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RateGain: A Play on Travel Industry Operations


RateGain is one of the leading global distribution technology companies and is the largest Software as a Service (SaaS) company in India. It operates in the hospitality and travel industry and has clients worldwide.

In this post, we analyse this business with the following lens:

  1. What does RateGain do? Who are its clients?
  2. What is the TAM? Who are its competitors?
  3. Is the company financially healthy?
  4. What are the growth triggers and key risks?
  5. Views and Valuation

One-stop solution for data, marketing and distribution

RateGain offers travel and hospitality solutions across various verticals including hotels, airlines, online travel agents (OTAs), meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries.

Essentially, they cover the entire value chain of the travel and hospitality industry. Their offerings can be categorised into three main services:

1.DaaS (Data as a Service): RateGain’s DaaS service analyses customer data to enable dynamic pricing, thereby boosting profits.

Example: Imagine you manage a hotel chain and want to understand when guests are likely to visit your area, what prices competitors are charging during these times, and how you can set your prices competitively. RateGain’s DaaS provides you with this data, enabling you to make informed decisions on pricing and promotions, which could help maximize your revenue.

RateGain’s DaaS serves hotels, OTAs, airlines, cruise liners, car rentals, and vacation rentals, making it one of the only software providers with access to data from each segment.

2. Distribution: RateGain’s Distribution service acts as a central hub for managing hotel rates and availability across multiple platforms. RateGain connects nearly 191,000 properties to approximately 400 OTA channels covering major source markets worldwide. This enables hotel chains to expand into new markets effortlessly and allows new OTAs to access large chains seamlessly.

Example: You operate a travel agency that offers luxury travel packages. RateGain’s Distribution service acts as a central hub for managing your listings across multiple platforms like travel agents, OTAs, and your own website. For instance, when offering a last-minute discount on a package tour to the Maldives, you can update the price and details across all platforms simultaneously from a single interface, ensuring consistency and reducing confusion.

3. MarTech (Marketing Technology): RateGain’s MarTech services enhance online presence and optimize bookings through insightful marketing strategies.

Example: You are the marketing director for a resort chain focused on family vacations. RateGain’s MarTech services help you launch targeted advertising campaigns on social media platforms just before school holidays. By analyzing data on past guests’ booking behaviors, the service helps you craft personalized email campaigns and social media ads highlighting special family activities and child-friendly amenities at your resort. This not only increases direct bookings but also enhances brand loyalty as customers appreciate the personalized touch.

RateGain: A Play on Travel Industry Operations

Customers from all segments of the travel industry, across continents

As of FY 24, RateGain has 3279 clients that includes prominent names like Apple Leisure Group, Banyan Tree Hotel and Resort, Millennium Hotel and Resort, The Leela, Singapore Airlines, etc. RateGain service across the value chain. They have:

  • 16 Global Fortune 500 companies
  • 26 of the top 30 hotel chains
  • 25 of the top 30 OTAs
  • Major airlines, car rental companies, cruise lines, and tour operators.

RateGain: A Play on Travel Industry Operations

They service customers in multiple geographies and they have offices in six countries. RateGain’s revenue distribution by customer type shows that 28% of its revenue comes from the top 10 customers, while the remaining 72% is generated from a broader customer base.

Geographically, North America leads with 56% of the total revenue, followed by Europe at 30.1%. The Asia-Pacific region contributes 11.0%, while other regions account for 2.9%. This demonstrates RateGain’s strong market presence in North America and Europe.

RateGain: A Play on Travel Industry Operations

RateGain has a sticky customer base. It has a high GRR of 90% which denotes percentage of renewed revenue as compared to the previous fiscal year. This high rate shows strong revenue retention from existing customers and high customer satisfaction. Moreover, maintaining such a high GRR in a competitive landscape highlights RateGain’s ability to innovate and adapt its offerings to meet evolving customer needs.

