RateGain Travel Technologies IPO Opens: Brokerages Divided Over The Issue; Give Mixed Recommendations

The issue of RateGain Travel Technologies on the first bidding day has drawn decent investor response. Now amid IPO frenzy if you too are considering investment into the IPO of the country's largest SaaS provider. Here are the key points and brokerages take on the public offer.

Issue details:

The Rs. 1336 cr. public issue is slated to remain open until December 9, 2021. Price band of the issue has been fixed at Rs. 405-425 per share. The issue is a mix of fresh equity issuance worth Rs. 375 crore and an OFS or offer for sale of up to 2.26 crore shares. For the employees of the company, there is a reservation for shares of value up to Rs. 5 crore with a discount offering of up to Rs. 40 per share.

Bid lot size: Minimum 35 shares and in multiples thereof

Issue objective:

The fresh issue proceeds will be put towards repaying debts availed by subsidiary RateGain UK; payment of deferred consideration for acquisition of DHISCO; and strategic investments, acquisitions and inorganic growth. Other than this the proceeds will also be put to investment in technology innovation, artificial intelligence and other organic growth initiatives; purchase of certain capital equipment for data center and general corporate purposes.

About RateGain Travel

The company is the country's leading SaaS provider catering to the travel and hospitality solutions across verticals including hotels, airlines, online travel agents (OTAs), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries.

Financials:

"On the financial front, revenue declined due to the decline in bookings in the travel and hospitality sector owing to the pandemic. Thus, the company has been incurring losses since FY20. However, signs of recovery in T&H industry are visible as the number of active customers for RateGain grew in H1FY22. In spite of revenue decline, underlying business metrics remained healthy with steady gross revenue retention, increase in active customer count, healthy gross margins and increasing NPS scores", notes Ashika Rese

Brokerages take on the issue of RateGain Travel IPO:

Prabhudas Lilladher: Subscribe for long term gains

"Global vertical SaaS peers are trading at average P/S of ~14x FY21 sales. We believe premium valuations are justified given - 1) its superior product portfolio integrated across all value chain partners enables it to access data at granular level which cannot be easily replicated and 2) highly predictable, scalable and profitable business model. We recommend investors to subscribe for long term gains", recommends Prabhudas Lilladher.

However the key risks listed by the brokerage on the fresh IPO include 1) revenue dependent on a single industry (T&H), 2) high client concentration and 3) considerable contingent liabilities.

Choice Broking: Subscribe with Caution

At the upper end of the price band, the issue is valued at P/S of 18.1 times on FY21 sales and 15.1 times on FY22E annualised sales, which seems expensive, as per Choice Broking.

"There are no listed peers in India having the same business profile. Given the re-emergence of the pandemic fear and its impact on the global travel and hospitality industry, there is higher uncertainty about the business growth outlook," the brokerage adds.

Marwadi Shares and Finance Limited-Avoid the issue of RateGain

"Considering FY22 Annualised EBITDA of Rs. 108.96 mn on the post-issue basis, the company is going to list at EV/EBITDA of 421.34 with the market cap of Rs.45, 367 mn. There are no listed companies in India whose business is comparable with that of the company's business. We assign an "Avoid" rating to this IPO as valuation is expensive on an absolute basis," said Marwadi Shares and Finance Limited report.
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