Rategain Travel Technologies IPO: Apply for listing gains

RateGain Travel Technologies IPO: Rategain Travel Technologies Limited is tapping the capital markets with its fresh issue for Rs 375 crores and an offer for sale of 2,26,05,530 equity shares. The company completed allocation to anchor investors. The issue has opened on Tuesday (December 7) and would close on Thursday (December 9), has a price band of Rs 405-425.

The company has allotted 1,40,90,136 equity shares at Rs 425 to 20 anchor investors comprising of 34 entities. The highest allocation was made to Government of Singapore who was allotted 16,44,650 shares or 11.67 per cent of the anchor book. Along with its associate, Monetary Authority of Singapore who was allotted 2.45 per cent of the anchor book or 3,55,355 shares. The total allotment was 20,00,005 shares or 14.19 per cent of the anchor. This was followed by an allotment of an equal 10.02 per cent or 14,11,795 equity shares to four entities which comprised of two FII's and two domestic mutual funds. The FII's were Ashoka and Nomura, while the domestic funds were ICICI Prudential and Nippon. The top five anchor investors were allotted 76,47,185 equity shares or 54.27 per cent of the anchor book.

Rategain Technologies is a key player in the travel and hospitality industry, serving various customers globally. It has a SaaS (software as a service) model and a DaaS (distribution as a service) model. The company has a subscription model and a hybrid model as well. In this case there is a small fee and then it is per transaction. The company has been adding products to its portfolio and has a fairly robust offering for customers which includes hotel chains, airlines, OTA's, cruise lines and car rental companies.

The company boasts of 1,462 customers including 8 Fortune-500 companies. Seven of its top-10 customers have been associated with the company for over ten years. The company has almost 90 per cent customer retention where an existing customer renews its association in subsequent years. The company is the largest aggregator of travel related data and through AI (artificial intelligence), it is able to predict demand. It also has a product which collects and analyses news and its impact on demand in the travel and hospitality industry.

While the company has been a profit-making company at the EBITDA level, it has seen some losses over the last couple of years at the net level on account of impairment on goodwill charged. This is on the acquisitions of companies made by Rategain globally and as per the current accounting standards.

The bouquet of products in the portfolio gives a large degree of flexibility in cross selling products to customers. With enough analytics available the companies' products help in gauging demand and assisting its customers in getting a better price for their offerings whether it be hotel tariffs or taxi hire. Hence the name Rategain which effectively means that the company assists the customer in getting more money for its services. "Rate gain".

Some typical examples where Rategain is in play, is where it assists a hotel booking by a customer and gets a better rate for the customer in terms of offerings. Rategain earns a fee for the transaction and also has a subscription fee which it earns. Similarly, it works towards trying to get the same customer to use a car or taxi which would earn some further revenue for Rategain.

Covid-19 has been a mixed bag for the travel and hospitality sector with different geographies experiencing different problems at different times. While near normalcy has been restored, the new variant, 'Omicron' may have a small impact on some geographies but not impact the world as a whole. There is a new phenomenon being witnessed as far as travel is concerned known as 'Revenge travel' where people are moving out as they have been confined indoors or in a limited space for close to 18 months. With Christmas and New Year fast approaching, not only popular tourist spots but also not so popular ones are sold out and its business as usual.

Valuations for such companies are difficult to understand as they are typically linked to a multiple of revenue and not profits. With increasing demand and addressable market and virtually little or no competition, it is up to Rategain to decide how much and how fast it wants to expand. Being an Indian company, it has done well for itself so far and would now be able to grow even faster as it has access to capital and has already reached an inflection point.

At the time of writing this article on Tuesday, which is the first day of subscription, the issue was subscribed 0.37 times with Retail portion subscribed 2.03 times and 1.72 lac applications received.

Based on the current revenues, Rategain would trade at a Price/Sales valuation of about 18x of FY21 sales of Rs 250 crores. Investors should apply for listing gains and also hold on for gains in the longer term as such companies are better understood a couple of quarters post listing.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)