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EQUITY RESEARCH INITIATION OF COVERAGE September 23, 2010
INDIA/INDIA
Stock Rating:
MakeMyTrip Limited
PERFORM 12-18 mo. Price Target MMYT - NASDAQ
NA $34.07
3-5 Yr. EPS Gr. Rate 52-Wk Range Shares Outstanding Float Market Capitalization Avg. Daily Trading Volume Dividend/Div Yield Fiscal Year Ends Book Value 2011E ROE LT Debt Preferred Common Equity Convertible Available EPS Diluted
150% $41.47-$14.00 34.1M 5.8M $1,162.9M NA NA/NM Mar ($1.42) NA $0.1M NA ($25M) No
Q1
Q2
Q3
Q4
Year
2010A
0.02
0.00
0.02
0.00
0.05
NM
2011E
0.05A
0.01
0.04
0.07
0.18
NM
2012E
--
--
--
--
0.46
74.1x
Initiating at Perform on India's OTA Market Leader SUMMARY
We are initiating coverage on MakeMyTrip (MMYT), India's largest online travel agency (OTA), with a Perform rating. We are bullish on the growth prospects of India's largest OTA (48% share of 2009 gross bookings) on both revenues and margins. We forecast 52% top line growth in FY11/FY12 and expect margins to expand 40bps from FY10 to FY12. Growth levers such as LCC growth, rise in credit/debit card penetration levels and increasing internet penetration are positive for the name, in our view. However, we believe at current levels the shares appear fully valued. Since its IPO, MMYT has catapulted nearly 150% from its offer price of $14, and we believe the upside from current levels is limited. KEY POINTS ■
Market Leader in a Nascent OTA Space : MMYT is the market leader in the Indian OTA space, with 48% share of 2009 gross bookings. The Indian travel market is expected to grow at a 15% CAGR to $54B in 2012 with online travel increasing at a 27% CAGR to $8.7B in 2012 per WTTC.
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Several Growth Levers : We identify several growth levers ahead for the business as MMYT grows its presence in the nascent OTA market in India: 1) rise in number of LCCs; 2) rise in discretionary spending; 3) rapid rise in internet adoption; and 4) margin expansion from a favorable mix shift to higher margin hotels.
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Investments Risks: 1) supplier relationships risk; 2) highly competitive market; 3) longer-term Air Commission pressures; 4) driving the hotel business growth online could be challenging; 5) internet penetration may not rise at rates expected; and 6) credit card penetration growth may slow.
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Relative Valuation: At its current price, MMYT trades at a rich P/E multiple of 85x our CY11 $0.40 EPS estimate vs. peer average of 33x with an CY11 PEG of 1.5x compared to its closest peer CTRP's PEG of 1.2x and peer group median of 1.3x.
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We are establishing a FY11 net revenue estimate of $61.6M and non-GAAP EPS of $0.18 on transaction volume of 2.5M and gross bookings of $724.5M. For FY12, we estimate net revenue/non-GAAP EPS of $93.8M/$0.46 on transaction volume of 3.3M and gross bookings of $1B.
Mult.
Stock Price Performance
Company Description
1 Year Price History for MMYT 45 40 35 30 25 Q2
Manish Hemrajani 212 667-5407
Paul Keung 212-667-7789
[email protected]
[email protected]
Created by BlueMatrix Q3
20
MakeMyTrip Limited, an online travel company, founded in 2000, provides travel products and solutions in India and the US. Its products and services include air tickets, hotels, packages, rail tickets, bus tickets and car rental. The company, through its online channel, makemytrip.com, and other technology-enhanced distribution channels, such as call centers, travel stores, and travel agents' network allow travelers to research, plan, and book a range of travel services and products in India and internationally.
Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures and Certifications" section at the end of this report for important disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. Oppenheimer & Co Inc. 300 Madison Avenue 4th Floor New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229
MakeMyTrip Limited
Contents INDIA’S ONLINE TRAVEL LEADER WITH SEVERAL GROWTH LEVERS AHEAD ... 3 RISE IN NUMBER OF LOW COST CARRIERS ................................................. 3 RISE IN DISCRETIONARY INCOME TO FUEL TRAVEL GROWTH ....................... 3 RAPID RISE IN INTERNET ADOPTION ........................................................... 4 MARGIN EXPANSION FROM A FAVORABLE MIX SHIFT................................... 4 KEY RISKS FOR MMYT ............................................................................. 4 INDIAN ECONOMY ____________________________________________ 7 INDIA’S RISING MIDDLE-CLASS .................................................................. 8 W ALLET-SHARE SHIFT FROM BASIC NECESSITIES TO DISCRETIONARY ITEMS9 TRAVEL DISTRIBUTION CHANNELS IN INDIA ............................................... 13 GDS IN THE TRAVEL ECOSYSTEM ............................................................ 14 AIRLINES (77% OF NET REVENUE) .......................................................... 16 HOTELS & PACKAGES (20% OF NET REVENUE)........................................ 18 OTHER (3% OF NET REVENUE)................................................................ 19 TRAVEL STORES ..................................................................................... 20 TRAVEL AGENTS’ NETWORK .................................................................... 20 MOBILE .................................................................................................. 21 GROWTH IN LCCS .................................................................................. 21 GROWTH IN INTERNET PENETRATION ....................................................... 22 RISE IN CREDIT CARD PENETRATION LEVELS ........................................... 23 INDIA BASED AIRLINES SHARE GROWING AS A % OF INTERNATIONAL TRAFFIC MIX .............................................................................................................. 24 HOTEL BOOKINGS GROWTH .................................................................... 25 BRAND RECOGNITION LEADS TO MARKET SHARE GAINS ........................... 26 COMPETITION ______________________________________________ 27 FINANCIAL AND OUTLOOK _____________________________________ 30 FY09 REVIEW......................................................................................... 30 RECENT RESULTS/NEWS......................................................................... 31 FY10 RESULTS....................................................................................... 31 FY11 OUTLOOK ...................................................................................... 31 FY12 OUTLOOK ...................................................................................... 32 FX IMPACT ............................................................................................. 34 AREAS OF CONSIDERATION ____________________________________ 35
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Executive Summary We are initiating coverage on MakeMyTrip Limited, India’s largest Online Travel Agency, with a Perform rating. We are confident regarding the growth prospects and potential of India’s largest OTA (48% share of gross bookings in 2009) in terms of both revenues and margins. We forecast top line growth of 52% in FY11 and FY12 and expect blended gross margins to expand 40bps from FY10 to FY12, which translates in to non-GAAP EPS growing from $0.05 in FY10 to $0.46 in FY12. Growth levers such as LCC (low cost carrier) growth, especially at the domestic level, significant rise in credit/debit card penetration levels, and increasing internet penetration from the abysmally low current levels are positive for the name, in our view. MMYT currently trades at a multiple of 85x our CY11E EPS of $0.40 vs. peer average of 33x and a PEG of 1.5x estimated revenue growth of 56% in CY11 vs. its closest peer CTRP at 1.2x and a peer median PEG multiple of 1.3x. Our DCF analysis yields a share price of $35 rendering the shares fairly valued at current levels. We arrive at our DCF using an 11% WACC and a terminal value of $2.8B in FY20. Since its IPO (August 12, 2010), MMYT has catapulted ~150% from its offer price of $14, and we believe the upside from current levels is limited. In addition, we believe volatility due to a small float size remains a near-term risk.
India’s Online Travel Leader with Several Growth Levers Ahead According to PhoCusWright, MMYT is India’s online travel leader, with 48% share in 2009 when measured in terms of gross bookings. We identify several growth levers ahead for the business as MMYT grows its presence in the nascent OTA (online travel agent) market in India.
Rise in Number of Low-cost Carriers The advent of LCCs (low-cost carriers) and increasing competition in the Indian airline industry has lent affordability to air travel in India and made it a viable alternative for a larger number of travelers to choose air travel over the traditional rail travel. With the growing number of low-cost airlines, online air travel bookings have also increased since low-cost airlines typically prefer to use cost-effective distribution channels such as the internet, using it as their primary distribution channel, either directly or through online travel agents. In the next 12 months a majority of the LCCs will be eligible to add overseas routes. We expect to see increased offerings from LCCs, especially in terms of near-shore destinations in South East Asia (Hong Kong, Singapore, Malaysia, and Thailand) and Dubai in the Middle East, driving prices down even further to these destinations and thus rendering these overseas destinations more attractive to Indian vacationers.
Rise in Discretionary Income to Fuel Travel Growth Progressive deregulation, rising income levels and supportive demographic trends make India one of the world’s fastest growing markets for discretionary spending. As Indian incomes rise, the share-of-wallet of consumer spending should also change significantly. Today the largest Indian spending categories are food, beverages and tobacco, and transportation and housing. According to McKinsey’s estimates, by 2025, food, beverages and tobacco is still expected to be the biggest category, although its share is anticipated to drop from 42% in 2005 to 25% in 2025. Transportation, which includes leisure travel in the 3
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mix, is expected to rise from a 17% share in 2005 to 20% in 2025—significant when viewed in the context of wallet size potentially tripling from 2005-2025. The key takeaway here is that discretionary spending is expected to rise to 70% of the total share-of-wallet by 2025 vs. 52% in 2005.
Rapid Rise in Internet Adoption India lags behind several Asia Pacific markets and well behind the developed markets in terms of internet and broadband penetration with ~7% penetration levels (or 81 million internet users) currently. Of that 7% we believe less than half are broadband users. We believe, however, that internet penetration levels will continue to rise both in the near and longer term with increased competition and the resultant pricing pressures in the internet service provider market. Recent broadband spectrum auction by the Indian government has produced a multitude of players who are looking to offer broadband internet services and we should see a spate of broadband service offerings in the near term. We believe true penetration levels to be higher than 7% given that a majority of potential Travel consumers have broadband access at the workplace.
Margin Expansion from a Favorable Mix Shift With a majority of its revenue (77% in FY10) currently derived from lower margin airline business, we believe MMYT is poised for margin expansion both in the near and longer term, as revenue mix shifts to the more lucrative (higher margin) Hotel and Packages business. With Hotel and Packages margins close to 14% vs. airlines at around 7% we estimate blended margin to rise 40bps from 8.6% in FY10 to 9% in FY12 as Hotel and Packages revenue mix rises to 29.6% in FY12 from 19.8% in FY10.
