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Good Times Ahead For MakeMyTrip

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Jan 22, 2015
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MakeMyTrip (

MMYT, Financial), an online travel company that provides travel products and solutions in India and internationally, has surged by 79% in the last two years. However, the stock has moved sideways since May 2014, the stock has been moving sideways. In my opinion, MakeMyTrip is ready for the next rally and investors can consider exposure to the stock at current levels for 2015 or for a longer investment horizon. Even with a 3-5 year investment horizon, the stock is worth owning and can provide stellar returns. This article discusses the reasons to be bullish on MakeMyTrip.

The first point I want to make here is that MakeMyTrip is India’s leading online travel agency and the company’s growth drivers are India specific. From this perspective, it is important to note that the decline in fuel prices has resulted in lower inflation in India and more money in the hands of consumers. I believe that this will translate into higher level of travels and will spur growth for MakeMyTrip. Therefore, the commodity price factor is the not so obvious factor that will drive growth for MakeMyTrip over the next few quarters.

The second point that I want to make here is that India’s GDP is on an upward trend and IMF estimates that India’s GDP growth will be higher than China’s GDP growth by 2016. Therefore, the coming years will be good for the Indian economy and hence for the Indian job market. This will also translate into higher disposable income and greater spending related to travel. Also, by 2020, India will have the youngest population in the world and the implication is a larger workforce and also a larger population that will drive spending. Clearly, India’s economic scenario and demographics are the factors that will drive growth for MakeMyTrip over the next few years.

I am particularly bullish on MakeMyTrip as the company has 47% market share in the Indian online travel market. Hence, the company is best positioned to benefit from the impending growth in the sector. MakeMyTrip has also transformed itself over the years towards a high EBITDA margin business and I believe that the company’s EBITDA margin will continue to improve over the next few quarters and years.

To put things into perspective, MakeMyTrip generated 78% of revenue in FY11 from air ticketing and only 18% from hotels & packages. For the first half of 2015, the company’s revenue from air ticketing declined to 51% while hotels & packages share of the revenue increased to 45%. This shift has driven the company’s EBITDA margin and will continue to drive that growth. For the first half of 2015, the company’s air ticketing segment had revenue margin of 6% as compared to 12.1% for the hotels & packages segment.

From a growth perspective, I would also like to mention that MakeMyTrip has pursued inorganic growth in the past and I believe that the company will continue with its inorganic growth strategy, besides the organic growth. In particular, the company’s expansion outside India (in Asia) is likely to be through the inorganic route. In May 2011, MakeMyTrip acquired Luxury, a Singapore based travel agency and in November 2012, MakeMyTrip acquired ITC, a hotel aggregator and tour operator for Thailand. Further, in November 2012, MakeMyTrip also acquired HotelTravel.Com that has a strong presence in the South-East Asian region. Therefore, the company’s growth strategy for Asia is inorganic and I believe that this growth will continue considering the potential Asia holds.

In conclusion, MakeMyTrip is an excellent stock to consider for the near-term and also for the long-term. The company has strong presence in India and the company is looking to create strong presence in Asia. Over the next 3-5 years, the stock can certainly be a value creator.

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