Decoding The ixigo Moat Ahead Of INR 120 Cr Public Listing

Witnessing a significant surge in revenge travel as the effects of the pandemic began to wane and enticed by India’s bullish IPO market, travel tech major Ixigo filed for an INR 1,600 Cr public offering in August 2021.

However, much to everyone’s surprise, the startup shelved its IPO plans. Interestingly, a quick flashback of what followed next would reveal that the company’s move was probably ‘a stitch in time’.

The lacklustre high-valuation IPO of Paytm and the staggering market value decline of all the 2021 heavyweight listings in 2022, including Zomato, PB Fintech, and Nykaa, gave a major reality check for all the IPO-ready startups.

Cut to 2024, with the broader market showing more resilience, ixigo refiled its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) in February for an INR 120 Cr public listing. 

Now, with the IPO season in full bloom and ixigo awaiting the SEBI nod, we have decided to deep dive into ixigo’s public offering, its strengths and weaknesses. Alongside, we will also be understanding if the Indian travel tech sector has enough appetite for another heavyweight public listing after EaseMyTrip and Yatra.

Why Does ixigo Stand Out?

As shown above, in 2021, the startup intended to issue fresh shares worth INR 750 Cr and another INR 850 Cr from the OFS during its IPO. 

However, under its new plans, the IPO includes a fresh issue of only INR 120 Cr and an Offer for Sale (OFS) component of 6.66 Cr shares. The value of these shares will be determined when ixigo announces the price band for its IPO, following approval from SEBI.

This could be because, ever since Paytm’s IPO, the market has become more cautious about the size and valuation of new IPOs.

While it is unclear why ixigo revised its listing appetite, worth highlighting is the company’s profitability moat, which makes it stand out among new-age tech IPOs.

We must note that after the 2022 market slump, investors have doubled down on the profitability element across the private and public markets. After slipping into loss in FY22, ixigo’s parent entity Le Travenues Technology Limited turned profitable in FY23 with a consolidated net profit of INR 23.4 Cr. Its operating revenue jumped 32% YoY to INR 501.2 Cr that year.

Analysts believe ixigo’s profitability, focus on railway ticketing, and targeting of Tier II and smaller markets are major strengths for its IPO. In contrast, other IPO-bound companies like Ola Electric, FirstCry, MobiKwik, and Swiggy remained unprofitable in FY23.  

Founded in 2007 by Aloke Bajpai and Rajnish Kumar, ixigo started as a travel search website, helping users compare flight deals. In FY20, it became an online travel agency (OTA), earning revenue from selling various travel services like flights, trains, bus tickets, hotel bookings, and holiday packages.

ixigo operates two sets of apps: one for train bookings and another for flights and hotels. It also adopted a “house of brands” approach, acquiring the train booking platform, ConfirmTkt, and the bus, train, and hotel booking platform, Abhibus.

In its DRHP, ixigo acknowledges that its multi-app strategy helps it cater to both sophisticated Tier 1 travellers and aspiring Tier 2 and smaller market travellers.

ixigo’s focus on Tier II and smaller markets has been a crucial strategy, allowing it to secure a strong position in the train booking segment — a unique value proposition that its competitors lack. 

While major competitors like EaseMyTrip, Yatra, and MakeMyTrip focus primarily on flights and hotels, ixigo has capitalised on the train booking market.

Train ticketing revenue as a percentage of ixigo’s gross ticketing revenue rose significantly and reached 46.83% in FY23, up from 21.15% in FY21. For the nine months ending December 2023, train ticketing revenue contributed 45.3% to the total, amounting to INR 265 Cr. During the same period, ixigo’s total gross ticketing revenue was INR 585.8 Cr.

Meanwhile, an analyst told Inc42 that there is no shortage of capital in the market, and institutional investors are ready to invest in companies with unique stories and attractive IPO valuations, ideally at a discount compared to already listed competitors. 

“With a major focus on the railway and Tier II market, ixigo has been able to put across a narrative which has built its differentiated story. Otherwise, investors might question why they should choose ixigo over an already-listed company like MakeMyTrip,” the analyst said.