RateGain: A Play on Travel Industry Operations

Revenue models for all kinds of customers

RateGain has strategically diversified its revenue streams to optimize profitability and client engagement. The company leverages three main revenue models:

  1. Only Subscription Model: Here clients pay a recurring fee to access a suite of products. This model provides a predictable revenue stream. The subscription services typically include access to software that aids in revenue management, rate intelligence, and brand engagement across digital platforms.
    • This only includes revenue from the subscription model and does not include revenue from the transaction and hybrid model.
  2. Only Transaction Model: In the transaction model, RateGain earns revenue from bookings made through its platforms. This model is particularly relevant in the context of RateGain’s distribution capabilities, where it connects hotels and other accommodations with various travel agencies and booking platforms. Revenue is generated from each transaction or booking, providing a dynamic revenue flow that aligns with the fluctuating volumes in travel bookings.
    • This only includes revenue from the transaction model and does not include revenue from the subscription and hybrid models.
  3. Hybrid Model: Recognizing the varied needs of its clients, RateGain also offers a hybrid model. This combines a minimum subscription fee with a pay-per-use component. This flexibility allows clients to scale their usage based on seasonal demands and specific needs without a significant upfront cost. The pay-per-use model includes access to additional, high-value data or advanced analytical tools that provide deeper insights into market trends and consumer behaviour.
    • This includes revenue from the subscription model and pay-per-use component.

As of FY24, the only transaction model accounts for 39% of the revenue, highlighting its significant role in the company’s earnings through direct bookings and transactions. The hybrid model follows closely at 38% of total revenue, underscoring its popularity among clients who appreciate flexible payment structures. Lastly, the only subscription model contributes 23% of the total revenue, reflecting a stable and predictable revenue source.

RateGain: A Play on Travel Industry Operations

In FY 24, RateGain’s subscription model (this includes revenue from only subscription model and subscription revenue from the hybrid model) accounted for about 61% of its total revenue. By collecting subscription fees on a regular basis, this model provides a predictable revenue stream, which helps stabilize the company’s finances and supports ongoing service improvements, even during fluctuating market conditions.

RateGain: A Play on Travel Industry Operations

Potential Growth Markets

RateGain is strategically positioned in a growing segment of the global market, catering to the needs of the travel and hospitality technology sector. In 2021, the market for third-party travel and hospitality technology solutions was valued at approximately USD 5.91 billion. Projections suggest a robust growth trajectory, with the market expected to nearly double to USD 11.47 billion by 2025, at a CAGR of 18% (Source: Phocuswright Report)

Enterprise applications designed for optimizing guest acquisition, distribution, and revenue maximization in the travel and hospitality industry were valued at USD 4.34 billion in 2021 and are expected to grow to approximately USD 8.45 billion by 2025. (Source: RateGain DRHP)

This expansion is driven by several factors:

  1. Digitization Trends: The post-COVID-19 landscape has accelerated the shift towards digital solutions in travel and hospitality, a sector previously characterized by low digitization and fragmented systems.
  2. Integration of Big Data and Analytics: Companies are leveraging data to gain insights into customer preferences, optimize pricing strategies, and personalize services. This trend not only enhances the customer experience but also boosts operational efficiency and profitability, driving demand for sophisticated data analytics tools.
  3. Global Economic Impact: Prior to the pandemic, travel and tourism significantly contributed to global GDP, accounting for 10.4%. (Source: RateGain DRHP) The rebound and growth in this sector post-pandemic further amplify the need for integrated technology solutions.

These factors collectively enhance the market potential for companies like RateGain, which specializes in providing software and services. The company’s focus on innovative technology solutions positions it well to capitalize on these growing demands within the sector.

Can RateGain withstand the competition?

RateGain competes in a robust marketplace with several key players such as OTA Insight, Fornova, TravelClick, SiteMinder, and DerbySoft. Each of these competitors operates in various segments like Data as a Service (DaaS), Distribution, and Marketing Technology (MarTech).

