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During a brutal funding winter for startups, we’ve seen startups tighten their purse strings, costs cut to extend runways, and more than 21K layoffs. Many founders have been caught off guard, but not ixigo cofounder and CEO Aloke Bajpai, who says that working in a slowdown is like coming home.
To combat the current macroeconomic slowdown, the online travel startup is relying on lessons learned from previous cycles. After witnessing the ebbs and flows of the market over the past sixteen years, the CEO believes that ixigo’s business ethos has naturally been built around frugality.
“I do believe there will be more bearish markets in my lifetime, because memory is very short. When capital is abundant, you tend to overinvest and companies feel the pressure to grow fast,” Bajpai says, speaking about how this pattern has played out in the past.
In addition, much of the startup ecosystem today is looking to examples like ixigo, Easemytrip, Zerodha, Zoho, and others for guidance. So-called cockroach startups are popular, the volatility of unicorn valuations is being questioned, and sustainable business models are all the rage, but Bajpai believes these only address the symptoms and not the root cause.
Despite the fact that ixigo delayed its IPO due to current market volatility, Bajpai believes the focus has always been to build as if there is a slowdown.
Building The ixigo Way
Founded by Bajpai and Rajnish Kumar, the company has raised nearly $88 million in funding over the last 15 years from investors such as Sequoia Capital, Singapore’s GIC, InfoEdge, Elevation Capital, and Fosun RZ, among others. Its most recent round was a $53 million (primary and secondary) infusion in July 2021, at the height of the Indian funding boom.
Despite the fund infusion at a critical time for the travel industry, the company claims to be relying on resource maximisation rather than funding.
The CEO claims the last three months of 2022 saw the highest ever revenue and EBITDA margins, adding that the travel bounce back has seen ixigo’s business surge 5X compared to pre-Covid levels on many metrics. The frugal approach allowed ixigo to achieve what Bajpai calls a “record quarter in December”, but the company did not reveal its actual financial performance.
After a loss-making FY22, the company posted operating revenue of INR 118.8 Cr in Q1 FY23 (April- June 2022), according to an addendum it filed with the SEBI for its IPO application. The travel tech company reported profits of INR 8.73 Cr in the quarter on the back of revenue from ticketing.
According to Bajpai, the acquisitions of train ticketing platform ConfirmTkt in FY21 and bus ticketing platform AbhiBus in FY22 significantly changed the income mix for ixigo. In terms of audience, these two segments overlap, which helps ixigo keep marketing costs low.
The CEO believes that ixigo’s zero-cost marketing strategy has paid off handsomely in terms of profitability. In terms of context, ixigo spent INR 24 Cr on advertising in the quarter, which yielded excellent results in terms of revenue and profits.
In FY22, the company’s revenue increased 180% year on year (YoY) to INR 379.6 Cr. ixigo was in the red in FY22, but Bajpai attributed this to higher ESOP costs following its funding round in July 2021.
In fact, the company became profitable in FY21, capitalising on the travel rebound after most businesses were released from lockdown and flights and trains resumed service.
Many businesses and founders are only used to flourishing in good times, according to seasoned Indian startup investors. This applies equally to unicorns and early-stage startups. This is the first real market test for these startups. Perhaps the ixigo way can serve as a guide; if so, how did Bajpai instill this in the ixigo DNA?
Trying to raise capital traps startups in a vicious cycle of equity and culture dilution. Before delving into how to beat a slowdown, he claims almost simplistically that culture and customers are the answers.
Customer Focus vs Cash Burn
On the most basic level, there are two methods for attracting customers to any service or product: pull marketing and push marketing. The former entails keeping your ears to the ground and requires a lot of patience, whereas the latter involves attracting attention through advertisements, marketing, and promotions.
While both approaches have their place, Bajpai believes that as companies rushed to burn cash for marketing and scale, they neglected to pay attention to customers while spending millions to acquire them.
ixigo began as an aggregator and comparison tool for flight, train, bus, and hotel bookings and evolved over the course of ten years to become a meta search engine for travel bookings, fulfilling ticketing on its own.
According to Bajpai, this enabled ixigo to launch the most customer-centric product. This contrarian approach has somehow worked for ixigo in a world where investors are calling for monetisation-first models.
According to Bajpai, ixigo attempted to create its own marketing playbook because doing the same performance marketing as everyone else is very expensive. Instead, the emphasis was on products that would increase marketing returns.
For example, with the acquisition of ConfirmTkt, years of understanding train traveller needs were finally channelled into a product.
