Rising Tiger: why investors are taking a long-term view on India

Indian news tends to get overshadowed by the gigabytes on Chinese travel, yet the latest stories from market leader MakeMyTrip are signalling a shift, and an influx of US tourists is helping. Sally White reports

India’s travel market is expanding rapidly, its connectivity rising, as is international investment. MakeMyTrip has a first international app, more overseas passengers, growing technology input and even better net revenue margins. In other words, a heads up call!

Not all of this is MakeMyTrip’s doing, although chairman and founder Deep Kalra could hardly be blamed for highlighting the bullish background to analysts in recent Q1 financial briefings. At 7% CAGR, economic growth is outpacing even China’s and India has the world’s largest young population. It has the 2nd highest number of internet users but only 25% internet penetration, and the number of its smart-phone users, the world’s 3rd highest, is forecast to triple in five years.

Others have their eyes on the Indian market, too. Local B2C travel aggregator Goibibo has just taken a $250 million cash injection from South African media group Naspers, and budget-hotels marketplace Oyo Rooms has been picking up international private equity investors, including Japan’s Softbank. OTA Yatra has received around $100m-plus funding from venture capitalists in a deal that will result in its being listed on the US NASDAQ market alongside MakeMyTrip. So, earlier this year, MakeMyTrip sold a 16% stake for $180 million to China’s Ctrip, all the better to compete.

Up until recently MakeMyTrip has been content to focus mainly on its rapidly growing domestic sales. After all, domestic trips numbered 81 million last year and as yet the group has only 16% of the air travel market. Government policy of improving travel and opening up the Indian air travel industry to foreigne investment, combined with consumer preferences are changing the market, however.

As Thomas Cook’s country-head for India, Rajeev Kale, outlined in its recently published Indian travel survey: “Spurred by a burgeoning economy that has improved their spending power, coupled with declining airfares, Indians have emerged as the newest globetrotters.” 

Outbound travel numbers are expected to rise to 50m by 2020 against 20 million last year. Indians flying to the US, Australia, Canada and New Zealand rose then by 18%.  A further example: whereas the US has been India’s largest source of foreign tourists (1.2m last year), in 2015 a record million Indians applied to go the US. According to US Ambassador to India, Richard Verma, as quoted recently by Indian tourism website TourismFirst, the US is mulling over opening more consulates there.  

India & MakeMyTrip in Numbers

  • 50m  – outbound travel journey expected by 2020 (vs 20 million in 2015)
  • 18% - the rise in Indian travellers to the US, Canada and New Zealand
  • 1.2m – US travellers to India – the largest source of foreign tourists
  • 400 – the number of ‘technies’ in MakeMyTrip’s Bengaluru centre
  • 63% - MakeMyTrip’s year-on-year growth in new users
  • 96 m - revenues from hotel bookings and packages

 

Hence MakeMyTrip’s recent first app-only sale exclusively for international travel, the special focus being on international flights, hotels and packages. Partners included Citi and Standard Bank as banking partners, Air France, British Airways, Air Arabia, Singapore Airlines, Silk Air, Melia Hotels international Compass Hospitality, Avania Hotels and Resorts and the Hong Kong Tourist Board.

Tech focus

MakeMyTrip has been investing aggressively in technology, especially aiming to make the platform work smoothly on low internet bandwidth and low-end phones. There are 400 techies in its centre in Bengaluru and 200 more are being recruited, MakeMyTrip has said via Reuters.

Technology is “our core strength”, Kalra told analysts. For example, he added: “...our mobile extranet for hoteliers is empowering them to very quickly offer pricing changes, discounts and room availability on our hotels platform which maximises returns for all parties.

“Today, a significant portion of the platform engagement with hotel partners now comes via the mobile extranet app and we are currently leveraging vernacular demo videos to help hoteliers understand and ultimately drive adoption and engagement of the platform across smaller hotels and in smaller towns of India. The good news is that the new version of the extranet has already logged us three to seven times quarter-on-quarter increases in supplier engagement and usage of the newly launched promos, content and payment sections.”

MakeMyTrip’s has been investing to shift the balance of its business away from air into the much the higher margin business of hotels and tour packages

Q1 also saw spending on commercials to accelerate the shift from offline to online bookings, the main focus of which was “removing any perceived blockers” Kalra said. He added that this, “along with various other brand building campaigns, including our free cancellation policy on hotel bookings, has yielded a 63% year-on-year growth of new users acquired and a 59% increase in total users....” In addition, MakeMyTrip has partnered with banks in each region to boost customer growth.

Most importantly, MakeMyTrip’s has been investing to shift the balance of its business away from air into the much the higher margin business of hotels and tour packages. Four years ago revenue was 80% air and 20% hotels and packages. The latest quarter showed $24 million from air ticketing and $96 million from hotels and packages, 91 per cent of that coming from hotel bookings. The company can offer 33,000 domestic hotels and 310,000 outside India.

MakeMyTrip has been achieving hotel transaction increases in triple figures, however, this comes at a cost. Deep Kalra had to reveal a whopping increase in the latest quarterly spend on incentives and inducements at  $53 million.

That bill led to the latest quarter’s $14.3m net loss. Yet, the shares have risen in recent weeks from around $14 to over $19.50 - investors have their eye on the very promising longer-term Indian travel prospects.

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