TBO Tek: Travel Company’s Stocks grew by 8%

TBO Tek Limited provides travel technology solutions. Serving India, customers it aims to develop and design travel applications that allow users to search and book tickets for booking, online reservation, car rentals, insurance, cruises, trains, and hotel rooms. Founded in 2006, TBO’s initial focus was on aggregating airline supply in India, and over time the platform expanded to hotels and ancillary segments. It also offers travel inventory according to the needs of its customers and supports a wide range of currencies along with forex help.

Coverage Report findings:

An initiated coverage on the B2B travel distribution platform TBO Tek Ltd. with a “Buy” rating and a base case target price of Rs. 1970, suggesting a 24 percent potential over Friday’s closing price. Reports are positive due to its large and fragmented total addressable market (TAM) that provides a long growth runway, low competitive intensity with scale-driving network effects; and a clean balance sheet. In terms of financial strength, TBO has strong Free Cash Flow (FCF) generation and a clean balance sheet. The brokerage forecasts an average annual margin expansion of 170 bps until FY30. It sees TBO as a steady earnings compounder and forecasts a 30% to 33% CAGR in EBITDA and net income from FY24 to FY30. It highlights that approximately 75% of TBO’s revenues come from hotels, a segment characterized by high supplier fragmentation where platforms like TBO play a crucial role in aggregating demand. Key risks, as per the brokerage, include headwinds from the shift to online, competition, change in supplier terms, a slowdown in global travel, non-value accretive M&A, and adverse outcomes from litigations.

Impact on Stock Performance:

TBO Tek shares recorded 55% gains on its Dalal Street debut on May 15. The company sold its shares in the range of ₹875-920 apiece. The offer included fresh equity of ₹400 crore and an offer for sale of up to 1.25 crore shares by promoters and investors. The funds raised from the fresh issue have been used for the growth and strengthening of the platform by adding new buyers and suppliers, unidentified inorganic acquisitions, and general corporate purposes. In continuation of the positive response, shares of the company surged as much as 8% in trade on 24 June, causing an upside of 24% from the stock’s closing levels on June 21.

Conclusion: The brokerage firm’s coverage report mentioned 3 positive aspects of TBO Tek’s business model: First, large and fragmented TAM that provides a long growth runway, second, the low-competitive intensity with scale-driving network effects, third, its strong FCF generation and clean balance sheet. Based on these positive characteristics TBO Tek’s stocks grew 8% in intra-day trade.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.