Similarly, on the flight booking side, Bajpai claims that Covid made refunds for customers more difficult due to the spate of cancellations, which negatively impacted travel plans, which are now more flexible than ever. Ixigo launched Assured and Flex to cater to this transition in behavior.
Customers can get one-click refunds from Assured even before the amount is settled by an airline, whereas Flex allows them to book ahead of time and change their reservations for free. The latter product not only protects customers in the event of last-minute changes, but it also ensures that airlines do not lose any potential business opportunities.
When it comes to the outside world, the travel platform believes that customer centricity is the only metric that truly matters in the long run. Internally, however, it is critical to be culturally sensitive.
A Frugality Culture
The culture of sustainability at ixigo begins at the top. Inevitably, the conversation with Bajpai will turn to layoffs in 2022 and early 2023. The cofounder had previously told us about how raising too much too quickly forced companies to hire without a plan.
According to Bajpai, such businesses will never end up in the ‘cockroach’ category. For him, it’s about dealing with the problem and devising a solution that addresses all levels of operations, not just the lowest.
“We have managed to take care of everyone during the tough times, whether it was Covid or the Great Recession of 2008 when funding had dried up after the fall of Lehman Brothers. At that time, our small team took a pay cut for a year, and in Covid we didn’t fire anyone.”
For Bajpai, the key to crisis management is transparency and demonstrating that the cuts start at the top. “When people are generous enough to work for a low wage to get us out of the woods, it builds trust and motivates them even more. Because of the increased motivation, you can double down on new ideas. It is determined by the circumstances.”
The lesson here is to keep a team that can withstand falls as well as celebrate peaks. “We look at P&L and unit economics on a day-in-and-day-out basis, just like a small trader or a shop owner. Isn’t that the only way to instill financial discipline in the entire team?”
The INR 1,600 Cr IPO Question
Of course, with ixigo’s DRHP set to be released in August 2021, all eyes were on the company’s potential public listing. The parent company of ixigo, Le Travenues Technology, has filed a DRHP to raise INR 1,600 Cr from the public market.
However, due to bearish market sentiments, the IPO has been put on hold. For the time being, Bajpai and ixigo have no plans to revisit the IPO discussion until market conditions improve. The founder declined to provide a timeline for ixigo’s IPO, stating that public market investors are still recovering from their losses in the IPOs of Zomato, Paytm, and others.
The company believes it is only a matter of time before the market recovers. And that it has nothing to do with ixigo’s business performance. “We’re not seeing any slowdown in travel. If you speak to anyone in our industry, they will not use the word “slowdown” at all. Because of the under penetration, even the long-term outlook is favourable.”
The financial performance of publicly traded travel technology companies supports the theory that travel is on the rise. EaseMyTrip’s Q3 profits increased 42% year on year to INR 42 Cr, while Nasdaq-listed MakemyTrip (MMT) returned to profit in Q3 due to a rebound in travel demand.
The competition is stiff when you consider other rivals such as Flipkart-owned Cleartrip, Paytm and Amazon.
Cleartrip is in the process of raising new funds from Adani Group following the Flipkart acquisition in 2021. Its board of directors has approved an increase in authorised share capital ranging from INR 1,000 Cr to INR 5,000 Cr.
Paytm reported 37% YoY and 48% QoQ growth in its commerce segment in Q3, owing to strong travel demand. Amazon is also targeting the travel market through partnerships with MMT and others.
Because of the emphasis on fundamentals, Bajpai is unconcerned about competition. He credits the company’s revenue growth in the last year to the company’s diversified model across flights, trains, and buses.
In its recent social media posts, ixigo claimed to be the eighth most downloaded travel app in the world in the past year. The primary focus is to build on this scale.
Financial Update
Ixigo posts Rs 119 Cr in op-revenue in Q1 FY23, profits rise to Rs 9 Cr
- The firm posted operating revenue of Rs 118.8 cr. in its first quarter (April- June 2022)
- Revenue from ticketing is a major source of income for Ixigo constituting 94% of the total operating revenue.
- The company posted ₹8.2 crore net profit in April-June, against a loss of ₹3.4 crore in the year ago.
- Its operating revenue witnessed 3.4x growth between FY20 and FY22—from ₹111.6 crore in FY20 to ₹379.5 crore in the year ended March 2022.
- The company is set to launch its IPO to raise Rs 1,600 crore in sometime early next year.
- As of now, Ixigo has raised Rs 433 crore including a $53 million round led by Singapore-based GIC in July 2021.
Also Read: Ixigo Share Price, Pre-IPO: Deep-dive