Key Risks for MMYT Supplier Relationships: Inability to maintain existing and establish new relationships with travel suppliers could adversely affect the business. Competition Risk: The travel industry in India is intensely competitive. MMYT may not have the financial resources to maintain its competitiveness in the marketplace against competitors with deeper pockets both from the OTA and Supplier Direct side. Additionally, MMYT competes with all traditional travel companies who may also have online initiatives given all travel agents are targeting the same customer. Air Commission Pressures: Air suppliers (including Amadeus, the company’s GDS provider) may reduce or eliminate commissions in the future, which could adversely affect the profitability of the business. Significant Shareholder Risk: We believe SAIF (South Asian Investment Fund) owning over 43% of shares outstanding constitutes a risk. Driving the Hotel Business Growth Online Could Be Challenging: MMYT’s expansion and growth in the hotel business brings a great risk and a great reward. The market opportunity is significant, the margins are wider, but the sector is still immature and highly fragmented. Internet Penetration Risk: India lags several Asia Pacific markets and is well behind the developed markets in terms of internet and broadband penetration, with ~7% penetration levels (or 81 million internet users) currently. Internet penetration may not grow as expected given various challenges in the marketplace. 4
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Credit Card Penetration Risk: According to Euromonitor and the Reserve Bank of India, the number of credit cards in India was over 25.5 million in 2009, , while the number of debit cards in India was over 130 million. Euromonitor expects the number of credit cards in India to reach 73.7 million by 2014 (i.e., an annual growth rate of over 25%) and the number of debit cards in India to reach 350 million by 2014 (i.e., an annual growth rate of over 22%). Credit card growth may not pan out as estimated due to the highly risk averse nature of the Indian consumer.
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Company Profile Originally incorporated in April 2000 as International Web Travel Private Limited in Mauritius, the company subsequently changed its name to MakeMyTrip Limited and converted to a public company. Its registered office is located at the offices of Multiconsult Limited at Rogers House, 5 President John Kennedy Street, Port Louis, Mauritius with principal executive offices located at 103 Udyog Vihar, Phase 1, Gurgaon, Haryana 122016, India. Its principal website address is www.makemytrip.com. Exhibit 1. MakeMyTrip Corporate Structure
Source: Company Reports
Based on gross bookings in 2009, MMYT is the largest online travel company in India, according to PhoCusWright. MMYT’s services and products include air tickets, hotels, packages, rail tickets, bus tickets, car hire and ancillary travel requirements such as facilitating access to travel insurance. MMYT commenced operations in 2000, and in the first five years following inception, it focused on the NRI (non-resident Indian) market in the US, servicing mainly the need for the United States-India inbound air tickets. The Indian business was launched in September 2005. In FY10, MMYT processed 1.6 million transactions for domestic air tickets in India, which helped generate $31.1 million in net revenue from the air ticketing business. Net revenue from hotels and packages business totaled $8.0 million in FY10. According to comScore, www.makemytrip.com was the second most visited travel website in India (after the Indian Railways’ website) in each of the years from 2007-2009 and had an average of over 1.7 million unique visitors per month in 2009. MMYT targets the end market through its various distribution channels such as websites, call centers, travel stores and its strong 4,000–travel-agent network. It provides end customers with access to all major domestic full-service and low-cost airlines operating in India and all major airlines operating to and from India, over 4,000 hotels in India and a wide selection of hotels outside India, Indian Railways and several major Indian bus operators.
Employees As of Mar-2010, MMYT had 757 employees on its payroll. Almost all employees are located in India with just three based in the US.
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Exhibit 2: MakeMyTrip Employee Breakdown
Management Product Development Sales & Marketing Technology Others Total
7 20 442 111 177 757
Source: Company Reports
Indian Economy MMYT’s target market is India, the seventh-largest country in the world. It covers an area spanning approximately 1.3 million square miles in Southeast Asia. The country shares its borders with the People's Republic of China, Nepal and Bhutan in the north, Pakistan in the west, and Myanmar and Bangladesh in the east. Exhibit 3: World Population (in millions)
1400 1200
1330 1148
1000
975 800 804 600 400 338
200 0 China
India
Africa
Europe
North America
Source: Internet World Stats
According to the CIA factbook, India is one of the world’s most populous countries with an estimated population of over 1.15 billion as of July 2009. India’s gross domestic product, or GDP, on a purchasing power parity basis was approximately $3,561 billion in 2009, making it the world’s fifth largest economy after the European Union, the United States, China and Japan. Economic liberalization, including reduced controls on foreign trade and investment, which began in India in the early 1990s, has served to accelerate the country’s GDP growth, which has averaged more than 7% annually since 1997. The Indian economy registered a GDP growth of 7.4% in FY10 (March fiscal year) despite the weak global macro environment, making it the second fastest growing economy globally as of March 2010 for countries with GDP over $150 billion. The Indian government expects FY11 GDP growth between 8.5-8.75%.