The startup in its DRHP highlights that the main reason for ixigo and Confirmtkt’s considerable lead in the rail market shares in India is their focus on enhancing user experience with features such as live train tracking, PNR prediction, station alarms, AR (augmented reality) coach position, and free cancellation.

Sonam Srivastava, founder and CEO at Wright Research, also explained that these differentiating factors make ixigo’s forthcoming IPO lucrative. She added that the profitability aspect makes it further interesting.

After a significant slump starting in mid-2022, ixigo shares began trending upwards in the grey market from November 2023. Following the DRHP filing, ixigo shares spiked to INR 165 per share and are currently trading around INR 150.

What’s The Catch?

ixigo’s competitive advantage in the railway ticketing space is a double-edged sword for the company. While IRCTC is ixigo’s most important partner, it is also its biggest rival. ixigo also locks horns with the likes of already listed EaseMyTrip, MakerMyTrip, and Yatra in the online travel aggregation space.

In its DRHP, the company explains that its pact with IRCTC allows it to act as a non-exclusive principal service provider for booking reserved online train tickets through the IRCTC web service. This agreement is currently valid until April 30, 2028. 

This heavy dependence on IRCTC and that too non-exclusive could pose a major risk for the IPO-bound travel major in the future. In its DRHP, the startup highlighted that any variation or termination of its agreement with IRCTC might have an adverse impact on its business, financial condition, results of operation and cash flows.

Meanwhile, industry analysts also view critically the high amount of the OFS element in ixigo’s proposed IPO.

“ixigo’s potentially smaller fresh issue size (in comparison with OFS) might concern some investors. It is generally not seen as positive if a company does not raise money to invest in its growth,” said Wright Research’s Srivastava. 

However, she believes that it might be a good opportunity for investors to subscribe to the IPO from a long-term perspective. 

ixigo’s major investors SAIF Partners and Peak XV, as well as founders Bajpai and Kumar, are offloading their stake in the company as part of the proposed IPO process.

What’s Ahead?

Currently, ixigo plans to use the net proceeds from its IPO to meet its working capital requirements, enhance its technology infrastructure, expand its investments in data science and AI, and support inorganic growth through acquisitions.

Analysts believe the company should continue to enhance its technological capabilities and expand its market outreach in Tier II and beyond to achieve sustainable growth.

Let’s also take a look at how its direct competitors performed in their respective IPOs.

We must also note that during the IPO boom in 2021, EaseMyTrip was listed on the BSE at a premium of over 10% and on the NSE at more than 13% premium to its listing price. On the other hand, Yatra made a disappointing debut on the bourses in 2023 by listing at a 10% discount to its issue price.

Overall, the travel tech ecosystem is witnessing promising growth across the world, which is expected to receive a further boost with the advent of AI-led automation that makes travel bookings and other related services more customised and convenient.

A report estimates the global travel tech market to reach $21 Bn by 2032, growing at a CAGR of 8.6% between 2023 and 2032.

Besides the OTAs, India recently saw the B2B travel portal Travel Boutique Online or TBO Tek making a strong debut at a 55% premium. Its public issue was oversubscribed 86.7X.

Earlier, in 2021, though travel tech SaaS startup Rategain made a lacklustre stock market debut, its shares have been on a massive uptrend since mid-last year. In 2023, Rategain shares surged 156%.

“From an industry point of view, the travel tech market is expected to grow at a decent pace over the next few years, which makes it an interesting play. Also, most of the travel bookings have now moved online, therefore, it is an important segment to focus on,” said Srivastava.

While the exact timeline for ixigo’s IPO is unclear, some market experts believe that ixigo might not launch it anytime soon. Currently, the broader market is also volatile as India awaits the results of the general election 2024.

Overall, while the IPO valuation will play a key role in deciding the fate of this IPO, it will be interesting to watch how the profitable travel tech venture performs in the IPO market, betting on its railways and Tier II playbook.