Mobile, hotel and packages: where MakeMyTrip is making good things happen

With entrepreneurial initiative, India’s biggest online travel agent has spotted an opportunity in making more hotels bookable online and the share price is responding. Sally White reports

A long-term growth stock – that is the stock market’s rating of India’s MakeMyTrip. All the same, the immediate spur to the economy this week given by yet another interest rate cut produced a nice little lift to the share price. Also good for an uptick in the share price was the surprising (in fact, almost unbelievable) discovery that India’s economic growth rate was 7.5% in 2015 Q1, outstripping global growth hero China’s 7.3%.

There are rumours of more such boosts to come as new Prime Minister Narendra Modi tries to create more jobs by kick-starting major industrial projects as well as helping the SMEs.  International banking group Morgan Stanley has been one of those voicing expectations of ‘further rate cuts’. The market is looking for good news as international investors have favoured Indian investments since Modi’s election, liking the look of his reform programme.

All of this will drive consumer spending, and thus travel. Such boosts helped offset the MakeMyTrip’s guidance pulling down earnings expectations for this year. Profits are under pressure as it is upping advertising and investment spending and the increasing competition in airline ticketing is hacking at margins.

MakeMyTrip shares are priced at $19.50 on the New York NASDAQ market, the location of its main international share trading. But the price of India’s No.1 online travel group (with 47% of its domestic market) still has a long way to go to reach analysts’ $30 target.

Investors have become reconciled to online travel’s expensive path to growth, bedevilled as it is with mammoth marketing costs. MakeMyTrip’s share price fall from the $42 level four years ago speaks for their education. The latest  12-month figures, just out, show that while revenue soared 28% (to $139m) and gross bookings 32%, the bottom line figure was a loss of $18.4m. (True, there was some progress in that the loss per share was down at 44 cents against 55 cents the previous year.)

As Deep Kalra, chairman and CEO, has said, this was an important 12 months with some significant numbers to point out:  “...our hotels and packages business now accounts for 45% of our full year revenue less service costs. In the fiscal fourth quarter, mobile users accounted for more than 40% of total online traffic and 22% of online transactions in India”. Revenue from air ticketing rose last year by 12%, transactions by 36%.

The company reckons that 8 million air passengers booked their tickets through MakeMyTrip last year. Hotel and package revenue was up 20%, revenue less service by 57% and transactions by 59%. It being India, MakeMyTrip also has an eye on the revenue growth potential from rail and bus travel.

Nor has it forgotten the large number of ex-pat Indians living abroad in countries such as the United Arab Emirates and neighbouring Middle East countries, the US and Canada. It markets to Indians everywhere.

A number of good things happened last year, and Deep Kalra has outlined the opportunities in the coming months. He likes especially those arising from low penetration of hotels booked online “as well as the way mobile is likely to change the way Indians transact”.  

He added: “we plan to focus on driving mobile adoption and further improving the business mix in favour of hotels and packages”.

Seeing the potential

Last year transactions through its websites accounted for 93.4% of its business and its mobile platforms accounted for about 7.5% of those transactions. The latest quarter showed an “impressive” lift in domestic market share from 13% last quarter to 15%. Kalra said that this improvement was thanks to “internal rather than external factors”, namely improvements to MakeMyTrip’s mobile capabilities for air bookings – seat selection, itinerary management, single click payment to name but a few.

All its stock market analyst followers like MakeMyTrip. They can see the potential – at the moment India’s largest online travel company has a market value of $813m, while Priceline of the US, for example, has one of $61bn. India is home to nearly 1.2 billion people and the country has excellent demographics, estimated to have the world’s youngest population by 2020. The online travel market is predicted to grow to $27.5bn next year.  Smartphone users, numbering 116m last year, are expected to soar to 382m in 2016. Internet users are forecast to rise from last year’s 278m to 500m over the next three years.

MakeMyTrip is nothing if not entrepreneurial. It has targeted technologies and niche growth areas in which to make investments. It has a 25% equity investment in Bangalore-based Simplotel Technologies which builds responsive and optimised websites as well as booking engines. Kalra said that Simplotel would work with MakeMyTrip to make more hotels bookable online.

It has an Innovation Fund focused on young and new ventures in the travel technology. “This initiative is an additional prong of our inorganic growth strategy of pursuing mergers and acquisitions opportunities in the travel technology space,” he said. Through it MakeMyTrip has just bought Mygola, which is best known as a travel-planner. Its proprietary technology covers major travel destinations in Asia, the Middle East and North America as well as India.

MakeMyTrip’s this year’s profit guidance for revenue less service costs is a rise of 30% - pretty robust, and likely to improve along with India’s economy and its growing numbers  of middle-class consumers. (International consultants Mckinsey expect those numbers to rise from 160m in 2013 to 547m by 2026.)

But the bottom line? Auspiciously for margins, the higher margin (compared with air) hotels and packages division is showing very steady growth.

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