The Small Cap Yatra Online Is A Perfect Stock For Growth Investors

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About: Yatra Online, Inc. (YTRA)
by: Innovative Investor
Summary

Yatra Online is operating in the booming Indian travel industry that is likely to grow at a double digit rate over the coming years.

Ebix has recently announced its intent to acquire Yatra Online and offered a huge premium of 84% on 48 million Yatra Online outstanding diluted shares.

It expects to outperform the industry growth rates; the company projects sales growth of 20% for this year compared to the industry average growth of 12%.

Yatra Online (NASDAQ:YTRA) is operating in the booming Indian travel industry that is likely to grow at a double digit rate over the coming years. Indian travel industry is likely to experience more than 50 million outbound tourists in the next two years according to United Nations World Tourism Organization (UNWTO) report, which strengthens revenue growth forecasts for companies like Yatra Online.

Yatra Online is well set to capitalize on increasing tourism projections – with a broad range of travel-related services that includes domestic and international air ticketing, homestays, hotel bookings, bus ticketing, holiday packages and so on.

Its revenue grew 7% year over year in the latest quarter; the company is expecting to extend the revenue growth momentum this year and beyond.

Besides revenue growth potential, several other catalysts such as potential acquisition are likely to support Yatra Online share price performance. On top, its shares are trading at discount considering the growth in financial numbers, the recent drop in share price and industry dynamics. Its stock is currently trading well below the 52 weeks high of $7 a share.

Source: Finviz.com

The Potential Acquisition

Small companies with strong growth prospects always remain on the radar of other big players. Ebix (NASDAQ:EBIX) has recently announced its intent to acquire Yatra Online. Both companies have formally confirmed that they are engaged to commence due diligence. Ebix plans to close the acquisition in the second quarter and it would merge Yatra into its Indian EbixCash subsidiary.

Ebix, which is a seller of software products to insurance companies, has been seeking to expand its presence in the travel sector with the acquisition of Yatra Online.

“We see India as a multibillion-dollar opportunity, possibly in the short term depending on how we execute,” Robin Raina, chairman, and CEO of Ebix said.

Yatra Online management is reviewing the proposal to make a decision in the best interest of shareholders. The market reports show that Ebix has offered a huge premium of 84% on 48 million Yatra Online outstanding diluted shares.

Prior to Ebix intent to buy Yatra Online, it has bought several small travel companies. The company plans to integrate all of these travel units into its EbixCash subsidiary.

What Would Be the Outcome of Acquisition?

Buying Yatra Online shares ahead of the acquisition seems like a good investment idea. The shareholders are likely to receive a huge premium if both companies reach a consensus. The growth prospects of combined companies are strong as Ebix has a substantial presence in the Indian travel and foreign exchange services.

The stock price of Yatra Online is unlikely to experience a bearish trend even if they decline Ebix offer. Yatra has solid growth prospects, thanks to rosy industry dynamics along with its smart business strategies that includes acquisitions and realignment of the business model. The company is likely to move towards profitability in the coming year amid projected high double-digit growth in sales along with cost reduction strategies. The improvement in operational efficiencies and strategies to attract new clients would add to profitability and revenue growth.

Yatra Online Can Make Profits as a Standalone Company

Yatra Online management has been working on several revenue and earnings growth strategies over the past two years. Its revenue grew 7% in the latest quarter while the management has reduced year over year operating loss by 48 percent in the first quarter of 2018. It has also reduced adjusted EBITDA loss by 60% compared to the year-ago period.

Its strategy of improving the marketing costs, closing some loss-making accounts, driving up its cross-sell revenues, and closing physical retail stores helped in reducing losses. The company claims these proactive steps would lead the company towards better structural profitability in the coming years.

The company expects to generate year over year revenue growth of 20% this year combined with significant improvement in EBITDA loss. The acquisition of PL Worldways Limited, the corporate travel business, has significantly expanded its revenue growth potential. PL Worldways has more than 100 corporate clients.

Industry Growth Outlook is Rosy

The Indian travel industry has strong future growth prospects; the market reports indicate that the travel industry could experience double-digit growth in fiscal 2019 and beyond. India currently stands at the 7thspot in the world in terms of travel & tourism’s total contribution to GDP. The government continues to take tourist friendly initiatives to improve the Indian travel industry, which is contributing significantly to the GDP growth.

According to the United Nations World Tourism Organization (UNWTO), outbound tourist’s numbers are likely to see an annual average growth rate of 10-12% in the coming years.

India’s south region is the biggest destination for tourists over the past few years, thanks to the increasing number of religious trips and sports festivals. Yatra Online has expanded its presence in the southern region with the recent acquisition of PL Worldways.

Conclusion

Yatra Online is in a strong position to either accept or reject Ebix offer. In the case of acquisition, the shareholders would receive a huge premium. Nevertheless, the company can opt to expand its business on a standalone basis. It expects to outperform the industry growth rates; the company projects sales growth of 20% for this year compared to the industry average growth of 12%.

Fortunately, its valuations turned attractive after the recent price drop combined with strong financial numbers in the latest quarter. The stock is trading below the 52-week high of $7.75 a share. In addition, the offer of 84% premium from Ebix represents that Yatra Online shares are currently significantly undervalued. On the whole, buying Yatra Online shares appears like a good strategy for growth investors – who are seeking big profits in the short-term.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.