I guess we can start, right?
Yep.
Good evening, everyone. I'm Snighter Albuquerque from Adfactors PR Investor Relations. On behalf of TBO Tek Limited, I would like to welcome you all to the earnings conference call for Q2 and H1 FY 2026. Today on the call, we have with us from the management Mr. Ankush Nijhawan, Co-Founder and Joint Managing Director; Mr. Gaurav Bhatnagar, Co-Founder and Joint Managing Director; Mr. Vikas Jain, Chief Financial Officer; Mr. Anil Berera, Head Strategy; Mr. Akshat Verma, CTO; Mr. Pramendra Tomar, General Counsel; and Mr. Shreshth Mahajan, Associate Director, Investor Relations. We will begin the call with a brief opening recommendation from the management, followed by a Q&A session. Please note that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to certain risks and uncertainties that could cause the actual results or projections to differ materially from those statements.
TBO Tek will hold no responsibility for any such actions taken based on such statements and undertakes no obligations to publicly update these forward-looking statements. I would like to hand the call over to Gaurav Bhatnagar now for his opening remarks. Thank you, and over to you, Gaurav.
Thank you, Snighter. Good evening, everyone, and welcome to our Q2 FY 2026 earnings call. Just prior to the call, we have shared a detailed shareholder letter on the investor relations website, just like we did last time, and we believe that format works better where we give you all the chance to review the numbers and then spend more time on Q&A. I'll just take a minute to summarize the results, and then we'll jump straight into Q&A. This Q2 was an exciting and eventful quarter for us. As you all know, this is a peak travel period for most of the Northern Hemisphere, which is reflected in our results as well. Historically, Q2 has been our strongest quarter, and it's the same this year as well.
We're happy to report that after the macroeconomic headwind and the geopolitical challenges that we faced in Q1, we had a relatively stable and growing quarter in Q2. The GTV grew by 12% and largely aided by faster growth, nearly 20% growth in the hotels business. GP grew by 19%. GP is growing faster than GTV, again, because the mix is changing towards hotels, and there's slight improvement in retention as well on the hotels business. The EBITDA before M&A costs, as you know, we acquired Classic Vacations this quarter, and the cost is appearing in our numbers. Before M&A costs, we delivered an Adjusted EBITDA of INR 104 crore, which is a 16% growth compared to the same quarter last year.
You will see that the gap between GP growth and Adjusted EBITDA growth is narrowing down now, which is a reflection of the increasing operating leverage in the business. Apart from this, the other big event in this quarter was the acquisition of Classic Vacations. As of 1st October, the transaction has been closed, and Classic Vacations is starting to integrate into the business. You will start to see numbers from Classic getting consolidated in our numbers starting Q3. With that, we will open the floor for questions.
Thank you so much, Gaurav. We will now begin the Q&A sessions. Participants are requested to raise their virtual hands to ask a question. Request you to introduce yourself and the firm you represent before going ahead. We will wait for the Q&A for the question queue to assemble. Yes, we'll take the first question from Manish Adukia . Manish, please. One moment. Manish, can you please unmute yourself?
Yes.
Yeah.
Thanks a lot. Thanks for taking my question. Good evening, team. Really appreciate the detailed shareholder letter and the disclosures. I have a couple of questions. First, congratulations on completing the Classic transaction. Versus the last time we spoke, when you had done the call to announce the Classic transaction, we'd love to get a little bit more detail around how that business may change your growth and margin profile. I think your business, of course, this quarter did mid-20s revenue growth, 20% GP growth. Classic, from whatever you've shared in the past, last few years, has not shown any meaningful growth, at least. Now, with Classic integrated from the December quarter, over the next one to two years, do you see TBO's overall growth profile as resetting lower versus what you were delivering?
Maybe the growth may be slightly more profitable, but just want to get your overall sense on how Classic integration could change the growth profile of the business.
Look, Manish, I think that's a very fair question. The way we are looking at it is, one, it's very early, very, very premature for us to be able to comment on the combined business's growth profile. The way we are looking at it, Manish, right now is that Classic, at a top-line added GTV level, would still be contributing roughly $500 million on a GTV basis.
On a GTV basis, on a total base of roughly $3.5 billion. Right? So from a GTV profile perspective, Classic adds to the denominator, but not so significantly for us to have a big drag. I think the bigger challenge is going to be to look at the revenue and GP profile of Classic because Classic does operate at a much higher revenue at almost 22% of Take Rate and 11% of GP. Now, two things are going to happen over there. Yes, absolutely. From a revenue perspective, it will add a meaningfully large number to our existing revenue. On a GP basis, Manish, I think the business is more similar to our business. Yes, it is slightly more accretive in terms of what it generates as a percentage of GTV.
