Prabhudas Lilladher IPO report on Rategain Travel Technologies
RateGain Travel Technologies Limited (RateGain) is among leading distribution technology companies globally in travel and hospitality (T&H) industry. In highly fragmented market, the company is well positioned to capture wallet share given 1) its comprehensive, inter-operable, innovative industry specific solutions and 2) marquee client base. Rising adoption of technology in T&H industry and increasing demand for third-party technology vendors due to COVID-19 is likely to double serviceable market to $8.45 bn in CY25E for RateGain. Revenue decreased by 37% in FY21, impacted by covid-19. Signs of recovery in T&H industry are visible as number of active customers for RateGain grew by robust 9% in H1FY22 vs FY21. It showed strong operating performance with adjusted EBITDA margins at 9.44% in FY21 vs 7.97% in FY20. 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.
Valuation and Outlook
The IPO comprises a fresh issue of Rs3.75 bn and OFS of up to 22.6 mn (up to Rs9.60 bn) shares by selling shareholders (Exhibit 5 details use of offer proceeds). Price band of Rs. 405-425 implies P/S of 18x on FY21 sales (of Rs2.5bn). 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. Risks: 1) revenue dependent on a single industry (T&H), 2) high client concentration and 3) considerable contingent liabilities .