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Exhibit 4: India’s GDP Growth Rate
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1 0 0 2
2 0 0 2
3 0 0 2
4 0 0 2
5 0 0 2
6 0 0 2
7 0 0 2
8 0 0 2
9 0 0 2
E 0 1 0 2
E 1 1 0 2
Source: Reserve Bank of India and Oppenheimer & Co
India’s Rising Middle Class Economic liberalization in India, which began in 1991, transformed Indian demographics through rising income levels and changing consumption patterns. According to McKinsey, income levels are estimated to almost triple by 2025. The country’s income pyramid is also expected to change, with India’s middle class (India’s middle class is defined as households with annual income of between Rs. 200,000 to Rs. 1,000,000 or between ~$4000-$20,000) expected to grow by over ten times from 50 million people in 2005 (approximately 5% of the total Indian population) to 583 million people by 2025 (approximately 41% of the total Indian population). With a growing population, the expansion of middle class and rising incomes, India should become one of the world’s largest consumer markets by 2025. Consumption is expected to increase by 7.3% annually over the next 20 years to reach more than Rs. 69.5 trillion, or $1.5 trillion, by 2025.
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Exhibit 5. India’s Rising Middle Class
120
1600 1400
100
1200 80
1000
60 40
800
Middle Class
600
Underpriviliged
400 20
Upper Class
Total Population
200
0
0 1985
1995
2005
2015E 2025E
Source: McKinsey and Oppenheimer & Co
Wallet-share Shift from Basic Necessities to Discretionary Items Progressive deregulation, rising income levels and supportive demographic trends make India one of the fastest growing markets in the world for discretionary spending. As Indian incomes rise, the share-of-wallet of consumer spending should also change significantly. Today the largest Indian spending categories are food, beverages and tobacco, and transportation and housing. According to McKinsey’s estimates, by 2025, food, beverages and tobacco is still expected to be the biggest spending category, although its share is anticipated to drop from 42% in 2005 to 25% in 2025. Transportation, which includes leisure travel in the mix, is expected to rise from a 17% share in 2005 to 20% in 2025— significant when viewed in the context of wallet size tripling from 2005-2025. The key takeaway here is that the discretionary spending is expected to rise to 70% of total by 2025 vs. 52% in 2005.
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Exhibit 6: India Discretionary vs. Non-discretionary Spending
100% 90% 80%
39% 52%
70%
61%
60% 50%
70%
40% 30%
61% 48%
20%
39%
10% 0% 1995
2005 Necessities
Source: McKinsey and Oppenheimer & Co
10
2015E Discretionary Spending
30%
2025E
MakeMyTrip Limited
India’s Travel Market As recently as the mid-90’s, the Indian aviation and rail industries were government owned monopolies. The entry of LCCs transformed the marketplace in 2005. The India travel ecosystem consists of various industry suppliers, distributors and agencies. The fragmented nature of the travel industry has created an opportunity for distributors to capture value by developing and managing efficient systems that are capable of bridging travel supply and demand on a nationwide, real-time basis. As consumers navigate online travel sites, they dive into the online travel ecosystem. While a majority of travel booking in India today is done the traditional way—offline through a retail travel outlet—there is a growing number of online choices for consumers including supplier websites and OTAs. The entire travel ecosystem in India, including air, hotel, OTA’s bus and rail is seeing innovation. Surprisingly the first real online catalyst came from the government-owned Indian railways which started offering online bookings back in 2005. The growth of LCCs, which have now grown from just a single one back in 2004 to seven in 2010, has also provided a major boost to the online travel market. Exhibit 7: LCCs as a % of India’s Airline Mix
Source: TRAI
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Exhibit 8: India’s Domestic Airline Market Share July 2010
Paramount, 0.3 0%
Spicejet, 13.20 %
Go Air, 5.60%
Jet Airways, 26.60%
IndiGo, 16.90%
Kingfisher, 20%
NACIL, 17.30%
Source: TRAI
The Indian travel and tourism industry is large and growing rapidly. According to the WTTC (World Travel and Tourism Council), the contribution of travel & tourism to GDP is expected to rise from 8.6% (Rs.5532 billion or US$118 billion) in 2010 to 9.0% (Rs.18544 billion or US$330 billion) by 2020. India is one of the fastest growing countries in the world in terms of its travel and tourism industry. Real GDP growth for the travel & tourism economy is expected to be 6.7% in 2010 and to average 8.5% per annum over the coming ten years. Further, the WTTC expects that, as a result of the strong growth rate in the Indian travel and tourism industry, over the next ten years India will become one of the world’s top ten travel and tourism markets in terms of the absolute size of its market. Exhibit 9: Travel and Tourism GDP in 2020 1000 900 800 700 600 500 917 400 300 501 200 216
100 0
148
143
124
122
111
104
80
Source: WTTC
According to PhoCusWright, the Indian online travel market grew 11% to reach $3.4 billion in 2009. Netscribes has cited sources stating that, in 2009, approximately 34% of air 12
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tickets and 14% of train tickets booked in India were sold online. Many travelers also utilize online travel agency websites for travel-related research and information. Per PhoCusWright, air ticket bookings contributed to approximately 70% of the online travel market in India in 2009. However, the non-air ticket segments are also growing in the Indian online travel market. Online rail revenues grew in excess of 25% in 2008-2009. Indian government has also recognized the importance of the travel and tourism industry, and over the past several years, has enacted or announced several initiatives to give further impetus to the industry: •
The “Incredible India” campaign helps showcase India as a leading tourist destination globally;
•
The provision of one-month tourist visas on arrival for citizens of five countries (Japan, Finland, New Zealand, Singapore and Luxembourg);
•
An expenditure budget of Rs. 11.2 billion allocated to the Ministry of Tourism in the 2010 Indian government budget (a 9.7% increase over the previous year), of which about Rs. 4.7 billion has been earmarked for building new infrastructure facilities such as tourist reception centers and refurbishing monuments;
•
Support of an “open-skies” policy in India which has led to the rise in LCCs;
•
Upgrade of existing or construction of new airports in major cities, including Mumbai, Delhi, Chennai Hyderabad and Bangalore;
•
The construction of international convention centers in cities including Delhi, Mumbai, Goa, Jodhpur, Udaipur, Cochin, Agra and Jaipur to attract more business travelers to India; and
•
Air transportation policies permitting airlines in India which have been in operation on domestic routes for over five years to fly on international routes.
