Sally White takes a look at the growing opportunities for travel companies and prospective investors

Heaven help western on-line travel companies! Chinese groups are rapidly expanding and now the Indians are coming up very fast indeed. At least there should be a breathing space while Indian groups develop their home market, but local companies have begun to catch international travellers. 

For investors, of course, all this sounds wonderful! It’s a chance to get in at the beginning and the Indian numbers look formidable! The Boston Consulting Group forecasts 550 million internet users by 2018 (moving India up from No. 3 behind China and the US to No.2) against 160 million at the end of last year. A report from this major international research group and the Internet and Mobile Marketing Association of India (IAMI), India@Digital.Bharat, forecasts industry 2018 revenue at $18 billion and says that by 2020 it will take 4% of GDP. What’s more the government is pushing for even more, with tax reforms, investment incentives and simplified regulation.

India is where China was ten years ago, according to a report on the Indian e-commerce from financial group Motilal Oswal - Fast and Furious – Just the beginning of multi-year explosive growth. The Indian e-commerce numbers are just 11% of internet users, compared to 50% in China and 63% in Sri Lanka.

Google India MD Ragan Anadan, who is also chairman of (IAMAI), is quoted as saying: “India is now the third country in the world to have over five internet companies valued at over $1 billion.” With the internet market forecast to be worth $45 billion in 2010 he foresees many more, on-line travel included.

On-line travel accounts for 71% of Indian e-commerce business, says the Motilal Oswal report, and is the fastest-growing on-line sector. It may lose some of this supremacy to e-tailing, which accounts for only 8.7% of e-commerce even though 95% of cities and towns have no significant retail presence, but growth will soar.

For punters there’s time yet. Most Indian e-travel companies have yet to IPO, so while there are a number up-and-coming, only two feature as yet in most local stockbroker coverage. These are prime market mover US NASDAQ-quoted MakeMyTrip and Amsterdam-quoted Yatra. The money goes on the former, longer established and much larger company.

MakeMyTrip leads, according to Motilal Oswal’s latest numbers, with slightly under half its market. Over the last four years its compound average growth rate has been around 28% for both bookings and revenues. In financial year 2014 sales were $255 million, but like many fast-growing developing companies it is in loss – $21 million at net income level. The shares trade around $25 having climbed steadily from 2012’s $11 low and it’s rated a ‘buy’ by most analyst followers.

Yatra is No. 2 on market share but its revenues are only around a fifth of MakeMyTrip’s. It has grown successfully, via fund-raisings and acquisition and last year, according to Motilal Oswal, it said it was near break-even. The shares trade around € 4.27 and have climbed from 2014’s €2.50 low.

A popular business

Travel is definitely popular in India, according to international group TripAdvisor’s biannual study of global consumer intentions. This year Indians are among the most likely to be planning international travel, it says. The figures, from search group Ipsos, found that 95% of Indian travellers plan domestic holidays (down 1% compared to 2013) while 66% are plan to travel abroad (up 21% from last year).

Domestic travel dominates, the Motilal Oswal study shows: “Currently, of the total online travel market, domestic air tickets contribute 50%, followed by railway tickets, which contribute 39%. Others such as international air travel, hotel bookings, bus tickets, tour packages and travel insurance contribute the balance 10%.”

They’re certainly bullish about India at the Global Business Travel Association (GBTA). Since 2000 India has worked its way up its rankings from number 24 to be the 10^th ranked market. Its latest report projects India’s total business spend to have grown by 8.6% in 2014 to $26.2 bn, “a significant upgrade from the 2.1% advance expected in our 2014H1 outlook”.

And for this year: “Business travel growth will advance another 9.2% in 2015 to $28.6bn.”

Latest trading reported by online travel group ClearTrip is also bullish. Chief financial revenue officer Amit Taneja says: “2014 was a great year for travel – customers were presented with a more customised range of products & offers to plan holidays. And the response was phenomenal, as visible in a 165% growth (YoY, Q3’14 vs Q3'13) in traffic, and 100% growth in transaction volumes.”

“The growth was uniform across destinations and all categories of hotels, though there was a visible trend towards more short, weekend breaks.”

So, domestic growth prospects are not disputed. But India has a few problems that make foreign markets look attractive. Not only is much of the country not on broadband, but cyber security seems low priority as do the legal issues. Most challenging of all, most customers pay cash!

To hear more about the fast-growing Indian market, why not join us in Singapore later this year for the Travel Distribution Summit, Asia (May 20-21)