JM Financial maintains buy on TBO Tek, cuts share price target by 25%; here's why

Domestic brokerage firm JM Financial continues to remain positive on TBO Tek, a boutique travel services player, as the brokerage firm has maintained its 'buy' rating on the stock, citing festivities to affect near term growth. However, it has trimmed its target price by 25 per cent on the back of sustaining margin pressure on the counter.
 

TBO Tek is facing a slowdown in its consolidated gross transaction value (GTV) growth. JM Financial reported that GTV growth is likely to decelerate to 9 per cent year-on-year in the fourth quarter of fiscal year 2025, a significant drop from the 21 per cent growth observed in the first nine months of the year. This decline is attributed to several factors, including the adverse impact of Ramadan festivities in key markets such as the Middle East and Indonesia, ongoing weaknesses in the air ticketing business, and online consolidation pressures.
 

The Hotels & Packaging (H&P) segment is expected to experience a moderation in growth, with GTV growth projected to slow to approximately 22 per cent in the fourth quarter, down from 36% in the previous quarter. The air ticketing segment remains under strain, with an anticipated decline of around 5% year-on-year. Nevertheless, revenue growth is expected to outpace GTV growth, reaching approximately 26 per cent due to expanded take-rates within the H&P segment, said the brokerage firm.
 

JM Financial anticipates a recovery in demand within Ramadan-affected source markets starting from the first quarter of fiscal year 2026. Consequently, GTV growth is projected to reach 18 per cent year-on-year in FY26, assuming a 27 per cent growth rate in the H&P segment. Despite this positive forecast, margin pressures are expected to persist, leading to a reduction in earnings per share (EPS) forecasts for FY25-27 by 7-12 per cent. These revised EPS estimates are 10-15 per cent lower than market consensus.
 

The brokerage firm forecasts that TBO Tek's consolidated gross margin will expand to 70.6 per cent in FY27, driven by the increasing contribution of the high-margin H&P segment. However, the company is intensifying its presence in new markets and deepening its foothold in existing ones, leading to a significant rise in operating expenses and a projected contraction in Ebitda margin from 18.5 per cent in FY24 to 18.1 per cent in FY27.
 

JM Financial has revised its target price for TBO Tek down by 25 per cent to Rs 1,400 (from Rs 1,870 earlier), based on a 40 times FY27E price-to-earnings ratio. It has maintained its 'buy' call on the stock. Despite short-term challenges, the medium-term outlook remains optimistic due to the company's strong fundamentals. The firm is watchful of global travel demand trends as it maintains a positive medium-term outlook for TBO Tek's performance.
 

The travel industry context also suggests challenges ahead, with global travel demand trends being closely monitored. TBO Tek's strategic investments aim to enhance its global agent's wallet share and profit pools in the medium to long term, despite the near-term impacts on performance.