RateGain IPO: Here is what sets it apart

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Last updated on December 1, 2021

Noida-based RateGain Travel Technologies has filed its draft prospectus with capital market regulator SEBI to launch its maiden offer. The SaaS player counts private equity players TA Associates and Avataar Ventures among its investors. While the company is hoping to receive regulatory approval soon for the public offer, we dived in the draft papers to figure out what makes this company special. For starters, RateGain IPO will be a category defining public offer as there are no SaaS players listed on Indian stock exchanges. RateGain is surely an interesting company, read on for more.

#1 RateGain’s Business: Data, data and data

RateGain Travel Technologies is one of the largest aggregators of data points in the world for the hospitality and travel industry. The company is among the leading distribution technology companies globally offering solutions to hotels, airlines, online travel agents (OTAs), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries.

Fairly obvious to say that the company is the largest Software as a Service (SaaS) company in the hospitality and travel industry in India.

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#2 Comprehensive product portfolio

The company started operations in 2004 with a competitive intelligence price comparison product for hotels. Over years, the company has developed a comprehensive product portfolio that caters to the technology ecosystem for the hospitality and travel industry and in particular, to enterprise and mid-market customers for revenue management decision support, competitive intelligence, distribution and social media marketing, online reputation and brand engagement.

These inter-connected products manage the revenue creation value chain for its customers by leveraging big-data capabilities and integration with other technology platforms helping hospitality and travel providers acquire more guests, retain them via personalized guest experiences and seek to maximize their margins.

While there are plenty of travel technology providers, RateGain offers a platform that bridges the data gap across the hospitality and travel industry. It provides inter-operable products that leverage data across internal and external sources.

#3 Well-defined delivery model

The company operates through three Strategic Business Units (SBUs)

  • DaaS – RateGain offers competitive intelligence and parity intelligence through a subscription model to help hotels and travel suppliers stay competitive and optimize their revenues. The products such as Optima and Parity are offered on a hybrid model (minimum subscription fee + a pay-per-use charge) to its OTA customers and airlines, car rental and vacation packages customers. The SBU accounted for 37.2% of its revenues in FY2021.
  • Distribution – The company offers two products (i) RezGain which operates on a subscription basis and targeted to mid-market and (ii) DHISCO which operates on a transaction model where the company generates revenues from bookings done by OTAs and GDS operators. Distribution is the largest SBU and contributed 48.6% of the company’s total revenues in FY2021.
  • MarTech – The company offers hospitality customers social listening and guest communication services, provides active management of their social assets and campaign management to increase awareness, engagement and sales that help in personalization of guest experience. MarTech solutions are offered on a subscription basis and being a relatively new unit, it accounted for 14.2% of the company’s revenues in latest fiscal year.

#4 Total Addressable Market and Covid tailwinds

RainGain serves a large and rapidly growing total addressable market. Third party travel and hospitality technology market was estimated to be worth USD5.91 billion in 2021 growing to an estimated USD 11.47 billion in 2025 at a CAGR of 18%. Enterprise applications focused on guest acquisition, distribution, revenue maximization and wallet share expansion in the hospitality and travel industry have a serviceable addressable market size of USD4.34 billion in 2021, growing to an estimated USD 8.45 billion in 2025. This is a large and rapidly growing addressable market opportunity for a vertical specific platform company like RainGain. The travel technology segment is further favored by industry tailwinds of digitization in the post COVID times.

In 2019, the global travel and tourism industry was 10.4% of the global GDP but faced a number of challenges, the most critical of them being low digitization and disparate systems that were not inter-operable.

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COVID-19 has however, accelerated digitization of customer interactions with hospitality and travel companies. These changes are likely to lead to a shift by hospitality and travel companies from in-house solutions to third-party software and services, thereby offering more tailwinds to players like RateGain.

#5 Global and increasing customers

Given the nature of the company’s global business model, its customers are also spread across the globe (over 110 countries to be precise). As of 30 June 2021, it served over 1,434 customers including eight Global Fortune 500 companies.

RateGain’s marquee global customers include 25 out of the top 30 OTAs (Online Travel Agents), several of the world’s fastest-growing airlines, and 23 of the top 30 hotel chains. In addition, the company counts all leading car rental companies, all large cruise lines, and the largest travel management companies among its clients.

Its customers include Six Continents Hotels, Kessler Collection, Lemon Tree Hotels Limited and Oyo Hotels and Homes. It also counts 1,186 large and mid-size hotel chains, 104 travel partners including airlines, car rental companies and large cruise companies and over 144 distribution partners including OTAs such as GroupOn and distribution companies such as Sabre GLBL as its customers as of 30 June 2021.

