Corporate Travel Digitalisation And AI Adoption Will Drive Strong Long-Term Business Upside

Catalysts

About Yatra Online

Yatra Online is a leading Indian travel platform providing end to end corporate and consumer travel solutions across air, hotels, packages and MICE.

What are the underlying business or industry changes driving this perspective?

• Rapid migration of Indian enterprises from offline travel agents to integrated digital booking and expense platforms, where Yatra is already the scaled specialist, should support double digit growth in corporate billings and expand revenue.
• Rising penetration of AI driven tools like DIYA across booking and back office workflows is expected to automate service processes and reduce headcount needs, driving operating leverage and improving EBITDA margins.
• Structural growth in branded hotels, curated packages and MICE travel in India, combined with Yatra's strong traction in these higher margin segments, should steadily lift blended gross margin and earnings.
• Increased adoption of corporate card and automated collections within Yatra's large enterprise base is set to shorten the working capital cycle, enhance cash conversion and support higher return on capital employed.
• Expanding base of over 1,300 mid to large corporates, new client wins and low churn, coupled with cross sell of expense management and value added services, should deepen wallet share per customer and sustain growth in net profit.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Yatra Online's revenue will grow by 14.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 9.2% in 3 years time.
• Analysts expect earnings to reach ₹1.4 billion (and earnings per share of ₹7.5) by about December 2028, up from ₹555.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹1.8 billion in earnings, and the most bearish expecting ₹1.2 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 38.6x on those 2028 earnings, down from 46.6x today. This future PE is greater than the current PE for the IN Hospitality industry at 31.5x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.91%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long term shift of Indian corporate travel to online platforms may attract aggressive competition from larger OTAs and global TMCs, which could force Yatra to offer higher discounts and incentives. This may cap take rates and compress net margins and earnings growth.
• Corporate travel demand is structurally tied to India’s economic cycle. Any slowdown in GDP, cuts to discretionary corporate travel budgets or prolonged seasonally weak quarters could reduce air and hotel volumes, limiting revenue growth and weakening operating leverage on EBITDA.
• The strategy to use AI, DIYA and Google Cloud migration to automate workflows and cut headcount assumes seamless execution. Delays, higher cloud costs or weaker than expected adoption could keep cost bases elevated and prevent the envisaged expansion in EBITDA margin and net profit.
• Working capital optimization depends on wider corporate card adoption and disciplined collections over several years. If enterprises are slow to migrate or macro stress lengthens DSOs, cash conversion and return on capital employed may remain below management’s 13 to 14 percent medium term ambition, weighing on earnings quality.
• The increasing contribution from higher margin hotels, packages and MICE is partly seasonal and exposed to event cycles and discretionary leisure and corporate budgets. Any downturn in MICE activity or weaker leisure travel could stall the mix shift toward premium segments and limit improvements in blended gross margin and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹227.0 for Yatra Online 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 ₹270.0, and the most bearish reporting a price target of just ₹200.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹15.4 billion, earnings will come to ₹1.4 billion, and it would be trading on a PE ratio of 38.6x, assuming you use a discount rate of 14.9%.
  
• Given the current share price of ₹164.7, the analyst price target of ₹227.0 is 27.4% 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.