TBO Tek Touches An All-Time High After Goldman Sachs ‘Buy’ Call

SUMMARY

Goldman Sachs also set a price target of INR 1,970 for the stock, which implies an upside of almost 24% to its last close on Friday

It sees TBO’s business model as having multiple positive characteristics, including exposed to a large and fragmented TAM with secular growth tailwinds, a strong execution track record, and an asset-light balance sheet

TBO Tek touched an all-time high at INR 1,741.6 as they jumped 9.6% during the intraday trading on the BSE on Monday

Shares of B2B travel portal Travel Boutique Online (TBO Tek) touched an all-time high at INR 1,741.6 as they jumped 9.6% during the intraday trading on the BSE on Monday (June 24) after Goldman Sachs initiated coverage on the stock with a ‘buy’ rating.

The international brokerage also set a price target of INR 1,970 for the stock, which implies an upside of almost 24% to its last close on Friday.

“We see TBO’s business model as having multiple positive characteristics – exposed to a large and fragmented TAM with secular growth tailwinds, a strong execution track record, an asset-light balance sheet, negative working capital, strong FCF (free cash flow) generation, and low competition/regulatory risks,” said Goldman Sachs in its initiation note on TBO Tek.

The brokerage also expects the company’s revenue to grow at a 21% CAGR between FY24 and FY30, which is at the higher end of Goldman Sachs’s global travel coverage. It expected the revenue growth to be driven by TBO Tek continuing to consolidate both supply and demand, aided by its M&A strategy.

TBO Tek posted a 64% jump in its profit after tax (PAT) to INR 46.4 Cr in the March quarter (Q4) of FY24 from INR 28.2 Cr in the corresponding period last year, helped by a sharp growth in its hotels and packages segments.

The company’s operating revenue also increased 31% year-on-year (YoY) to INR 369 Cr in Q4.

“In the coming year, we will continue to invest in global market development, supply strengthening and platform innovation. We will be looking for strategic inorganic opportunities as well”, said the company cofounder and joint MD Gaurav Bhatnagar, commenting on the earnings.

Speaking on the company’s valuation, Goldman Sachs said, “On a growth adjusted basis, TBO trades at a discount to MSCI India, India IT services, global travel names and Nykaa/InfoEdge, though more expensive than Zomato and MMYT (MakeMyTrip). TBO has had a consistent profitability and FCF generation track record, and operates in an industry where we see low regulatory and competition risks; we believe this warrants a premium valuation.”

However, it expects some of this premium to be offset due to TBO operating in a segment, which could see headwinds from shift to online over a longer time horizon.

Meanwhile, Goldman Sachs also said that from an underlying industry viewpoint, while there are potential headwinds from the shift to online in the long term, it also sees tailwinds from faster growth in outbound travel, including from first-time travellers and travellers with complex itineraries who might require assistance.

The brokerage views TBO Tek’s risk-reward ratio as favourable.

TBO Tek made a strong public market debut last month. Its shares were listed at a 55% premium at INR 1,426 on NSE while on BSE, the stock price was listed at a 50% premium, at INR 1,380.

After listing, the stock rallied over 15% crossing INR 1,500 level in its last close.

TBO Tek shed some of its early gains on Monday and was trading 8.2% higher at INR 1,719.45 on the BSE by 2 PM IST with a market capitalisation of INR 18,671.13 Cr ($2.2 Bn).