RateGain IPO Fundamental Analysis (Subscribe for Long Term)

Key Business Highlights

•  RateGain (the Issuer) is a SaaS (software as a service) company in the hospitality and travel industry offering solutions across a wide spectrum of verticals including hotels, airlines, online travel agents, meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries.
• The company offers a suite of inter-connected products that manage the revenue creation value chain for its customers by leveraging big-data capabilities and integration with other technology platforms helping hospitality and travel providers acquire more guests, retain them via personalized guest experiences and seek to maximize their margins.
• The Issuer started operations in the year 2004 with the introduction of a competitive intelligence price comparison product for hotels. The company has expanded its product portfolio to include artificial intelligence and machine learning capabilities that leverage in-house data lake to offer products in the areas of rate intelligence, cognitive revenue management, smart distribution and brand engagement.

1. Data as a Service (Daas) – It enables the suppliers and demand providers with the ability to connect with data and information to increase acquisition and conversion. Data is offered under two categories:

   • Market Intelligence: This provides access to pricing and availability data at scale along with analytics to present trends, opportunities and market developments.
   • Dynamic Pricing Recommendations: Certain segments within the travel industry have traditionally used a flat pricing or a seasonal pricing structure with proprietary dynamic pricing technology to help them maximize revenue.

     For  DaaS products, it operates on a subscription model where the customers in the hospitality sector subscribe to DaaS products such as Optima and Parity for a period. For OTA customers and airline, car rental and vacation packages customers the company operates on a hybrid model where the company charges a minimum subscription fees for use of the products and a pay-per-use charge for accessing additional data.

2. Distribution – Rategain provides mission-critical distribution including availability, rates, inventory and content connectivity between leading accommodation providers and their demand partners. Distribution enables delivery of reservations back to hotel systems to ensure smooth operations and accurate reporting by hotels.

   In the Distribution segment, it operates RezGain (RateGain's smart distribution hotel channel manager software which distribute rates and inventory with speed and efficiency) on a subscription basis where customers pay a subscription fee to access the product while DHISCO (Distribution Hospitality Intelligent Systems Company, subsidiary of RateGain)) operates on a transaction model where the revenue is generated from bookings done by OTAs and GDS operators.

3. Marketing Technology (MarTech) – It offers enhanced brand experience to drive guest satisfaction, increase bookings and increase guest loyalty. The company also manages social media for luxury travel suppliers allowing them to be responsive to social media engagements 24x7 as well as effectively manage their social media handles and run promotional campaigns.
   • The Issuer has grown inorganically to grow their geographic reach and customer base. RateGain acquired DHISCO in 2018. The Issuer integrated DHISCO with proprietary technology to improve connectivity options in the hospitality and travel industry. Further, the Issuer acquired myhotelshop, a company which offers reporting, bid management and campaign intelligence platform for metasearch publishers and other travel products that enables hotel suppliers, OTAs, and agency clients to reach more customers at higher returns.
   • Most offerings are in the hotel vertical with strong placements in Hotel Tech Report rankings for Rate Shopping/Marketing Intelligence (OPTIMA ranks 4/29), Channel Managers (RezGain ranks 7/77), and Parity Management (RateParity+ ranks 4/9). And BCV tops the list in Hotel Tech Report’s social media category (ranking 1/19).
   • In FY19, FY20 and FY21and in the five months ended Aug 31, 2021, the company generated 34.65%, 35.06%, 26.34%, and 27.19% of revenues from operations from the sale of services of transaction-based products while  07%, 40.86%, 44.16%, and 48.35% was generated from the sale of services of  subscription-based products in similar periods and 35.28%, 24.07%, 29.50%, and 24.47% was generated from the sale of services of products from hybrid revenue model of subscription and transaction based pricing.
   • The company serves 1,462 customers including eight Global Fortune 500 companies as on September 30, 2021. The customers include Six Continents Hotels, Inc., an InterContinental Hotels Group Company, Kessler Collection, a luxury hotel chain, Lemon Tree Hotels Limited and Oyo Hotels and Homes Private Limited. Over 415 customers have been associated with the company for over five years as on September 30, 2021.
   • Significant portion of revenues from operations is generated from North America and Europe It represented 82.12%, 83.60%, 79.74% and 83.70% of  total revenue from operations in FY19, FY20 and FY21 and in the five months ended August 31, 2021, respectively.

