RateGain Shares Recover 9% In A Week Post Subdued Listing, Covid Concerns Persist

Much to the surprise of several market experts and defying trends in the grey market, shares of travel tech startup RateGain got listed on the exchanges with a 15% discount from the issue price on December 17th, 2021.

Grey market premiums had been suggesting that the shares would list at a premium of INR 30-INR 60 from its issue price of INR 425 per share. Its IPO had also received a healthy investor interest with 17.41 times subscription.

Analysts now believe that the renewed Covid-19 concerns with the increasing number of cases along with the bearish trend on the stock market as a whole played its role in the weak debut of RateGain in the public markets.

On the day of listing Santosh Meena, head of research at Swastika Investmart Ltd had said, “The timing of RateGain IPO doesn’t fit despite most of the IPOs are witnessing a handsome return because Covid is hurting its business in the near term while worry of Omicron variant is another challenge.”

However, after nearly a 20% decline on its first day of trading on the exchanges, the shares have somewhat recovered. Since December 17th, its share price has increased 9.2%.

On Friday (December 24th, 2021), the shares prices tumbled 2.78% to close at INR 371.95  a share on the BSE.

Along with concerns for the travel and hospitality sector, another major factor which affected the RateGain listing was the massive selloff on December 17th, both in the domestic and global stock markets. On December 17th, the benchmark BSE Sensex tumbled 890 points.

Analysts feel that stocks related to the travel and hospitality sector would continue to remain under pressure in the near term till there is no certainty on the Covid situation and the possible restrictions that may come in.

Rahul Sharma, cofounder of Equity99 noted that the outlook for RateGain is positive in the long run but its association with the hospitality sector have impacted its shares.

“Near term outlook for its stocks is volatile due to the Omicron concerns and people are now concerned about possible restrictions. By February the stocks related to the hospitality industry are expected to grow, with more clarity and ease in the Covid situation,” he said.

A research note on the RateGain IPO by Axis Capital noted that the pandemic has severely restricted the level of economic activity around the world, and is having an unprecedented effect on the global hospitality and travel industry. 

RateGain derives a significant majority of their revenues from their operations outside India and in particular from North America and Europe, it said. 

“A vast majority of the business is influenced by leisure and non-managed travel. While much uncertainty remains, vaccinations combined with loosened restrictions and the opening up of local economies have spurred leisure demand from travellers in the United States,” it said.

A note by JM Financial also mentioned the impact of the pandemic on its business and said that its future impact on their business, operations and financial performance is uncertain.

Growth Prospects For The Startup 

Although the listing was marred by the Covid concerns, the long term outlook for the company remains strong, according to market experts.

RateGain serves a large and rapidly growing total addressable market. Third party travel and hospitality technology is estimated to be a $ 5.91 Bn market in 2021 growing to an estimated $11.47 Bn in 2025 at a CAGR of 18%, according to the Axis Capital note. 

Enterprise applications focused on guest acquisition, distribution, revenue maximisation and wallet share expansion in the hospitality and travel industry have a serviceable addressable market size of $4.34 Bn in 2021, growing to an estimated $8.45 Bn in 2025. 

“This is a large and rapidly growing addressable market opportunity for a vertical specific platform company like RateGain. The travel technology segment is further favoured by industry tailwinds of digitisation in the post Covid times,” it said.

JM Financial noted that the company has maintained focus on capital efficiency and have grown without incurring material indebtedness, their conservative approach of operating with low debt has enabled them to remain in a good position during the Covid crisis. 

“Their balance sheet position enables them to make strategic investments by acquiring stakes in certain companies, and consolidate their position by acquiring brands, complementary technologies and product lines,” it said.

RateGain’s FY21 Financials

For the last financial year (FY21), the Delhi NCR-based startup reported a net loss of INR 28.57 Cr, 42% higher than INR 20.10 Cr of net loss registered in FY20.

Its revenue from operations fell 37% to INR 250.79 Cr in FY21, compared to INR 398.71 Cr reported in FY20.

Founded in 2004 by Bhanu Chopra, RateGain offers a SaaS product that helps travel and hospitality companies streamline operations and sales. It enables them to determine the right pricing for their products based on the demand, the current market rates that help hotels and booking agents to maximise revenue.

RateGain’s clientele includes InterContinental Hotels, Lemon Tree Hotels, The Kessler Collection and another IPO-bound travel unicorn OYO Hotels and Homes.

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