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H&P segment to deliver robust growth amidst weak macros

We expect TBO’s consol. gross transaction value (GTV) to grow c.25% YoY in 2QFY25, amidst concerns about macro headwinds in the travel industry (refer exhibit 1). This growth will be driven by Hotels & Packaging (H&P) segment GTV, which we expect to expand ~55% YoY, aided by a mix of organic as well as inorganic factors such as expansion in newer source markets, deeper penetration in existing source markets and consolidation of JumboOnline (acquired in Dec’23). The Air ticketing segment GTV growth, however, is expected to remain weak with c.3% YoY decline on account of continued impact of the company’s decision to let go of some high-volume, low-margin domestic air travel opportunity in India. On the margins front, we expect gross margin expansion of around 200bps YoY due to business mix moving towards the H&P segment. Despite this expansion, we expect EBITDA margin to contract ~50bps YoY as the company continues to focus on feet-on-street expansion in several high-cost source markets. Overall, we expect EBITDA growth of c.20% YoY in 2Q. We retain BUY rating with an unchanged Sep’25 TP of INR 1,950 derived basis 50x NTM PER (stock currently trades at PER of 51x/37x FY26/27) while remaining watchful on global travel demand trends.

* Robust growth in H&P segment, air ticketing segment to face challenges: We expect consol. GTV to grow c.25% YoY (flattish QoQ) in 2QFY25, despite concerns of macro headwinds in the travel industry. The growth is likely to be driven by the H&P segment, which is expected to deliver robust 55% YoY growth supported by a) favourable seasonality in Europe; b) penetration in newer source markets and c) consolidation of JumboOnline. On an organic basis, we expect the segment to grow c.25% YoY. In contrast, the Air segment is expected to remain weak and decline 2.5% YoY as the company continues to let go of some high-volume, low-margin opportunity in India domestic travel. Revenue growth is likely to be slightly behind GTV growth at c.23% YoY as take-rates in the Hotel segment will be slightly affected by JumboOnline consolidation.

* Feet-on-street expansion to keep operating margin expansion in check despite improving business mix: We expect gross margin to expand c.200bps YoY to 66.4% in 2Q, aided by growing contribution from the high-margin H&P segment (82% of total gross profit in 2QFY25 vs. 77% in 2QFY24). However, EBITDA margin is likely to decline c.50bps YoY to 19.3% due to continued investment in the feet-on-street sales team in developed markets. Nevertheless, EBITDA growth is expected to be strong at c.20% YoY. We, however, expect PAT growth to be relatively slower at c.16% YoY as we factor in tax rate increase on account of 1) tax rate changes in Dubai and 2) consolidation of JumboOnline for which 25% tax-rate is applicable.

* Maintain ‘BUY’, TP unchanged at INR 1,950: We raise our FY25 EPS estimates by ~4% to factor in better GTV growth in the H&P segment as we expect robust growth in International markets to sustain in the near term, while broadly maintaining our FY26/27 estimates. We maintain BUY with an unchanged TP of INR 1,950.

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