We believe the Indian travel market is poised for growth given a strong domestic economy, growth in the LCC market and a highly fragmented lodging industry. Government spending is evident in airports and roads, and we believe OTAs can capitalize on the opportunities presented by this Asian behemoth.
Travel Distribution Channels in India OTAs in India: PhoCusWright estimates that the total “business-to-customer” online travel agency market (i.e., businesses serving end consumers with travel products and/or services through an online channel) in India is valued at $1 billion and is dominated by four players—MakeMyTrip, Yatra, Cleartrip and Travelguru (which was acquired by Travelocity in August 2009). Of these, MakeMyTrip commands a market share of 48%, followed by Yatra at 24% and Cleartrip at 18%, based on gross bookings for 2009 major Indian OTAs in the market. Travel Suppliers: Generally, at the top of the travel distribution value chain are suppliers that seek cost-effective ways to reach end-user travelers. Historically, these suppliers relied largely on traditional GDS (global distribution system) to connect their inventory of products and services with travel agencies, which in turn distribute the products and services to travelers.
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Meta Travel Search Engines: These are online travel search sites such as Ixigo, Ezeego1, Zoomtra and Kayak.com, and travel research sites that have search functionality, such as TripAdvisor (Expedia-owned). Supplier Websites: Recently, travel suppliers have begun to utilize other forms of distribution, including direct distribution via their own websites. Many travel suppliers such as airlines and hotel companies have their own branded websites to drive business. Traditional Travel Agencies: Traditional retail travel agencies, supplier reservation centers and ticket offices remain the largest distribution channels for travel in India.
GDS in the Travel Ecosystem Originally started by the airlines, computerized reservation systems book and sell travel for various airlines and hotels. Also known as GDS (global distribution systems), these reservation systems are available via internet gateways for distribution vendors such as OTAs, offline agencies and corporate travelers to book travel online. While the system serves a variety of travel bookings, its primary services are geared toward airlines. Today, major GDSs include Amadeus, SABRE, Galileo and Worldspan. Galileo and WorldSpan generate 90% of revenues from airlines and currently offer 450 airlines and 83,000 hotel properties on its reservation platform. Amadeus, headquartered in Madrid, Spain, is the sole GDS provider for MakeMyTrip, and offers over 700 airlines and 80,185 hotel properties on its network. All in all, GDSs encompass a large network of airline and hotel partners and are an important part of the travel ecosystem.
Airline Industry LCC and network carriers have an equal share of India’s airline market in terms of passenger volumes. Due to airline deregulation policies adopted by the government, the Indian air market is characterized by fierce competition that keeps fares in check. Due to aggressive direct distribution and the OTA impact on LCCs approximately 54% of LCC airlines tickets were transacted online in 2008. One-third of the domestic air market ($1.54B) was booked online in 2008.
Hotel Industry The lodging market in India is heavily fragmented and largely untapped. Information on Indian hotels is not well aggregated and available only on a piecemeal basis from a myriad of sources. A lot of the hotel inventory is not yet online.
Indian Railways The Indian government-owned Indian Railways has emerged as the largest online travel website not just in India but also in the entire Asia-Pacific region when measured by transaction volume—and this is despite internet penetration levels of just 7% in India. Rail is the main mode of transportation for a majority of the Indian populace thus representing a significant opportunity.