At that line, we should be able to find one in the short-term growth synergy to drive GP, continue to drive GP at a similar rate as before. The other bit is there are a couple of pockets of opportunity, and we'll talk a little bit about it later as well. For example, India is starting to come back from a period of degrowth to flatten more. That is an open opportunity for us to add up to the overall growth in the subsequent quarters and years. Second is, as a base, the U.S. is a very large market. Right? The question that we need to answer is, can we unlock 15%-20% kind of growth in that business, given that the size of the market is very large and the business is right now owned by private equity as against a strategic?
That is the only bit we need to answer. The rest of the engines are shooting at higher than 20% growth, as you would see in a shareholder letter as well. Most regions are actually delivering, even maturing regions like the Middle East are delivering 20% + growth. We remain confident. I don't want to comment that will that overall growth profile remain same. At the bottom line, absolutely, it should accelerate. At the top line, we are still confident that we will find ways to get a similar growth profile, but too early to comment in a definitive manner.
Thank you, Gaurav. I really appreciate that response. That statement that you made about ability to unlock that 15%-20% growth in Classic over a period of time, whether that happens or not, I mean, I'm sure you have a structure in place in terms of how you think about the growth getting to 15%-20% for Classic. Could that be like a two-year journey, five-year journey? I mean, for you to get there, would that require a lot of investments in Classic? Could the journey be more like a near-term, or could that be like a much more longer-term journey for Classic to get to those kinds of levels of growth if it gets there?
See, Manish, I think in the short term, what I would expect is that we would see a faster synergy realization on the bottom line. The reason I say this is because, and which we have seen happen in our previous acquisition as well, is that we do have a significantly larger supply pool that we will be plugging into the Classic ecosystem. Usually, these synergies first start showing up in margin expansion within the existing business, and hence, the bottom line kind of will show some improvement to begin with. Subsequent to that, again, the same question comes that we have been grappling with as well. How much of that bottom line improvement do you want to push back into the top line? Broad theme, Manish, will remain the same that it is going to be profitable growth.
We are not looking at taking any further cash from the core business to accelerate growth in Classic. The Classic investment thesis was that this business will be profitably growing without any further investment, and we stick to that. I do not think it is a five-year journey. It should be shorter than that. Now, whether it is a one-year journey or a three-year journey, that is hard to say. If we do not find growth levers in two years, we will not find them.
Very helpful. Maybe just one or two quick follow-ups. You mentioned GP to EBITDA. That growth has now started to converge. In your previous call, you had mentioned that a lot of investments will be done by this fiscal year in the core business. Is it safe to assume that, let's say, at least starting next fiscal year, EBITDA growth should start outstripping GP growth for the business?
I think that's a fair assumption for the core business. You would see that, and I think we've shared it in our shareholder letter as well. Year- on- year, quarterly SG&A growth is starting to slow down now. We expect that trend to continue for the next couple of quarters as well. Yes, you're right, Manish, that we would expect operating leverage to flow through, and EBITDA should start accelerating faster than GP in the subsequent quarters.
Just my last question. India business, of course, encouraging to see the growth now starting to at least stabilize. Do we have any view on the outlook of that business? I mean, it's stabilized now. From here on, should it accelerate? Should it stay in the current range? And within that, just the hotel versus air bit, like hotel, of course, doing better than air today, but on the air, is there meaningful scope for acceleration? Would love to get your thoughts. Thank you for taking my questions.
First, Manish. Again, repeating, hotel business is our core theme of the company, right? I mean, for obvious reasons, which all of us know. That is something we will keep building on. Air is definitely, we had to arrest the degrowth because it is a big hook for us. First, to make sure that our penetration continues in India, plus helps us to sell our non-air business as well. All of us know the growth which the aviation is going to see in India. Being a leader already in that space, we still want to control and ensure that we are a very, very serious, relevant player for the airlines, which will obviously help us to penetrate more, create stickiness amongst our travel agents, and obviously help us to cross-sell our hotel products. That remains the theme. Yes, it is in the right direction now.
We do anticipate growth going forward as we move into this quarter as well as 2026.
Thanks a lot. Thanks for taking my questions.
Thanks, Manish. We'll move to the next participant. Karan Uppal. Karan, I request you to unmute yourself. Please introduce yourself and the company you represent, and go ahead with your question.
Yeah, thanks for taking my question. This is Karan Uppal from Phillip Capital. Good quarter. Congratulations on that. Three questions from my side. Firstly, on the monthly transacting buyers, so very smart addition in the international markets. The growth rate is really strong. Can you elaborate which particular markets or countries are doing well where your SG&A expenses are showing results and where you can catch up? That is the first question.
Okay. So Karan, the good news is that active agent growth has been largely secular across almost every region. It has also translated to new business growth, particularly well in Europe for us right now and parts of the Middle East. Right? Those are two regions where we have actually seen that not only have we added new customers, they have immediately started delivering as well. Part of it is just the nature of those markets because each travel agent is worth much more because these are richer countries where per capita travel spend is much higher. On the other hand, markets like APAC have shown a large growth in the number of transacting buyers. But because each transaction is smaller in value, they're still not very significantly contributing to the top line.