RateGain: A Play on Travel Industry Operations

However, what sets RateGain apart is its comprehensive coverage across all these segments, making it the only company among its competitors that offers services spanning the entire value chain. This broad operational scope provides RateGain with significant competitive advantages.

Firstly, having operations across all segments allows RateGain to gather and leverage a vast amount of data from different parts of the value chain. This extensive data collection enables more informed and effective decision-making, enhancing product development and customer service. Secondly, this wide-ranging presence facilitates cross-selling opportunities, allowing RateGain to offer bundled solutions that are not possible for competitors who specialize in narrower fields.

These factors collectively strengthen RateGain’s position in the industry, enhancing its ability to sustain competitive intensity by offering integrated, comprehensive solutions that address a wider range of customer needs.

Recently listed stock in similar business

TBO Tek Ltd. Prima-facie TBO Tek looks like a close competitor of RateGain. However, it is not. Here is why.

TBO Tek operates as a B2B travel platform. It connects buyers (travel agents) with sellers (hotels, airlines, car rentals, railways, etc.). The platform simplifies the travel planning process by allowing travel agents to create itineraries and sell them to customers. Both travel agents and suppliers can list on the platform for free. Revenue is generated through transaction fees.

Whereas, RateGain provides software solutions for the travel and hospitality industry. It focuses on data analytics, rate intelligence, and distribution solutions. It provides tools to monitor and analyze competitive pricing, solutions to distribute room inventory across various online travel agencies and channels, services to analyze market trends, demand patterns, and optimize pricing and inventory, etc.

In summary, while both companies operate in the travel industry, TBO Tek is more focused on facilitating travel bookings through a B2B platform, whereas RateGain provides data and technology solutions to help travel businesses optimize their operations and revenue.

Is the company financially healthy?

RateGain has demonstrated a robust recovery and growth post-COVID.

  • In the last 3 years the revenue is growing at a 56% CAGR. It closed FY 24 at 957 Cr up 69% YoY.
  • The company’s EBITDA margin improved significantly to 20% in FY24 from 15% in FY23. PAT margins have also improved to 15.2% from 12.1% in FY23.
  • The company is almost debt-free. It has a net cash and equivalents of ₹1082.2 Cr. This includes 600 Cr QIP that they did in November 2023. So, they have ample liquidity to fund future growth initiatives.
  • The company’s operational cash flow tripled to ₹151.81 crore, with new contract wins doubling to ₹284.78 Cr.
  • RateGain has robust Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) rates at 90.1% and 113.2%, respectively. These figures highlight strong customer loyalty and the company’s effectiveness in upselling and cross-selling its solutions.
  • Their cash conversion cycle was reduced from 104 days to 73 days. This indicates enhanced operational efficiency, enabling faster reinvestment into growth opportunities.
  • The acquisition of Aadara has strengthened RateGain’s MarTech segment, which witnessed a 106% growth over the last year.
  • The company is currently in talks to acquire businesses in the DaaS and Distribution segments, aiming to find companies that are a good financial fit.

In conclusion, RateGain’s post-COVID financial recovery, combined with strategic acquisitions, strong cash reserves, and robust revenue retention metrics, position it as a financially healthy company poised for sustainable growth.