Seasonality in Indian Travel June and December quarters tend to benefit from seasonality in the Indian travel industry, with June quarter benefiting from the summer holiday season and the December quarter from the year-end holiday season in India. This results in higher revenue from the hotels and packages business in the June and December quarters. The air ticketing business tends to be impacted more by business seasonality and as such sees decreased volume in the March quarter. 14
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Religious Tourism Religious tourism is popular in India, where visitors can take tours and make pilgrimages to many sites easily accessible by air or railway. According to PhoCusWright, ~20% of trips in India are religious trips made with family. Pilgrimage destinations (please see Exhibit 10 below) are some of the most popular destinations in India. However, lack of online inventory for these destinations deters online booking for hotels and packages for this segment. We are starting to see large/reputed hotel chains focus on bringing rooms in the religious zones online and we expect to see availability improve in the religious zones in the next one-two years. Exhibit 10: Key Religious Places in India
Religious Places Amarnath Bodhgaya Shirdi Varanasi Golden Temple Tirupathi Vaishno Devi Durga Puja Mathura Uttaran (Kite Festival) Onam Jagannath Puri
Region North India Central India West India North India North India South India North India East India Central India West India South India East India
Peak Season July/Aug All Year All Year All Year Oct/Nov October All Year Sep/Oct Aug/Sep Jan Aug/Sep June/July
Source: Oppenheimer & Co
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MakeMyTrip Business Model Exhibit 11: The MakeMyTrip Travel Ecosystem GDS Amadeus
Suppliers Make My Trip Travel Network Network Airlines MakeMyTrip.Com India Domestic and US Inbound Travel
Low Cost Carriers
Customers Domestic Travelers
Hotels
MakeMyTrip Travel Agent Network 4000 Travel Agents
International Travelers
Rail MakeMyTrip Travel Stores 19 Travel Stores
Bus Travel Insurance
MakeMyTrip.ca Canadian Indbound Travel Catering to NRIs in Canada MakeMyTrip.ae Middle East Inbound Travel Catering to NRIs in the Middle East OkTataByeBye.Com Review Site similar to Tripadvisor.com
Source: Oppenheimer & Co. Inc.
MMYT currently operates as an OTA through the following websites: •
www.makemytrip.com - Catering to all customers worldwide including ~3 million Non-Resident Indians in the US;
•
www.makemytrip.ae - Catering to Non Resident Indians (~1.5 million) in the United Arab Emirates;
•
www.makemytrip.ca - Catering to Non Resident Indians (~1.2 million) in Canada; and
•
www.ticketvala.com - Booking bus tickets online.
MMYT generates majority of its revenue through its Airlines and Hotel lines of business. Product Mix in FY10 was predominantly Airline travel with Air accounting for 77% of total net revenue and Hotel and Packages for 20%. Airline sales are largely online with 94% of airline transactions online in FY10.
Airlines (77% of FY10 Net Revenue) Airline revenue sources include: 1) commissions and incentive payments from airline suppliers; 2) service fees charged to customers; and 3) fees from Amadeus (GDS service provider). Revenue for the airline business is generally accounted for on a net basis and recognized at the time of ticket issuance. In some instances MMYT pre-purchases air ticket inventory (it pre-purchased $0.9 million worth of inventory in FY10). Revenue generated from the sale of these tickets is recognized on a gross basis and the cost of tickets is classified as service cost.
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Revenue from air tickets sold as part of packages is eliminated from air ticketing revenues and added to the hotels and packages revenue. Despite downward commission pressures from airlines and lack of GDS fees from emerging LCCs, air net revenue margins have increased 50bps from FY08 to FY10 largely due to incentive fees paid by Indian airline suppliers to travel agents such as MMYT. We expect these incentive fees to largely subside, which could put pressure on airline margins going forward. We estimate airline margins to decline to 7.3% in FY11 and 7% in FY12. Commission income from Airline carriers accounted for 54% of MMYT’s airline revenue mix in FY10. MMYT currently charges Rs. 50-100 per transaction as a service fee to endusers. This accounted for ~27% of net revenues in FY10. The remaining 19% came from GDS or Segment fees. Exhibit 12: Revenue Composition—Domestic and Outbound Air
Segment Fees, 19% Service Fees, 27%
Commission Income, 54%
Source: Company Reports and Oppenheimer & Co. Inc.
In FY10 Airlines constituted 77% of total revenue mix ($31 million), with Domestic Air accounting for 48%, or $19.3 million of total net revenue. Ticket sales to NRI Indians coming from the US to India, which are largely driven by Call Centers (85%), accounted for 15% of total revenue, or $6 million. Inbound Air tends to be higher margin in nature at about 10% gross margins. By our estimates, 72% of net revenues or $22.4 million from the Airline Segment was generated from the online channel.
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Exhibit 13: Airline Revenue/Channel Mix 90% 80% Inbound Air (US to India), 15%
70% 60%
Outbound, 14%
50%
Domestic
96%
Outbound
52%
4% 0%
9%
39%
40% 30% Domestic Air, 48%
20% 10%
Inbound
15% 0
0%
85%
20%
40%
60%
80%
100%
0% FY10
Online
Retail
Call Centre
Source: Company Reports
Hotels & Packages (20% of FY10 Net Revenue) Hotels & Packages sales are largely done through call centers, travel stores and travel agents’ networks. In the Hotels & Packages business, revenue (including revenue on air tickets sold as part of packages) is generally accounted for on a “gross” basis, representing the total amount paid by customers for these travel services and products. The cost of procuring the relevant services and products for sale to customers in this business is classified as service cost. Hotels & Packages revenue also includes commissions earned for the sale of hotel rooms (without packages), and commissions as an agent from other online travel agents and aggregators from whom the company procures hotel rooms for customers for hotels outside India, which are accounted for on a “net” basis. The revenue from the sale of hotels and packages and hotel reservations is recognized on the customer’s departure and check-in dates, respectively. In FY10, Hotels & Packages contributed 20% of total net revenue ($8 million), with Domestic Hotels & Packages accounting for 11% or $4.4 million of total net revenue. Outbound Hotels & Packages accounted for 9% of total net revenue ($3.6 million). FY10 was negatively impacted by macro and we believe affected the higher priced outbound travel segment as customers opted for lower priced domestic holidays. We believe Outbound Hotels & Packages could constitute a higher part of the mix going forward given a robust and growing Indian economy, easy accessibility to South East Asian Countries and the Middle-East all within a five-hour flight time from India and a growing number of cheaper airline options as LCCs launch their near-shore international operations. By our estimates 41% of net revenues, or $3.2 million, from the Hotel and Packages segment were generated from the online channel in FY10.