Now, the hope is that these travel agents, as they mature into from a T1 or T5 to a T10, T20 transaction, hopefully Q4, Q1, Q2 next year, they will also start meaningfully delivering. Broadly speaking, I think almost every region has seen a strong growth both on new agent addition as well as business given by the new customers.
Okay. Okay. That's great to hear. Secondly, in terms of the markets, Europe and the Middle East are our largest markets, and the growth smartly recovered in this quarter. Now, post-Classic acquisition, how should we think about the growth, let's say, in these two markets, which are almost 60% of the GTV contribution for us?
Karan, I think from a percentage of GTV contribution, from a saliency perspective, obviously, the U.S. has also become significantly large for us now. I think combined TBO core business and Classic business will be north of $700 million-800 million GTV. That will just change saliency a little bit. The growth profile for Europe and the Middle East standalone should not be affected at all. Those are fairly the way our business operates is that each of these regions runs fairly independently while sharing supply and platform as a common lever. These businesses should continue to see the benefits of all the new agent addition and all the investment we have done over the air in growing our sales team. I would not see them getting impacted either way because of the addition of Classic.
Yes, their share of wallet of the overall TBO business will reduce because we have now added significantly larger GTV in North America.
Okay. A related question to that is, since Classic's source market is mainly in the U.S., cross-selling it to, let's say, Europe and the Middle East, can we expect these numbers which you are reporting, can they accelerate from here because of Classic integration?
See, the Classic integration will have one supply benefit that Classic has access to about 1,500 luxury, ultra-luxury hotels, which many of them were not directly working with TBO in the past. Those hotels will become available to the broader TBO ecosystem in due course of time. Because Classic's technology still needs to be integrated, which will take some time. Once that happens, yes, we should see overall benefit of that in the entire ecosystem, not necessarily only in Europe and the Middle East. It's very hard to quantify right away, Karan, that how much of that upside is going to be. Also, not very easy to quantify that how much of that upside is actually margin expansion, bottom line upside, and how much of it is just new growth that happens because of it.
Very early days, but you're right that the supply that we get access to because of Classic should benefit our overall broader TBO ecosystem as well.
Okay. Okay. Last question from my side is the gross margin in the hotels and ancillary business. Second quarter in a row is in the mid-60%. This number used to be around 70%. Last time, you mentioned that the contribution from the commission business was a bit higher. Was that the same phenomena this quarter as well?
Yes, Karan, you would see that our revenue has grown significantly faster than GP. We have made a note of this in our shareholder letter as well. Essentially, what is happening is that when the share of wallet of suppliers who work on a commissionable model increases in any specific quarter, all of that commission obviously flows back into revenue. Part of that commission gets shared as netted off when we come down to the GP line. In such quarters, you will see revenue run faster than GP.
Just to add, Karan, if you see GP as a percentage of GP, sorry, GP as a percentage of GTV, it has been almost flat. Yeah, it has marginally grown from 5.5% - 5.6%.
Okay. Just one clarification. This commission versus Take Rate, what is the broad split right now in the hotels and ancillary, right, at this point in time?
I think the question is how much is commissionable, how much is net rate?
How much is commissionable, how much is net? In terms of the GTV contribution, it would be approx, I would say, 35% of GTV is coming from the commissionable model.
Okay. Great. Thanks. Thanks a lot and all the best.
Thanks, Karan.
We move to the next participant. Swapnil Potdukhe, please unmute yourself. Please also introduce yourself and the company that you represent. Go ahead with your question.
Hi. Thanks for the opportunity. First of all, congrats on a good set of numbers. I would like to start with Classic. Accounting policies. What I want to understand over here is how do you book the GTV in Classic? Do you book it at the time of a customer making the transaction, or is it at the time of travel? A related question to that basis is how should we see the seasonality playing out in the Classic business, particularly?
Swapnil, hi. Currently, the numbers the Classic has been reporting in their historical financials, the GTV numbers have been reported based on the time of travel. However, considering our accounting policy is that we record GTV based on the booking basis, we are working on to arrive at the numbers that we would be reporting in the subsequent quarters based on our accounting policy. There would be some change in the way historically Classic has been reporting the numbers and the way it would get consolidated in our numbers.
How would that affect your seasonality? I mean, how should we look at that business affecting your quarterly numbers?
Give us a time for this quarter still to have those numbers, exact numbers based on the booking related to the near to the last cancellation date, etc. We will share more insights about the same in the next quarter.
Okay. No worries. The next question is on your LatAm business. Whether growth over there has been 10%. I mean. While the rest of the portfolio is firing good enough. When do we expect the LatAm growth to recover back to, let's say, 20% or around that growth number?