RateGain: A Play on Travel Industry Operations

Potential growth triggers with sustained tailwinds

  1. Impact of covid on travel spending: In discretionary spending, travel was at 4th position before covid. However, after covid travel is at the top of the list in discretionary spending. Recently, global travel has breached the pre-COVID level and it is expected to grow at the rate of 8-9% in the next 3-4 years. RateGain is the direct beneficiary of this growth in travel spending.
  2. Increasing reliance on technology: The post-pandemic era has seen a significant shift towards online operations. Travel companies are increasingly depending on technologies, especially AI, to establish predictable revenue streams and enhance cost efficiency. This growing reliance on technology is a major growth trigger for RateGain, which specializes in providing AI-powered solutions to optimize travel and hospitality operations.
  3. Cross-Selling of Products and Services: RateGain leverages its diverse range of products and services to implement effective cross-selling strategies. By offering complementary solutions across its platform, they can address multiple needs of a single customer, thereby increasing the customer’s lifetime value. This approach not only enhances customer stickiness but also drives incremental revenue growth.
  4. Acquisition of Adara: In January 2023, RateGain acquired Adara for $16 million. At the time of acquisition, Adara was generating sales of $27 million, which have since increased to $40-45 million. This successful integration and growth indicate potential for further expansion, particularly through leveraging Adara’s strengths in data-driven marketing solutions.
  5. Future acquisitions: RateGain raised 600 Cr in November 2023 for further acquisition. They haven’t done any acquisitions in the past 6 months and as of FY 24 they have cash and equivalents of ₹1082.2 Cr. They plan to use this money to acquire new companies in the DaaS and Distribution segments, which will help them grow and expand their services.
  6. Development of AI-Powered Tech Stack: RateGain is one of the largest aggregators of travel pricing data in the world. They have set up a research and development division called RG Labs that focuses on creating AI-powered products. As of FY 23, RateGain has committed approximately 61.2 million rupees to the development of RateGain Labs. Through its ongoing innovations at RateGain Labs, the company continues to introduce advanced technologies and functionalities. These advancements are designed to equip revenue managers with powerful insights that enable intelligent pricing strategies.

Should you invest?

RateGain is currently trading at a one-year forward PE of approximately 56 times and a Forward EBITDA multiple of 40 times. While these figures might initially suggest a slight overvaluation when viewed in isolation, the company’s PEG ratio of 0.6 offers a more favorable outlook, indicating that the stock might be undervalued in terms of its growth potential.

Looking ahead, management is projecting a robust 26% 3-year CAGR in revenue. This growth is expected to be driven by 20% from organic sales and an additional 6% from inorganic sales. Since the pandemic, both the EBITDA and PAT margins have shown significant improvement, reflecting stronger operational and financial efficiency.

Furthermore, RateGain maintains a nearly debt-free balance sheet and has a cash reserve of ₹1082 crore for future expansions. This strong financial position enhances the company’s ability to sustain and accelerate growth.

Given these dynamics, while the valuation metrics may appear slightly elevated, the combination of RateGain’s solid growth prospects and robust financial health presents a compelling investment case.

What are the significant risks?

  1. Economic Slowdown: RateGain’s performance is closely tied to the health of the global economy, particularly the travel and hospitality sectors. An economic downturn can lead to decreased consumer spending on travel, reduced hotel stays, and overall lower demand for travel services. This slowdown would directly impact RateGain’s revenue, as their clients may cut back on new software investments and reduce their operational expenses.
  2. Dependence on Customer Retention and Expansion: RateGain’s business model heavily relies on the renewal of existing contracts and the expansion of sales to current customers. A decline in contract renewals or a failure to expand business with existing clients could significantly impact RateGain’s revenue streams.
  3. Clients creating their own product: There’s a risk that clients may choose to develop in-house solutions instead of relying on external providers like RateGain. This shift could result in a significant loss of business, especially if large clients, who contribute a substantial portion of the revenue, decide to go this route.
  4. Wrong acquisitions: RateGain’s growth strategy includes acquiring other companies to enhance its product offerings and market reach. However, this approach carries significant risks. Misjudging the value of an acquisition or integrating it poorly could lead to financial strain and operational disruptions.
  5. Competition: The market for travel and hospitality technology solutions is highly competitive. New entrants or existing competitors enhancing their product offerings could lead to pricing pressures, loss of market share, and a need for continuous innovation and investment by RateGain to remain competitive.

Disclosure: Rate Gain is a part of our Capitalmind Premium Portfolio. This article is intended solely for informational purposes and should not be considered as an investment recommendation.


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