TBO Tek: Goldman Sachs shares 3 reasons to 'Buy' stock; here's target price  

Goldman Sachs has initiated coverage on recently debuted global B2B travel distribution platform TBO Tek Ltd with a 'Buy' rating and a base case target price of Rs 1,970, suggesting a 24 per cent potential upside over Friday's closing price. It is constructive on the stock due to its large and fragmented total addressable market (TAM) that provides long growth runway, low competitive intensity with scale driving network effects; and clean balance sheet.

Following the development, the stock rose 7 per cent o hit a record high of Rs 1,700 on BSE. The stock got listed on May 15 this year and had an issue price of Rs 920. The scrip is up 85 per cent over that price. Goldman Sachs said TBO has been consistently profitable and expects its free cash flow (FCF) to profit after tax (PAT) ratio to stay higher than 100 per cent for the foreseeable future.

"We see TBO as a steady earnings compounder, with operating leverage driving a 30 per cent/33 per cent Ebitda/net income CAGR during FY24-30E (on a 21 per cent revenue CAGR).TBO trades at 43 times FY26E P/E, implying a 1.3 times PEG, at the middle of our India internet coverage, and lower end vs MSCI India and our India IT Services coverage," Goldman Sachs said.

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.

"Our bull-bear analysis for TBO implies 45 per cent upside from current levels in the bull case (Rs2,300 implied value per share) vs downside of 21% in our bear case (Rs1,260 implied value per share), indicating positive risk-reward for TBO," Goldman Sachs said.

The foreign brokerage said investor focus and debates going ahead would be on the outlook for TBO’s industry, risks of competition from scaled global OTAs,TBO’s international expansion and M&A strategy and steady state growth/multiples for TBO. 

Goldman Sachs sees TBO Tek's revenues to grow at 22 per cent FY24-27E CAGR, both at the higher end of its global travel coverage. 

It said TBO’s business model is  having multiple positive characteristics as it is exposed to a large and fragmented TAM
with secular growth tailwinds, a strong execution track record, an asset light balance sheet, negative working capital, strong FCF generation, and low competition/regulatory risks. 

"We see the company’s India business as indexed to the growth in ‘Affluent India’. With our 12-month DCF/PE-based target price of Rs 1,970 implying 24 per cent upside (sector average minus 5 per cent), we initiate with a Buy rating on TBO," Goldman Sachs said.