See, Swapnil, LatAm as a region is facing significant headwinds. In fact, some growth has revived, but there have been just structural challenges over there, which is kind of some of it is beyond our control. We talked about the IOF tax, which remains an ongoing issue because it does make outbound travel more expensive and harder for us to do that business. The second challenge is that their currencies still remain volatile. And given their booking windows are very long in the sense they book significantly in advance, it creates a bit of currency forex risk for us as well. We have taken some action, and hence you've seen some growth come back.
I would not hazard a guess on how quickly we can get this into, say, 20% kind of growth as yet, Swapnil, because there are factors which are rapidly changing and which are really beyond anybody's control at this point in time. Having said that, from a saliency perspective, this has not a very major impact on the overall numbers for us. We are tracking closely. We are driving for higher growth in Q3, but very hard to say that will it come back to 20% + plus kind of a growth very quickly.
Got it. Got it. A question on your margin and the organic margin, given that we are going ahead, we will have Classic also integrated in our numbers. Let's just assume your business grows 20% in the hotels business next quarter also. Will it be fair to say that except Classic, we will still see operating leverage on a year-on-year basis? I understand quarter-on-quarter basis, there will be seasonality, but on a year-on-year basis, we should expect operating leverage playing out and some bit of margin expansion except Classic.
Yes, Swapnil, see, the original thesis remains. Really, we've been anchoring around Q4. You should see, I think the number that we are tracking right now is that how is SG&A year on year slowing down because we had a very strong high 28%, 25%, 30% SG&A growth in starting beginning of this calendar year on a year-on-year basis. That is definitely slowing down, much more in our control. The GP growth should continue at a certain pace minus the seasonality. Yes, you are right to say that except Classic, we should see EBITDA catch up with GP and eventually overtake GP as well. We are anchoring more around Q4 right now, given that Q3 historically is the leanest of all quarters for us.
Okay. Got it. One question on your cash flows also. This quarter, it seems your cash flow conversion on OCF2 EBITDA seems to have dipped a bit. Any particular reason that you can call out why that has changed from historical trends here?
Yeah. Specifically in the Brazil market, basically, it works on an installment basis. We earlier used to kind of anticipate those installments to get the funds upfront. What we have realized is that the cost of anticipation is much higher. Currently, what we have experimented this quarter was basically we do not do anticipation. Instead of that, we obviously have a negative working capital. Instead of anticipating the same, we have kind of done away with that practice and tried to hedge our forex risk. That is what has impacted some bit on the working capital side. We are still evaluating that experiment. If it makes sense, we will continue with it in the future.
Got it, Vikas. Just one question on your amortization policy also, because I think on your, there has been some bit of amortization in your balance sheet this quarter, intangibles. That number, I think, if I look at FY 2025 full year and the half year for this, the number seems to be the same. It seems like there is some acceleration in amortization cost, possibly some R&D related cost. If you can just help explain that.
It's primarily not, I would say, not much increase in the amortization of the intangible per se. Even some, I would say, minor increase in the capitalization and that type would have led to some increase in the amortization cost over your time. Secondly, at times, some projects would get capitalized and would get amortized over a period of five years. In some times where the project life is short, the amount gets amortized over three years. Our policy is that amortization of the intangible will happen between three to five years. That would also have some impact on the numbers which we report on the amortization.
Got it, Vikas. Just last one on your ESOP. There has been some decline in the ESOP Qo Q, INR 4 crore delta. Is this the new rendered that we should be looking at?
No, no, no. This is actually one-offs due to the reversal of the sum of the cost because of the resignees in this quarter. The cost that we were seeing in the last quarter round, I would say, seven crore month, should continue in the upcoming quarter based on the grants that have been issued till 30th of September. Obviously, if the further grants get issued in this quarter, the cost may change.
Got it. Got it. Thanks a lot, guys, for the opportunity and all the best for your future quarters.
Thank you.
Thanks, Swapnil.
Just a reminder to all participants, if you have a question, request you to raise your virtual hand. Wait for the queue. We will accordingly unmute you and you can ask your question. We'll move to the next caller. Mr. Sucrit Patil, please unmute yourself, introduce yourself and the company you represent, and go ahead with your question.
Good evening to the team. Am I audible?
Yes. Loud and clear, Sucrit.
Yes, good evening. My name is Sucrit Pati l and I am from Eyesight Fintrade Private Limited. I have a forward-looking question. As travel platforms get more tech-driven and inventory access becomes easier, what is TBO Tek doing to build a strong edge, not just through technology or supply, but through something deeper that makes the platform hard to replace? Yes, thank you.
