Jefferies Initiates 'Buy' On TBO Tek As It Expects Benefit From Fragmented Outbound Travel Market

Jefferies has initiated coverage on TBO Tek, a B2B travel distribution platform, with a 'buy' rating, highlighting the company's growth potential and strategic positioning in the global travel market.

The brokerage has set a target price of Rs 2,000 apiece on the stock, indicating a potential upside of 24% from the current market price of Rs 1,612.50 as of Nov. 7.

TBO, which primarily aggregates and distributes travel inventory (such as airlines and hotel bookings) to travel agents and other B2B partners, is positioned to benefit from a fragmented outbound travel market, says Jefferies. Its focus on consolidating this space and expanding its international footprint offers significant upside potential.

A key driver of TBO's growth is its expanding hotel business, which is rapidly increasing its contribution to overall revenue. Over the last five financial years, TBO has achieved a 24% compound annual growth rate in gross transaction value, with the airline segment growing at a 16% CAGR and the hotel segment expanding at 39% CAGR.

In fiscal 2024, hotels accounted for nearly 50% of the company's GTV, and this segment's growth is expected to continue to outperform the overall market, holds the firm. The company is expected to sustain a 34% CAGR in international hotel GTV from fiscals 2024 to 2027, they add.

TBO is aggressively scaling its international presence, having pursued both organic and inorganic growth strategies. Recent acquisitions, such as the purchase of Jumbonline, have enabled TBO to expand its footprint in key regions like Asia-Pacific and Europe, contributing an additional 10% to its GTV.

While the global travel market is experiencing some signs of moderation in growth, TBO's business model, focused on aggregating existing demand rather than generating it, offers a degree of insulation from these trends, noted Jefferies.

TBO's market share remains small (less than 1% of the global travel market), meaning the company can continue to grow independently of broader market fluctuations.

Jefferies projects a 20% CAGR in TBO's GTV from fiscal 2024 to 2027, with the hotel business expected to grow at a 32% CAGR during this period. As a result, the company's revenue, Ebitda, and profit after tax are expected to grow at a 24%-31% CAGR.

While Jefferies remains bullish on TBO's prospects, the company faces certain risks. Increased competition from OTAs, changes in agreements with key suppliers, and potential disruptions from new technologies (including AI) in the travel space could impact TBO's growth trajectory.