Global Expansion And AI Will Transform Hotel Offerings

Key Takeaways

• Aggressive geographic expansion is expected to boost revenue by localizing offerings and capitalizing on new markets.
  
• AI integration and focus on high-margin segments should maintain margins, enhance profitability, and attract more luxury clients.
  
• Heavy reliance on international expansion and AI investments might challenge margins and profitability amid competition and foreign exchange volatility.

Catalysts

Operates travel distribution platforms in India and internationally.

• The expansion into 15 new countries and 40 new cities demonstrates TBO Tek's aggressive geographic expansion strategy. This growth into untapped markets is expected to drive significant increases in GTV and revenue as the company localizes its offerings and captures new demand.
  
• The integration of AI across business processes is leading to improved productivity and operational efficiencies. This is expected to help the company maintain its margins as it scales, potentially enhancing both EBITDA and net margins over time by reducing operational costs and improving customer engagement.
  
• TBO Tek's strategic focus on the high-margin hotels and ancillaries segment, including initiatives like the exclusive TBO Platinum program, is expected to drive higher take rates and revenue growth as the platform attracts more luxury hotels and offers unique benefits to its travel agents.
  
• The company’s investment in expanding its active customer base and engagement, as demonstrated by the 26% increase in GTV and the faster growth of bookers compared to agents, suggests increasing wallet share and cross-sell opportunities, positively impacting future revenue and profitability.
  
• With significant cash reserves and ongoing investments in technology and geographic expansion, TBO Tek is poised for robust top-line growth, while managing downside risks, which could positively impact earnings and shareholder value in the future.

TBO Tek Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TBO Tek's revenue will grow by 21.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.1% today to 15.7% in 3 years time.
• Analysts expect earnings to reach ₹4.6 billion (and earnings per share of ₹39.64) by about May 2028, up from ₹2.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹3.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 63.5x on those 2028 earnings, up from 60.4x today. This future PE is greater than the current PE for the IN Hospitality industry at 35.4x.
• Analysts expect the number of shares outstanding to grow by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.63%, as per the Simply Wall St company report.

TBO Tek Future Earnings Per Share Growth

Risks

• There is a significant reliance on geographic expansion into many new countries, which involves substantial investments. If these expansions do not yield the expected returns, it could negatively impact profitability and EBITDA margins.
  
• The company mentioned an 18% year-on-year growth rate for the Indian market, which is considered slower compared to international markets. This slower growth in their home market could indicate market saturation and potential limited revenue growth from this segment.
  
• The business is subject to foreign exchange rate risks, as highlighted by a notable foreign exchange loss due to currency fluctuations. This could negatively affect net margins if such volatility persists.
  
• The company’s expansion strategy relies heavily on platform investments and AI, which may not deliver expected operational efficiencies or cost reductions, potentially impacting future margins and profitability.
  
• Competition in the hotel segment is increasing, and if TBO Tek cannot maintain its competitive advantage, it may face pressure on its take rates and revenue growth.

Valuation

• The analysts have a consensus price target of ₹1734.125 for TBO Tek based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2090.0, and the most bearish reporting a price target of just ₹1400.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹29.6 billion, earnings will come to ₹4.6 billion, and it would be trading on a PE ratio of 63.5x, assuming you use a discount rate of 14.6%.
  
• Given the current share price of ₹1237.6, the analyst price target of ₹1734.12 is 28.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.