Sucrit, I think we have to look at the platform in totality to understand where it creates more network effect. There are two sides, and one is, yes, the supply side, which is increasingly getting tech-enabled. Having said that, the suppliers, especially the larger hotel chains and larger hotels, are getting very selective in who they want to work with. The scale allows us to make sure that if they select to work with a handful of players, we are among those handful of players. For a new entrant, it is increasingly harder to get access to that supplier. On the demand side, the business is far more fragmented because we are servicing the travel agent market, which is roughly millions of travel agencies across hundreds of countries.
To aggregate this demand at a global scale is quite hard, which is a combination of a tech play, but also the feet on street that we set up, the local infrastructure that we set up for local support, local payments, customizing supply and the user experience for different parts of the world. Both have to come together and at scale for a business like this to be recreated. Our belief is that as the size of the network grows, especially on the demand side, it becomes harder and harder to recreate this business, and the network effects make it that much easier for us to grow faster vis-à-vis competitors who are new to the market or who may be one or two country players.
Okay. And my final question is to Mr. Vikas Jain. As you invest more in tech and expand globally, how are you making sure the company stays efficient and what cost levers do you think will help protect the margins over the next few quarters? I'm just trying to understand how you are going to balance growth and innovation with long-term margin stability. Thank you.
Sucrit, as Gaurav had pointed out, in coming to what we have been in investment phase specifically, I would say on our sales feet on street across the global markets. As the same is nearing finalization, we will be seeing operating leverage coming in. Specifically, the SG&A growth would be lower than the growth in our gross profit. Thus, we anticipate that EBITDA growth should be faster than the revenue or the gross profit growth in future.
Thank you. I wish the entire team best of luck for Q3.
Thank you.
Thank you.
Thanks, Sucrit. We move to the next caller. Mr. Moez Chandani, please unmute yourself, introduce yourself, and go ahead with the question.
Yeah, hi. Good evening. This is Moez. I'm calling from Ambit Capital. Yeah, just my first question was on the APAC markets. I think you saw very good growth in the APAC markets, nearly 40% +. Now, given that this is still a small market for you, is this something that you think will continue to keep growing at this 40% rate, or do you think that growth would maybe taper off at some point in these markets?
Moez, obviously, we're coming on a smaller base in a relatively large market. We are seeing high double-digit growth in that market right now. A lot of this growth is driven by new markets, specifically Australia, which we count as a part of APAC in our business, where we've seen good traction. It's very hard to comment and give such specific guidance on where this growth will sit in subsequent quarters. I can just generally talk about how we see the market. It's a very large, it's the world's most populated market and the largest travel market in terms of number of passengers. It may not be necessarily the largest in terms of travel spend, but in number of passengers. If you look at the runway for growth in these markets, there are just immense source markets that we have barely touched.
Australia is very small for us, but growing at a very fast pace. We are somewhat penetrated in Indonesia, but again, it's a very large market compared to our presence over there. We have not even touched markets like Japan and Korea as yet, and no immediate plans in the next few quarters as well. If I was to look at a three to five-year view on this market, it should be very large for us because that is how it is eventually going to be one of the larger global markets, and hence our business should mirror that. Today, you will see it's one of the smallest markets for us. Yes, there is a runway for growth, but very difficult to comment that will this specific growth rate continue, will it accelerate or decelerate over the next few quarters?
Okay, got it. Understood. My next question was on your Adjusted EBITDA margins. Obviously, except for the one-offs, they've seen a very sharp improvement. Now, is there a particular target EBITDA margin that you have in mind post which you would rather reinvest in growth rather than focus on margins? Or do you think that this is more or less the steady state in terms of improvement in margins going forward?
Moez, we do expect to improve margins from here because, like we discussed earlier, in the subsequent quarters, we would see a slowdown in growth in SG&A on a year-on-year basis while top line should continue to grow. We would expect margins to expand. Now, the question on how, to what extent they can grow and at what point you start reinvesting some of those margins back into the business would be conjecture at this point in time. Our first focus is to demonstrate that the investments that we have made in the first half of this calendar year have a fairly quick payback period over the next 12-18 months. This translates into higher operating margin and then expanding EBITDA margin. The operating leverage does flow through.
We had taken a very considerate call last year when we discussed on how we are thinking of investments to say that let's take all of the margin expansion because of operating leverage and reinvest into the business. Hence, the general view for us was that as long as the bottom line grows in line with top line, we are satisfied because this is an investment into the future. We'll have to take similar calls for subsequent years as well. It is very premature to say what those calls would be, what percentage of operating leverage you would want to reinvest in the business. We remain committed to expanding the EBITDA margin on the core business, minus the CV business, for the next several quarters.
Okay, got it. Thank you, investor.
Thank you, Moez.
Thanks, Moez. The next question is from Raghav Malik. Raghav, I request you to please unmute yourself, introduce yourself and the company you represent, and go ahead with your question.
