The recent announcement made by the Star Alliance board to induct Air India as a member of the alliance not only resulted in loud cheers but also sparked a renewed enthusiasm across the Indian aviation sector. Indian aviation sector has witnessed a remarkable growth in the last decade with robust growth in passenger and cargo traffic, huge jump in the number of aircrafts operating in the country and an impressive increase in the non-scheduled operators. All of these developments have led to favourable times for the company I am going to discuss about i.e MakeMyTrip Ltd (MMYT).
Hotels & Packages: A significant growth driver
In the first quarter of 2015, the company posted a solid net revenue (Gross revenue – service costs) growth of around 43.8% to more than $35.5 million. Being a peak travel season, the first quarter saw MakeMyTrip achieving strong growth in all core business segments especially the hotels and holiday packages, which formed approximately 50% of its total quarterly revenue. As per the management, the company is making commendable progress in domestic and international standalone hotels business as well. On the domestic supply side, MakeMyTrip expanded its hotel base to over 13,000 domestic properties, including hotels, guest houses, and vacation villas, up from 11,400 properties reported last quarter. Furthermore, it now offers a plethora of hotel choices for our outbound customers with more than 184,000 properties within the group network.
It is amply clear that the hotel and packages business has now become a major contributor to the overall revenue of the company. The standalone hotels business that I mentioned above saw a considerable growth in the quarter leading to a growth of around 106.5% in hotels & packages business. While the domestic hotels bookings have gained strong momentum and primarily responsible for the uptick in H&P business, the international business is also picking up pace with the help of EasyToBook acquisition since February 2014.
The tech revolution
While the H&P business is one pillar of growth for the company, the growing internet penetration in India and a sturdy portfolio of mobile offerings is the other. Though the penetration rate is slow but India has the third largest online user base globally after China and the U.S. Today, the country has approximately 118 million mobile Internet users out of an estimated 240 million total Internet users. Going forward, smartphone shipments are expected to rapidly grow by over 40% annually for the next 5 years. Thus it is quite clear that MakeMyTrip has rightly recognized the significance of mobile in leveraging the future opportunities in India’s burgeoning aviation market.
To date, the company has over 3.2 million mobile apps downloaded across all the popular operating systems. More than 29% of MakeMyTrip’s monthly unique visitors and 14% of all online transactions are now coming via mobile. In the first quarter, mobile users also contributed 25% of the total online domestic hotel transactions, owing to strong mobile transactions growth on a sequential quarter basis. The company is investing credible efforts in developing its mobile channels in order to deliver a wholesome and intuitive user experience. For example, the launch of an improved mobile payment experience had quite a favourable impact on conversions.
As I mentioned at the onset, Indian aviation markets have witnessed a consistent high growth in the recent years with the influx of low-cost carriers and heavy investment in infrastructure. Further, the newly installed Indian Government is committed to driving inbound tourism growth in India thereby opening up a bigger set of opportunities for the likes of MakeMyTrip. In my opinion, this stock provides a safe investment option for conservative investors looking to invest in India’s growth story.