next 2 or 3 quarters? That's the second question.

And the last question is just on the share-based compensation, how should we look at it for the full FY '15?.

Gaurav, I'll take that. On the air margin, if you look at it, air margins are kind of comparable in line with seasonality. So year-on-year they're kind of comparable to what is reported in the same quarter of last year.

And that typically tends to happen because in peak season, the air fares continue to remain high and because of this semi-variability of the air margins. It tend to kind of be on the lower side during peak travel quarters or high season quarters. Moving on to your next one, this is in terms of the H&P margins.

Year-on-year, H&P margins, our sales represent and I did announce that earlier also. Again, in the peak season quarter, there tends to be a higher mix of packages within the overall H&P segment. And therefore, you'll see a little bit of softness in the overall H&P margin. And this could kind of vary in between season lean and peak season quarter.

And as Rajesh was pointing it out, overall for the full year, it would be kind of -- we still believe that we'll be able to kind of see small improvement in the overall take rate for the H&P business over last full fiscal and this full fiscal..

Coming to your third one on the employee share-based compensation cost. We have kind of guided at about the share-based compensation cost remaining in around the range of about 2% of outstanding shares. And even in the current quarter, the share-based compensation cost is close to about $2.6 million.

And that is what could be kind of taken as a fair number close to that $2.5 million to $3 million is what we should have in the coming quarters as well..

Okay, just one follow-up question on Air Ticketing, if you could just explain perhaps as to why in the peak season there is a softness. That's one.

And secondly, are we seeing that in the next couple of quarters you will see the margin sort of going up to an extent?.

See what it mean in terms of slight compression in the margin percentage, in peak season is because you are -- the overall asset tends to kind of be higher during the higher season quarter and when it comes to margin, there's certain amount of -- certain elements within the overall margin, which are more like value-based number and not really a percentage basis.

So since there is a slight fee typically in case of service fee or consumer or convenience fee, there tends to show a slight downward trend when the layer are high. We've yet to see how does the air fare trend be going forward, we believe there could be certain amount of softness, at least in the lean season quarters during the year.

In which case, we might see small improvements coming through in the air margins as well. But slightly early to call that out. But as we've been saying, we do believe during this year, the air margins will be more around the 6% mark, and it would kind of will vary by about 0.25 to 0.50 percentage point between quarter-on-quarter..

And your next question comes from the line of Pinku Pappan with Nomura..

This is Ashwin, instead of Pinku. I had one question in terms of our personnel costs, which saw almost 20% sequential jump in this quarter ex of the severance costs as well.

So where exactly are these investments being made and how do you look at this cost item going forward? And secondly, I wanted to get a sense in terms of what our overall headcount was..

Ashwin, the sequential cost, I mean, quarter-on-quarter more up in the range of about 12-odd percent, excluding [indiscernible]. And of that 12-odd percent, large part of it comes in largely on account of the annual wage increase that gets rolled out in April. So it's largely on account of that..

And what was our headcount as of this quarter?.

Headcount movement hasn't been kind of very different. Overall, we stay kind of larger on the same headcount number as in the last 1,300. It's close to about 1,300..

And your next question comes from the line of Chad Bartley with Pacific Crest..

To your revenue guidance is helpful and I was hoping you could provide some comments on how you're managing profitability this year, even with a higher investments in mobile, which makes sense.

For example; can you still achieve positive adjusted operating income? Or should we expect losses this fiscal year?.

We have been kind of mentioning that in line with what we've been saying focus largely remains on kind of driving growth, both in transactions as well as revenues. And at least there is a good possibility of us being able to closer to breakeven for the full fiscal, particularly having seen profitability return in the high season Q1.

So depending upon how the air trend prevails in the forthcoming lean quarter and in the next quarter or 2, I think we'll have greater clarity on that. But it looks like they're kind of getting better clearly year-on-year and quarter-on-quarter when it comes to getting the business back on profitability..

And at this time, we have no further questions. [Operator Instructions] And at this time, we have no questions..

Thank you, everyone, for joining our first fiscal 2015 first quarter earnings call. We look forward to speaking with you on next quarter..

Yes, thanks..

Thanks, everyone. Thank you..

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day..