Yeah, hi. Thank you for the opportunity. This is Raghav from Jefferies. Essentially, first question just on the air business. We've seen GTV expand like a turnaround after a few quarters, but the Take Rate seems to have shrunken. Could you elaborate where the competition mainly is coming from? Is it more on the OTA side, or are you facing more competition on the B2B side for the air business?
I think. See, air is a business which everybody is trying to buy off it, right? It won't be fair to say that one particular comm set is kind of competing with us. Absolutely, OTAs as well as our own B2B peers, right? Everybody's fighting for that share. It's not one particular segment we are competing with. I think it's a few players, I would say, in the industry which we are obviously competing with.
Okay. In terms of outlook for the segment, do we expect Take Rates to now stay at these new levels and GTV to subsequently maybe grow, or how do we see that?
Take Rates should be at the same levels, Raghav, but definitely we do anticipate a growth in our air business as we have now turned around things in Q2 and hopefully will continue the same trends as we move into Q3 and Q4.
Okay. Thank you. My second question was on the Platinum Business. Any indication on how many hotels we've added on that front and how do we see that business shaping up?
Yeah, Raghav, the business is shaping up well. We have crossed the 150 mark on the total number of participating hotels. The good news on that business is that for the cohort of hotels that we have signed up as Platinum, we have seen a sharp uptake in the share of business that those hotels are getting in the same city on a year-on-year basis, which means that we have demonstrated to the hotel that we can divert business. Basis the prioritization of how we list the hotels on our and how we market the hotels on the platform, we remain bullish on that program. It is meaningfully adding to the bottom line as well because it is incremental new revenue that we are generating from the override that we negotiate with the hotels for this business.
From an enterprise perspective, it is subscale right now to talk about, it is 150 hotels only. From a strategic perspective of saying that are we able to demonstrate to supply that we have influence over the purchasing decision of the travel agents and their customers, I think this is quite significant.
Sure, sure. Thank you. That's all from my side. Best of luck.
Thanks, Raghav. A reminder to all participants, if you have a query, please raise your hand and we'll be more than happy to take your question. The next question is from Samarth Patel. Samarth, request you to unmute yourself, introduce yourself and the company you represent, and go ahead with your question.
Thanks for providing me the opportunity. This is Samarth Patel from Equirus Securities. I joined a bit late, so my apologies if the question has already been answered. I just wanted to get a sense of what is the current retail versus enterprise mix for us and how should it evolve in the medium term. That is my first question.
I think at a GTV level for the hotels business, it remained at about half and half.
Yeah, for the international business.
For the international business, it remained about half and half. Obviously, at a GP contribution level, I would say the retail business delivers a higher GP compared to the API business. We would expect the numbers to not materially change in the near future. In the long run, we do expect the retail business to start growing at a faster pace because a lot of investment is going into building out the long-tail distribution that we have been focusing on. This should lead to our retail business growing at a faster pace in the long term.
Thank you. That was really helpful. My second question is, if you can just help us with margin and profitability profile of any particular mature market like Middle East and how it differs from, let's say, consolidated margin, that would be really helpful.
See, Samarth, on the whole, we can't do a financial P&L for a region because there is a fair bit of shared cost. For example, there is a cost of platform, there is HO cost, and even supply is shared across multiple geographies. It is very hard to break out a regional P&L per se. All I can say is that what we have seen demonstrated in the business is that if you were to look at regional contribution, which is to say revenue or GP, which can be directly attributed to a region and the direct cost of that region, right? The salespeople on the ground in that region. If you look at that number, then the GP to regional contribution improves very sharply with growth, right? We see huge operating leverage play out over there.
Obviously, because there is certain cost, which is sitting centrally, which is all your supply cost, your cost of technology platform, and then some of the investments that happen in newer geographies where this operating leverage is still not kicking in. When you look at it at a consolidated level, you see some dilution happen. Rest assured, if you were to look at maturing markets like Middle East, for example, there is a very strong conversion from GP derived in the region to the regional contribution.
Understood. That was really helpful. That is it from my side. Thanks for providing me the opportunity.
Thank you, Samarth.
Thanks, Samarth. Request participants who have a question, please raise your hand. We'll be more than happy to unmute you and take your question. The next question is from Divyansh Gupta. Divyansh, we've unmuted you. Please unmute yourself and introduce yourself and the company you represent and go ahead with your question.
Sure. Hi, this is Divyansh from Latent Advisors. We run a PMS firm. A quick question on the GTV concentration. Let's say, at least in our IPO time, we had mentioned that we had given the top 1, 5, and 10 concentration. What would be that? Let's say, how would have that data evolved now? Is there a concentration in any particular side?
On an enterprise level, the number remains the same. The top 10 customers would be contributing less than 10% of our GTV. Similarly, top 500 would be contributing less than 45%-50% of our GTV. They remain in the similar range.
Yeah, there's no material change that has happened either way.
