TBO Tek Q1 FY27 earnings call

Q1 FY27 was described as the "toughest quarter for the company in the last two years" due to "increasing disturbances in the Middle East" causing "severe disruption in travel across the globe." Despite these challenges, TBO Tek "delivered growth both on top line and bottom line" and demonstrated a "clear demonstration of operating leverage." The company reported an "EBITDA to GTV number at 1.3%" and an "EBITDA to GP" conversion of "26%." Management expressed pride in the company's resilience during this period.

The Middle East, identified as the "eye of the crisis," delivered "flat numbers" with "1% growth in constant currency," which management found "very commendable." However, the situation remains "extremely fluid," making it "very hard to predict^📌" when growth will normalize^📎. The "inbound into Middle East is most impacted," causing "serious stress" for businesses reliant on incoming travelers. The company's diversified source markets, particularly Europe and APAC, helped cushion the impact.

TBO Tek's "bottom-line EBITDA margins grew significantly," providing a clear demonstration of operating leverage. Management expects that "SG&A growth will be significantly slower than GP growth," which should lead to meaningful margin expansion. They anticipate "a little bit of other margin expansion in Q2" as the top line grows, noting that Q2 is historically "bigger than Q1" in terms of travel volume.

The acquisition of Classic Vacations has proven "very timely," with North America now contributing "almost a quarter of our hotel GTV." The integration strategy involves expanding the sales team in North America, automating back-office and customer service processes, and platform integration. The "bulk of integration of Classic will be completed by Q3 FY27," and platform integration is "likely to finish by CY end of this current calendar year," with migration expected "early next year." The full-year margin for Classic is assessed at "around 2.5%." This acquisition provides entry into a more resilient travel corridor.

The diversity of TBO Tek's source markets was a key factor in building resilience. Europe delivered "24% YoY growth" despite general travel impacts. APAC also performed "fantastically well," with "30% plus growth to 15% in APAC." India Airlines saw a "15% percent GTV growth this quarter," attributed to proactive business capture. These regions are currently leading the growth charter, offsetting some of the Middle East's challenges.

TBO Tek is investing in AI across three main areas: CX productivity, sales productivity, and an AI itinerary tool called VOYA. The "Capex on it is also very minimal right now." Management believes that "most of the predictable gains in the business are really going to get driven by... implementing CX in AI and in sales effectiveness," rather than external market disruption^🌐 from large AI models. They are hopeful about these projects, despite them being in early stages.

The company reported "Rs. 1,980 plus crore as the cash in bank." They also hold "70 million USD of loan as well as 6 million euro of a working capital loan for Jumbo." Working capital is subject to seasonality, with accruals typically highest at margin time and payments released in the first half of the next year. Changes in supplier mix can also impact working capital movement due to varying payable days.