MakeMyTrip: Hotel and Packages Segment Leading Growth
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MakeMyTrip (NASDAQ: MMYT) shares have plummeted more than 25% in the last three months despite better than expected performance Q42012, showing both top-line and bottom-line growth. We expect the growth trend will continue with the launch of 3G and the penetration of smartphones in the Indian market, and the company’s stock price will eventually catch up with the fundamentals. The main positive for MakeMyTrip remains the increasing contribution from its hotel and packages business to its net revenues, which was up to 21% in FY12 from 18% in FY11. As MakeMyTrip continues to gain traction into a relatively new hotel reservation market in India, we expect the company to have good growth prospects.
Source: Investors Presentation
Hotel and Packages Segment Showing Promise:
Hotel and packages transactions showed tremendous growth of 95% Y/Y, generating 21% of net revenues, which grew by 74% Y/Y in FY2012. The hotel and packages segment has been showing an impressive CAGR of 77% over the last three years, and we believe this trend will continue given the dominant share and high visibility of MakeMyTrip compared to Yatra.com and Cleartrip.com in the Indian market. MakeMyTrip is currently the industry leader in the hotel and packages segment with 8,200+ hotels & guest-houses available online. The number of hotels and guest-houses rose 82% from the last fiscal Year.
Source: Investors Presentation
Net revenue as a percentage of gross bookings was greater for the hotel business at 11.9%, compared to 7.9% for air travel, making it a more profitable business for MakeMyTrip.
Source: Investors Presentation
MakeMyTrip is looking to drive hotel bookings forward by enhancing the hotel booking experience with “Hotel 3.0” website improvements. As MakeMyTrip looks to increase its market standing by penetrating into smaller hotels and providing easy bookings in a more profitable hotel business, we believe MakeMyTrip stands to perform better in the foreseeable future.
Broad Customer Reach in a Growing Market:
MakeMyTrip has an enhanced reach, which covers integrated B2B, B2C and mobile platforms. MakeMyTrip provides a web enabled centralized booking system and retail outlets to its customers with a number of payment gateways. As internet usage is shifting to mobile platforms, MakeMyTrip has launched its own touch enabled mobile site, Android & Blackberry apps that could help attract younger customers. MakeMyTrip currently holds a leadership position with a 48% share in India; Yatra and Cleartrip occupy 24% and 18%, respectively, of the market. We believe MakeMyTrip will post growth as India’s internet penetration increases further in the long term.
Source: Investors Presentation
Good Top-line and Bottom-line growth
MakeMyTrip has performed well after posting losses in FY2008 and FY2009, as both adjusted operating profit ($10.9 Million) and profit margins (12.4%) rose in FY2012. This can mainly be attributed to the decrease in operating costs, which went down from 190% in FY2008 to 85% in FY2012, led by a decrease in the marketing spend.
Source: Investors Presentation
We expect MakeMyTrip to perform well, keeping in mind its strong momentum in the hotel and packages segment and the growth of the Indian travel sector. MakeMyTrip enjoys the same stature in the Indian market as Ctrip (NASDAQ: CTRP) enjoys in the Chinese market and could see good growth given the low smartphone and internet usage in the Indian market. We believe MakeMyTrip has plenty of opportunities in a rapidly growing OTA market, and it could post heavy growth in the coming years with its leadership position and visibility. MakeMyTrip is currently trading around its 52 week low and has good future prospects. We rate this stock as a buy.
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