Got it. I'm assuming we are comfortable with this concentration level because that's how the industry is structured. I'm just trying to get a sense of, are we trying to de-risk the business?
We've been in these ranges over the very last few years. We are very comfortable with these.
Got it. Got it. One more question is that I think we had mentioned somewhere that AI-driven pricing, or maybe not sure if you had mentioned, but we are introducing a lot of AI on our platform, which can help, let's say, the agents book. How does the AI work from a pricing perspective? Does it help, let's say, optimize for booking so that the booking gets through, or is it on revenue maximization so that the suppliers earn higher? How should we understand the infusion of AI into the business?
There are several touch points where we are introducing AI. If you specifically talk about pricing, then a lot of AI and slash data analytic work happens behind the scenes on driving higher conversion and the maximum possible markup. The problem statement that we try to solve for is that out of every 100 searches, how many can we convert at a highest possible markup without leading to net dollar value incremental outcomes? You would see there is slight improvement in Take Rates in the hotels business on a year-on-year, on a quarter-on-quarter basis. Some of it can, some of it, I would not say all of it, some of it can be attributed to some of these experiments. Some of it also leads to top-line growth. Because sometimes the conversion is not happening because you are marginally more expensive than competition.
In those situations, while the Take Rate may not improve, the Take Rate may actually also come down, but then top-line growth is happening. A lot of this happens behind the scenes. It's very hard to present this and explain how it works. Some of it is IP as well. Needless to say, this has been a key focus area for us for the last few quarters. I think we have done a good job of it and reflecting in the numbers.
Got it. If you have answered this earlier because I joined later, then I'll refer back to the previous questions. How has Classic's performance in this quarter been?
Divyansh, Classic was acquired, but the transaction was closed only on 1st of October. So O&D will be the first quarter where we will be consolidating Classic's numbers.
I'm not asking from a consolidation perspective, just that from the time we acquired till, let's say, 30th of September.
It's been in line with the expectation. No red flags or no concerns either way. I think the business has been delivering in line with its historical performance.
Got it. The follow-up question on Classic was that, let's say, from COVID, there was a lull and then revenge travel and whatever you want to say. The overall revenue hasn't increased. While, let's say, it wasn't part of Expedia then to the point, why would someone acquire and then not be in core and not grow? I'm just trying to understand, for whatever it is worth, why wasn't the growth there in the business, even if, let's say, the investor might not be that interested?
Divyansh, it's a nuanced question. Without disclosing a lot more detail, it's hard to explain why we feel confident that we can initiate growth in this business. Let me try and summarize it. In a nutshell, Divyansh, and this happens with pretty much every business in our space, which is somewhat subscale, the access to supply and access to competitive supply is extremely limited, right? Unless you are doing billions and billions of dollars of GTV. If you're subscale, if you're in that $100 million to, say, $500 million kind of a range, the access to supply is very limited. Which has the subsequent effect that the travel agents or your travel advisors use you for very limited business. The Classic business has largely been limited to four geographies, which are Mexico, Caribbean, Hawaii, and parts of Europe, very small parts of Europe.
That's one obvious opportunity that is visible, that if you were to expand the supply, expand the number of destinations, then you would become more relevant for your existing customer base. The second bit is that given the size of that business, their ability to invest in technology is very limited, right? The full technology team for Classic is less than two dozen, less than just about 20 people. They would benefit from the much larger technology team and the technology infrastructure that we've already built. Once we do that integration, all of these things are not possible for a standalone Classic business when they were owned by a family office because they were not a part of a bigger strategic ecosystem. They couldn't have afforded the technology. They couldn't have access to that supply.
Hence, now that we create access to both these things, we build more confidence that, yes, at this point in time, we can actually spur growth in that business.
Got it. Understood. And just one last question. See, in India, we started in India. Therefore, airline was a stronger suit for us. And whatever is happening in India is, let's say, whatever is happening. The question is more on the international flight booking. A very basic question that why would an operator use us for booking flights for business originating outside India? Because we do have some air business, so it's just that it just happens [Foreign language] o r it's something that we haven't focused on and we are trying to focus. Or that market is gone to the OTAs?
Divyansh, I think. Globally, the airline market has not even gone to the OTAs. It has gone direct. If you see the European carriers like Ryanair, they have a very strong bias for direct. If you see the U.S. market as well, it is largely supplier direct on the airline website. We still have a very small airline business outside of India because we need to provide one for the completeness of the solution. There are always pockets of inconvenience for a travel agency. For example, if I'm a travel agent in the U.S. and I need access to Indian low-cost carriers, I won't have. Or Asian low-cost carriers or European low-cost carriers, I will not have access. Occasionally, I need to book those. We are a big believer in keeping the ecosystem comprehensive so that a travel agent has to never leave the platform.