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Exhibit 14: Hotel & Packages Revenue/Channel Mix 25%
Outbound
20%
46%
10%
45%
Outbound Holidays & Hotels, 9%
15%
10%
Domestic
36%
31%
24%
Domestic Holidays & Hotels, 11%
5%
0%
0% FY10
20%
40%
Online
Retail/B2B
60%
80%
100%
Call Centre
Source: Company Reports
Other (3% of FY10 Net Revenue) Other ancillary services accounted for just 3% of total revenue in FY10. While transaction volumes are high for rail and bus categories, ticket sizes are small resulting in small incremental revenue contribution from this segment. Rail transactions in FY10 totaled 185,948 with bus transactions at 57,529. Rail net revenue contribution was ~$140K in FY11, translating to average revenue per transaction of $0.75. Similarly the bus segment contributed ~$60K in net revenue in FY10 translating to $1.05 average value per transaction. Ad revenues and travel insurance contributed a majority of the revenues in this category, accounting for 2.5% or $1 million of total net revenue. We estimate the “other” category to more than double in FY11 and a net revenue contribution of 3.1 million transactions with car rentals added to the mix as well. We also believe that travel insurance could start to see higher attach rates given a ticket size of just $2-3 per air ticket. Exhibit 15: Other - Revenue Trends ($ million) and Revenue Breakdown for FY10 7.0
Bus, 0.15%
6.0 Rail, 0.35% 5.0 4.0 3.0
6.0
2.0
Ancillary (Insurance etc.), 2.50%
3.1 1.0 0.1
0.7
2008
2009
0.0
1.2 2010
2011E
2012E
Source: Company Reports and Oppenheimer & Co. Inc. estimates
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Travel Stores MMYT operates 19 travel stores in major cities across India, which primarily sell travel packages. At these travel stores, customers can consult with sales representatives, receive comprehensive, real time flight, hotel and package information as well as information for other services and products, and make travel bookings, without prior appointment. The travel stores are also equipped with MMYT’s ERP application and linked to their CRM system. Exhibit 16: Travel Stores in India
Source: Company Reports
Travel Agents’ Network MMYT also operates a travel agents’ network in India since 2009, where ~4,000 travel agents across India have the ability to access MMYT’s B2B website, which enables the travel agents to sell MMYT’s full suite of online travel products to their customers. The B2B option is attractive to travel agents as it provides access to a range of travel services and products, which such agents may not be have been able to access cost-effectively or at all. These travel agents then earn a commission from MMYT based on volume and type of travel services and products sold. This allows MMYT to expand its footprint in India in a cost-effective manner.
Call Centers MMYT has outsourced call center operations to third-party vendors such as IBM Daksh, and currently the company outsources a portion of its customer service to IBM Daksh and Intelenet Global Services in India. There are 459 employees who work on behalf of MMYT at the outsourced vendors. Customers are provided with real time assistance through these call centers, which are available 24/7.
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Mobile In 2008, MMYT also launched “makemytrip.mobile,” a mobile service platform. The mobile channel allows customers to search, book and pay for Indian domestic air tickets on their mobile phones at no additional cost. Tickets can also be delivered to customers by SMS. Currently, the mobile service is available only for Indian domestic air tickets. With a mobile footprint far larger than current internet penetration we view this as a viable distribution channel as comfort levels.
Supplier Relationships MMYT has a team of 25 employees dedicated to maintaining and enhancing their existing relationships, and developing new relationships with travel suppliers. The team negotiates agreements or arrangements with suppliers for access to travel inventory. MMYT works with all domestic airlines in India to provide content depth to the consumer. MMYT has access to real-time inventory for all airlines operating from within India either through the Amadeus GDS or through direct connects to the airline supplier’s booking system. Following is a list of top five suppliers to MMYT based on net revenue contribution in FY10: Exhibit 17: Top Suppliers to MMYT in FY10
Airlines Domestic Jet Airways Indigo Kingfisher National Aviation Co. Spicejet
Airlines International Emirates Jet Airways Lufthansa National Aviation Co. United Airlines
Indian Hotels Advani Hotels & Resorts Indian Hotels Mahindra Holdings Neelam Hotels Resort Terra Paraiso
Source: Company Reports and Oppenheimer & Co. Inc.
Growth Opportunities/Drivers We believe that the online travel industry in India is under-penetrated and will continue to grow faster than the overall Indian travel industry, primarily because of the following drivers of growth.
