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TBO Tek Ltd

| Q2 & H1 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤3rd Nov 25

Summary : TBO Tek delivered strong Q2 FY26 results, driven by hotel growth and Classic Vacations acquisition, with a positive outlook for margin expansion and global market penetration despite some regional headwinds.

Management Perspective positive : "Q2 FY26 was an exciting and eventful quarter for us.""We had a relatively stable and growing quarter in Q2.""We are still confident that we will find ways to get similar growth profile.""We expect operating leverage to flow through and EBITDA should start accelerating faster than GP.""We remain bullish on that program it is meaningfully adding to the bottom line."

Concall Report Analysis & Insights

Business Overview

  1. Q2 FY26 was a strong quarter, reflecting peak travel season performance.
  2. GTV grew 12%, largely driven by 20% growth in the hotels business.
  3. GP increased 19%, faster than GTV due to a favorable mix shift towards hotels.
  4. Adjusted EBITDA (pre-M&A costs) grew 16% to Rs. 104 Cr.
  5. The acquisition of Classic Vacations closed October 1st, with consolidation starting Q3 onwards.

Future Growth Prospects

  1. Expect faster synergy realization and margin expansion from Classic Vacations integration.
  2. Aim to unlock 15-20% growth in the Classic Vacations business.
  3. India's air business is stabilizing and anticipated to grow, aiding cross-selling.
  4. Europe and Middle East show strong active agent and new business growth.
  5. APAC markets, including Australia, are experiencing high double-digit growth.
  6. AI and data analytics are being infused to optimize pricing and conversion rates.

Management Insights

  1. Q2 FY26 was an exciting and eventful quarter for the company.
  2. The hotels business remains a core theme and will continue to be built upon.
  3. Air business de-growth has been arrested, with focus on continued penetration.
  4. Operating leverage is increasing, narrowing the gap between GP and EBITDA growth.
  5. Committed to expanding EBITDA margin on the core business, excluding Classic Vacations.

Signs of Skepticism

  1. Uncertainty on the timeline for Classic Vacations to achieve 15-20% growth.
  2. Difficulty in quantifying the exact upside from Classic's supply integration.
  3. Management cannot hazard a guess on LatAm's quick return to 20%+ growth.
  4. Specific guidance on APAC growth rate continuation is difficult to provide.

Risk Factors

  1. Macroeconomic headwinds and geopolitical challenges impacted Q1 performance.
  2. LatAm business faces structural challenges, including the IOF tax.
  3. Currency volatility in LatAm creates FOREX risk for advance bookings.
  4. Intense competition in the air business from OTAs and B2B players.
  5. Uncertainty on how quickly LatAm growth can return to 20%+ levels.

Good To Know

  1. A detailed shareholder letter was shared prior to the call.
  2. Classic Vacations acquisition adds roughly $500M GTV, changing market saliency.
  3. Classic's take rate is 22% revenue and 11% GP, higher than TBO's core business.
  4. TBO's GTV is based on booking time, while Classic historically reported on travel time.
  5. Top 10 customers contribute less than 10% of GTV, indicating low concentration.
  6. New travel agents added in H1 FY26 contributed 15-16% of international GTV.

Key Drivers

  1. Classic Vacations integration drives synergies.
  2. Hotel business growth remains strong.
  3. Operating leverage expands EBITDA margins.
  4. Global market expansion continues successfully.

Key Analyst Discussions

Competitive Environment

  1. Competition in the air business is broad, including OTAs and B2B players.
  2. TBO builds an edge through scale, technology, and local infrastructure.
  3. Larger hotel chains are selective; TBO's scale helps secure supply.
  4. Aggregating fragmented travel agent demand globally is a key differentiator.

Market Trends & Consumer Behavior

  1. Q2 is historically the strongest quarter due to northern hemisphere peak travel.
  2. Active agent growth is secular across regions, especially Europe and Middle East.
  3. APAC markets show strong growth, particularly Australia.
  4. India's aviation sector is expected to see significant growth.

Financial Highlights

  1. GP as a percentage of GTV is marginally up from 5.5% to 5.6%.
  2. EBITDA growth is expected to outstrip GP growth from next fiscal year.
  3. SG&A growth is slowing down, indicating increasing operating leverage.
  4. Cash flow conversion dipped due to changes in Brazil market installment policy.
  5. Amortization costs increased slightly due to project capitalization.
  6. ESOP cost declined due to reversal from resignees, expected to normalize.
  7. Acquisition-related costs of Rs. 13 Cr were fully provisioned in Q2.

Product Composition

  1. Hotels business grew faster (20%) than overall GTV (12%).
  2. Commissionable model contributes approximately 35% of GTV in hotels.
  3. Platinum business has crossed 150 participating hotels, showing strong uptick.
  4. Retail vs. API business mix is 50/50 for international hotels GTV.
  5. Retail business expected to grow faster long-term due to distribution investments.
  6. Classic's higher take rate and GP will impact consolidated numbers.

Strategic Considerations

  1. Classic integration aims for profitable growth without further core investment.
  2. Classic will benefit from TBO's larger supply pools and technology team.
  3. TBO is expanding its platform to include complex itineraries and packages.
  4. AI is used for pricing optimization, driving conversion and maximizing markup.
  5. India's air business is crucial for platform completeness and cross-selling.
TBO Tek Ltd (TBOTEK) Concall Report Analysis & Insights | Dhanarthi