From that perspective, it serves a useful purpose. The second bit, Divyansh, is that as we are expanding our own thinking around complex itineraries and packages and creating frameworks where the travel agent in a single itinerary is booking flight plus hotel plus transfers plus sightseeing, flight is a very key element of that. The ability to deliver and book flight tickets is very critical. Standalone building that business outside of India does not make sense because that ecosystem is very mature and there isn't a large gap that will be fulfilling. That is the way we think of it. It completes our platform and eventually, as we look at packaging and multi-product in a single transaction, then flight will be very critical.
Got it. Just one last question. I know I've extended my welcome. The Take Rates for us in flights versus, let's say, Take Rate for MakeMyTrip, there is a very large difference. Why would that be? Because I understand we would be passing on something to the agent. It will flow through, but on a revenue Take Rate basis, it should typically be on par, right?
Divyansh, typically the Take Rates are same or probably lesser in the case of a B2C OTA. What the difference between us and our Take Rate is that they have a convenience fee, if you see in the financials, which they add on every ticket they sell, which technically we cannot charge because we are obviously distributing it back to the travel agent. The travel agent actually keeps that convenience fee for his margin, which he does not obviously share with us, right? For a fair comparison, probably the Take Rates are lower or similar as ours, but the convenience makes you feel that the Take Rates are higher in a B2C like MakeMyTrip.
Understood. Understood. Thank you very much for patiently answering my questions.
Thanks, Divyansh. We will take Karan Uppal next. Karan, please unmute yourself and go ahead and ask a question.
Yeah, thanks for the follow-up. Just one question on the acquisition-related cost. This quarter, it was around INR 13 crore. Next two quarters, how should we think about this number? The margin guidance, which you are giving in terms of the margin expansion, adjusted margin expansion, should it be that 16% margin levels or 18.3%, which you have reported?
On the acquisition-related cost, we have kind of provided for. The entire cost related to this acquisition in this quarter itself. We do not anticipate any major cost to come up in the subsequent quarters per se. Again, when you see the EBITDA margin that we are seeing, obviously, since in the future period, this cost would not be there. It would be fair to see our EBITDA margin before M&A cost, which is 18.3%, as the base for this quarter.
Got it. Got it. Thanks. Thanks, Vikas .
Thanks, Karan. The next question is from Vidhi Raval. Vidhi, please unmute yourself, go ahead and ask your question. Please introduce yourself before that.
Hi. Thanks for taking my question. I am Vidhi Raval. I'm from Yes Securities. Just one thing, I think most of the questions have been answered. Last quarter, we did mention that payroll cost should be streamlined quarter two onwards. I just wanted to check where are we in terms of the entire payroll cost and the international hiring that was there on track. That's the first question. Second is wanting to understand on the new travel agent contribution that we have towards the GTV.
Okay. Vidhi, and I think we've covered this in our shareholder letter as well. Largely, we are done with the hiring that we were going to get done for this year. There will be some subsequent hiring that will happen in Q3 and Q4 as well. I think the bulk of the cost is now built in, which is also why we have a fair bit of confidence that on a year-on-year basis, the SG&A growth should start to taper down. Your second question on the contribution of the newer travel agents to the GTV. We have done a fairly detailed analysis in our shareholder letter. This number is a very important number for us because it is a significant uptake.
If I look at the first six months of this year compared with the first six months of last year, the share of business that we have derived from the travel agents added in the same financial year has materially improved, right? That number has gone from, Vikas, what?
This has gone from 4.3% - 6.9%.
For the same period last year, the travel agents who were added in the first six months contributed 4.3% of the GTV in that international business. This has now almost grown by 50% to 6 point something percent, right? This is the number that we expect to continue to grow in H2 as well because these travel agents should become even more productive in the second half of the year.
Sure. I think just one last question. We have Classic kind of coming on board from H2 onwards. Just wanted to understand the Take Rates. We understand that the entire model is commission-led over there. How should we look at the split between commission-led and standalone Take Rates that we're sitting on as of today?
While we should share more details when we consolidate the Classic numbers in the quarter, as Gaurav mentioned, the Take Rate of Classic business is a bit different than our core business. They operated around 22% take and an 11% GP, while our GP in hotel business, it had 5.6%. Obviously, there would be change due to mixed impact coming in. Obviously, we will try to share transparently as our core business numbers as well so that the readers have clear understanding of how the impact is coming from the Classic.
Sure, sir. Sure. Thank you so much.
Thanks, Vidhi. That was the last question for the evening. Thank you, everyone, for participating in this call. I would now like to hand the call over to Ankush Nijhawan for his closing remarks.
Thank you, everyone, for taking time and being part of our earnings call. If anybody has a follow-up question, please feel free to write to any one of us. We are always available. I look forward to seeing you sometime back after this quarter. Thank you for your time.
Thank you, Ankush. Thank you, everyone. Have a great evening.