The listing of Online Travel Agency company Le Travenues Technology (popularly known as ixigo), took a parabolic flight today, listing at a nearly 50 per cent premium over its IPO price of ₹93. With positive sentiment and momentum as tailwinds, it gained further altitude through the day to close at ₹165.72, a 78 per cent premium to the IPO price.

In our analysis of the IPO published in our bl.portfolio edition dated June 9, 2024, we had recommended that investors subscribe to the IPO. While our recommendation was catered to investors with a long-term perspective, post significant listing gains, it is time for even long-term investors who were allotted shares to reassess the risk-reward in holding the shares now.

At the current price the stock trades at around 9.5 times Enterprise Value/Revenue. The revenue here is the estimated revenue for FY24 based on actuals for 9M FY24 and estimates for Q4 which factor in seasonality. The enterprise value (EV) represents the current market cap less the net cash on the company’s books, including the inflows from the fresh issue component of the IPO.

Time to parachute?

This is quite an expensive valuation compared to the valuation of 5 times EV/Revenue at the IPO price. At the IPO price, we found the risk-reward favourable given the long-term growth prospects and scope for margins to improve. While margins are currently low, there is scope for improvement as operating leverage kicks in and the business continues to scale up. However, at the current valuation, the best optimistic scenarios are already priced in, while risks from competitive intensity and business execution risks are not factored in. Extent of margin improvement is contingent upon many business, industry and macroeconomic factors, and investors need to consider risks to the same.

From the IPO valuation of 5 times EV/Revenue, which was the lower end of the industry range compared to peers (Yatra, EaseMyTrip, MakeMyTrip), it is now trading at the upper end.

Hence we recommend that investors who got allotment in the IPO sell their shares now and lock in on the sizable gains.

We would like to note how we had made a similar recommendation in the case of Tata Technologies. After recommending a subscription  in our IPO analysis, we recommended investors to book profits on the listing day when the stock listed at a 160 per cent premium. The stock has not crossed those levels since listing day and has only underwhelmed in the last six months. Ixigo investors must be aware of such a possibility after its blockbuster listing.

With close to no margin of safety at current levels, it’s time to parachute for a safe landing with the listing gains. This is purely a valuation call, and Tata Technologies stock performance since listing day is a clear validation that valuation matters.

For more insights on ixigo, its business and prospects, please check out our IPO analysis of the company here.

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