Financial Review of RainGate

Total revenue for 5 months ending Aug 2021 was Rs 131.22 crore and the Issuer posted a loss of Rs 8.34 crore in the same period. Rategain's total revenues decreased by 43% to Rs 264.09 crore in FY21 from Rs 457.61 crore in FY20 due to the decline in bookings in the travel and hospitality sector owing to the pandemic. The net losses widened to Rs 28.58 crore in FY21 from Rs 20.1 crore in FY20. EBITDA margin was 7.99% and 7.36% respectively for 5MFY22 and FY21 respectively, however the net margins have been negative for all the last three fiscals.

Debt to equity was 0.48x as at the end of FY21. Return on equity was -3.52%, -11.70%, -14.66% and 7.70% for 5MFY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)

Title	FYAug21	FY2021	FY2020	FY2019
Total Revenue	131.22	264.09	457.61	272.7
Other Income	5.95	13.3	58.89	11.13
PAT	-8.34	-28.58	-20.1	11.03
EBITDA	10.49	19.45	33.87	32.89
Total Assets	428.19	439.8	397.11	284.9
Cash generated from operations	7.05	20.60	19.14	36.21
EBITDA Margin	7.99%	7.36%	7.40%	12.06%
Net Margin	-6.36%	-10.82%	-4.39%	4.04%

Valuation and Peer Comparison

The P/E of the Issuer is not ascertainable due to the negative EPS. P/BV is 16.78x at NAV of 25.33 as at the end of 5MFY22 calculated at the upper price band of Rs 425 per share. There are no listed peers of the Issuer in India as per the RHP. Profitero, IdeaS, Tavisca, Siteminder, Paraty Tech, Travel Click are some of the global competitors of Rategain.

Sector Outlook

The online portion of the travel market has grown from 26% in 2010 to nearly 52% in 2020. Though the pandemic has severely restricted the level of economic activity around the world, and has had and is having an unprecedented effect on the global hospitality and travel industry.  But the pandemic also accelerated the shift towards online transactions and online travel market is further estimated to reach 56% by 2024. The mobile part of the online travel market and has grown from a miniscule 0.2% to nearly 47% in 2020 as travelers adopted technology across the travel lifecycle.

The Issue Snapshot

RateGain Travel Technology IPO opens on 7^th Dec 2021 with IPO size of Rs 1335 crore (fresh Issue: Rs 375 crore). The price band is Rs 405-425 per share with retail quota of 10%, minimum application amount being Rs 14,875. The Issue closes on 9^th Dec and is expected to list on 17^Th Dec 2021. The IPO proceeds would be used to :

• Repayment of indebtedness availed by RateGain UK (Rs 85.26crore)
• Payment of deferred consideration for acquisition of DHISCO (Rs 25.2 crore)
• For strategic acquisitions and inorganic growth (Rs 80 crore)
• Investment in tech innovation, AI (Rs 50 crore)
• Purchase of capital equipment (Rs 40.7 crore)

Conclusion and Investment Strategy

RateGain is the only travel technology company powering every segment of the travel and hospitality industry with real-time intelligence, and help its customers to increase their revenue through customer acquisition, retention and wallet share expansion. The Issuer uses recent AI models for deep learning to have the advantage of being able to consume large datasets, determine the relationships between the data, and then provide increasingly powerful predictions.

While RateGain’s operations were impacted on account of lockdowns imposed and travel restrictions, the company has witnessed an increase in OTA and GDS (global distribution system) bookings since the beginning of the year 2021. The Issuer has positive EBITDA margins though it has net losses since FY21. The travel and tourism sector is expected to grow in the near future. Considering the factors that RateGain is the only SaaS to offer competitive intelligent solutions in hospitality, the Issuer will get first mover advantage.  The negatives of the Issue are presence of global unlisted peers, market concentration risk as around 80% revenues come from Europe and North America and it operates in the niche segment of travel sector which is affected the most during the pandemic. The economic scenario is abuzz about the new variant of covid and this makes it an uncertain market.  Hence, Risk savvy investors may enter this IPO for the long term.



Review By CA Priyanka Choudhary on 30th Nov 2021

Review Author

About CA Priyanka Choudhary



Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.