What’s more interesting to know is that its customer base has increased over the years and the company added 147 active customers in the last three fiscal years. Prospective investors in RateGain IPO will surely love this aspect.

#6 Customer Retention: Highlight of RateGain IPO

Customer Retention is one of the most crucial aspects of any successful business and RateGain scores well in this department. Some of the key customers including Sabre GLBL, have been associated with the company since 2003. Even going by more recent yardstick as of 30 June 2021, seven of the top 10 customers by revenue have been associated with the company for over 10 years.

RateGain’s long-standing relationships with its customers is reflected by Gross Revenue Retention that stood at 89.2% in FY2021. The company has simply followed the strategy of creating new products that addressed customers’ requirements. While this approach helped beautifully in retaining customers, it also helped in ensuring that no customer account had an excessive weightage in its portfolio. Underlining this is the revenue contribution from ten major customer groups which stood at 37% of its revenue from operations in FY 2021. This figure is down from 42.2% in FY2019.

#7 RateGain IPO: Uneven financial performance

The company has had a mixed bag in recent years in terms of financial performance. Revenues increased in FY2020 but profitability was hampered by the impact of Covid-19 outbreak. FY2021 was a washout year as the virus traveled across the global and expanded to become pandemic.

In line with this diversified list of customers, the company derived 79.7% of its total revenue from operations outside India. This hurt the company as several countries closed their international borders leading to cancellation of its services by several customers.

RateGain Travel Technologies’ Financial Performance (in INR crore)

 FY2019FY2020FY2021
Revenue272.7457.6264.1
Expenses263.2475.4288.7
Net income11.6(12.8)(27.9)
Margin (%)4.3(2.8)(10.6)

Nevertheless, the company has maintained focus on capital efficiency and has grown without incurring material indebtedness. Its conservative approach of operating with low debt has enabled it to remain in a good position during the COVID-19 crisis.

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#8 Acquisitions and more of them, even after RateGain IPO

What’s more impressive is that the company has managed its capital efficiency despite a growth strategy that relies heavily on acquisitions. RateGain acquired North American connectivity solutions provider DHISCO in 2018 and turned it profitable. Similarly, it acquired BCV – a marketing technology company – in 2019 and was able to extend its offerings to customers globally. More recently, RateGain acquired Myhotelshop, a German hotel marketing technology vendor.

It is safe to say that the company has established a track record of successful inorganic growth through strategic acquisitions. Its balance sheet position enables it to make strategic investments by acquiring stakes in certain companies, and consolidate its position by acquiring brands, complementary technologies and product lines.

Acquisitions are inherently tricky corporate developments given the vast differences in products, processes and cultures that may exist and thus, integrating acquired entities involves a skill set which is different from what is required in managing regular operations.

#9 No listed peers, RateGain IPO to be the first  

Given the fact that the company operates in the cutting-edge technology and market intelligence vertical, it is no wonder that the company has no listed peers in India. In that sense, it is a category defining player and is likely to remain the solo choice for investors in this category for quite some time.

However, this is not to suggest that the company has got no competition at all. In the unlisted space, RateGain faces stiff competition depending on the product and service. Some of its competitors include:

DaaS – Competition includes TravelClick, OTAinsight and Fornova in the hotels segment; InFare in the airline segment; RateHighway in the car rental segment; and Fornova in the OTAs segment.

Distribution – Competition includes Siteminder, Derbysoft and TravelClick.

#10 RateGain IPO: The Road Ahead

The company plans to expand into adjacent verticals within the travel industry. Specific examples include car rental segment and vacation rental segment. The vacation rental industry is a USD 71 billion industry, with over 37 billion unique properties globally and 628 million customers. However, the industry is largely unorganized, making it difficult for revenue management, distribution, and marketing teams. This is where players like RateGain can play a meaningful role.

It is worth highlighting here that the company has set up RateGain Labs, an in-house incubator, to grow its product development capabilities. As of 30 June 2021, RateGain Labs had 15 full-time employees and is led by the company promoter, Bhanu Chopra. A grassroot level involvement of the promoter is something which is likely to be positive for RateGain IPO.

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Going through these points, one can make out that the company and its business model is quite different from majority of the upcoming IPOs. As always, we will publish a detailed note on the prospects of RateGain IPO from a valuation and investment perspective.

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