What’s driving rush of IPOs by travel firms?

Wary of taking debt, a number of companies in the pandemic-hit travel industry is looking to take the initial public offering (IPO) route to raise funds. Globally, the Covid-19 pandemic has brought the travel industry to its nadir.

There are at least a dozen travel-related companies globally which are in the midst of being listed or have already gone public in the recent past months. Closer home, EaseMytrip went public in March this year. The travel company’s IPO was subscribed 159.33 times. Ixigo and RateGain have also filed their Draft Red Herring Prospectus.

Reasons for sudden rise

BusinessLine spoke to multiple analysts to understand the sudden rise in travel-related IPOs and what it means for retail investors and the travel industry. Anuj Kejriwal, founder of Kejriwal Research, explained that there is awareness, liquidity interest and demand in the recent past. In the last one year, at least 40 companies have decided to go public across industries. This includes both traditional and tech-based companies like Zomato which was oversubscribed.

Response given to other start-up listing has been a massive boost and led to a flurry of companies coming to raise funds from the secondary market to take advantage of the heightened investor appetite for new investment opportunities for companies like Ixigo and RateGain.

‘No financial aid’

Not only that, the travel industry has been hit hard, which has led several unorganised players to shut shops whereas the revenues of big players have plummeted. Experts said, there has been little or no financial aid to the travel industry. To top that, their asset light model, technical aspects of credit and commission system have made bankers wary of funding them.

“An IPO not only allows the company to raise funds but also gives the existing shareholders the benefits of a secondary market listing. Debt, on the other hand, can be a burden for companies when they operate in a highly competitive and cyclical industry.So despite interest rates being relatively low, companies would prefer the IPO route at the moment,” said Yug Tibrewal, Research Analyst at Choice Broking India.

A key driver for players like Ixigo and RateGain, according to their DRHP is the optimism that at least leisure travel will limp back to normalcy as restrictions are eased across the world. “This should lead to above normal revenues for travel-related companies, especially tech-based firms,” he added.

“Another important driver for travel firms to get listed is once a company is listed, it gets a credit rating which helps them to acquire other companies and expand their businesses,” Kejriwal said.

Acquisitions

Ixigo has made acquisitions in ConfirmTKT and Abhibus, whereas in the past Thomas Cook too has made multiple acquisitions in the forex, photography and digital spaces too.

Kejriwal said that like for other industries going public was a way to tap on to more market share, the future of the travel industry too is going to be the same. He said that there is a huge boom in unicorns and start-ups which have disruptive models. Even the railway tickets booked online versus booked at the railway ticket booking counter is drastically different.

“Gone are the days of small travel agencies in the nooks of by lanes. Almost all the ticket booking happens online. In this scenario, mom-and-pop shops are likely to suffer because they do not have a future at all. The future is organised players and size. It is fair to assume that the top five or eight players would want to be directly or indirectly listed. This is the beginning and more will follow,” he said.

On the flipside, retail investors have reciprocated well to some of the listings like Zomato. According to Tibriwal, travel is a highly cyclical industry that is affected by economic and social factors.

In the short term, there remains a threat of further waves of infections with subsequent lockdowns. Additionally, “the long-term impact on consumer behaviour due to the pandemic is yet to be seen. Considering these factors and valuations being on the higher end, we would recommend investors to be highly selective when considering travel related stocks at present,” he said.

While institutional investors weigh the risks and opportunities in depth, retail investors are mainly industry agnostic, they don’t understand the industry dynamics and are least bothered to do so because it isn’t their objective, Kejriwal explained.

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