Growth in LCCs The advent of LCCs and increasing competition in the Indian airline industry has lent affordability to air travel in India and made it a viable alternative for a larger number of travelers to choose air travel over the traditional rail travel. With the increase in low-cost airlines, online air travel bookings have also increased since low-cost airlines typically prefer to use cost-effective distribution channels such as the internet, using it as their primary distribution channel, either directly or through online travel agents. In FY10 ~30% of LCC inventory was sold through OTAs. LCCs don’t use GDS for selling their air tickets. OTAs also enjoy certain exclusive deals and preferred inventory with certain LCCs. According to the government mandate, newly established airlines have to operate domestically within India for a period of five years before they can spread their wings overseas. A majority of the LCCs will be eligible to add overseas routes within the next 12 months. We expect to see increased offerings from LCCs, especially in terms of nearshore destinations in South East Asia (Hong Kong, Singapore, Malaysia, and Thailand) 21
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and Dubai in the Middle-East driving prices down even further to these destinations while rendering these overseas destinations more attractive to Indian vacationers. Exhibit 18: Number of LCCs in India
8 7 6 5 4 7 3
6
6
2007
2008
5 2
4
1 1 0 2004
2005
2006
2009
Source: TRAI
Growth in Internet Penetration India lags several Asia Pacific markets and is well behind the developed markets in terms of internet and broadband penetration with ~7% penetration levels (or 81 million internet users) currently. Of that 7% we believe less than half are broadband users. However, we believe that internet penetration levels will continue to rise both in the near and longer term with increased competition and the resultant pricing pressures in the internet service provider market. Recent broadband spectrum auction by the Indian government has produced a multitude of players who are looking to offer broadband internet services and we should see a spate of broadband service offerings in the near term. We believe true penetration levels to be higher than 7% given that a majority of potential travel consumers have broadband access at the workplace.
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Exhibit 19: Internet Penetration Comparison
80.0% 74.5%
70.0% 60.0% 50.0%
49.0%
40.0% 30.0% 24.0%
20.0% 10.0%
7.0%
5.6%
India
Africa
0.0% North America
Europe
China
Source: Euromonitor
Rise in Credit Card Penetration Levels Indian travelers are able to pay online for travel services and products using a variety of payment methods, including credit cards, debit cards, cash cards and internet banking. According to Euromonitor, the number of credit cards in India was over 24.3 million in 2009, having grown at an annualized growth rate of 19% since 2000, while the number of debit cards in India was over 130 million, having grown at an annualized growth rate of 84% since 2000. Euromonitor expects the number of credit cards in India to reach 73.7 million by 2014 (i.e., annual growth rate of over 25%) and the number of debit cards in India to reach 350 million by 2014 (i.e., annual growth rate of over 22%).
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MakeMyTrip Limited
Exhibit 20: India’s Credit and Debit Card Mix
Source: Reserve Bank of India and Euromonitor
There are many banks among the Top Business/Finance sites in India, including both local and international banks (46.5% reach per comScore). Online banking has gained significant traction over the past few years, having successfully vaulted over the trust hurdle. We believe it is only a matter of time before credit cards achieve higher penetration levels in India. We believe that with increasing sophistication of the banking infrastructure in India and the provision of more secure online payment interfaces, internet users in India are overcoming their apprehensions about security in online transactions and thereby adding to the online consumer base. Recently the Reserve Bank of India has asked banks to consider introduction of a generalpurpose credit card (GCC) facility up to Rs.25000 at their rural and semi-urban branches. The credit facility will be structured as a revolving credit, entitling the holder to withdraw up to the limit sanctioned. If introduced, we believe this could provide further impetus to credit card growth in India.
India-based Airlines Share Growing as a % of International Traffic Mix As Indian Network airlines and LCCs add overseas routes from and to India we are starting to see a mix shift in international air traffic share, with India-based airline share rising from 29% of international traffic in 2005 to 33% in 2009. In addition, international air traffic growth from and to India has witnessed an average growth rate of 14% from 20052009. Even in a bad macro period from 2008-2009 traffic was up 6% YoY. We believe India-based airlines could continue to gain market share on the international traffic front as they tend to be more popular than the international fare, largely due to superior service levels, better knowledge of the Indian consumer and service offerings that are customized to the Indian taste. We believe this bodes well for OTAs due to their tighter relationships with both Indian Network airlines and LCCs.
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Exhibit 21: International Traffic Market Share
100% 90% 80% 70% 60%
71%
70%
69%
68%
67%
29%
30%
31%
32%
33%
2005
2006
2007
2008
2009
50% 40% 30% 20% 10% 0%
India Mix
Foreign Mix
Source: TRAI
Hotel Bookings Growth - A Positive for Margins The Hotels & Packages business, generally a higher net revenue margin contributor, accounted for ~20% of total net revenue mix in FY10, up from 14% in FY08. As of June 2010 just 2.4% of MMYT 4,000 hotels were directly connected to MMYT. There is an increased push by MMYT to grow the number of hotels that are directly connected to them and we expect capex spending to continue in this area in order to acquire or build technology platforms to directly connect to hotel suppliers. The hotel industry is heavily fragmented in India with just a small percentage of rooms available for online booking and fulfillment. We believe OTAs such as MMYT can play a vital role in bringing a larger inventory of rooms online. We estimate that, in FY10, the online channel contributed 41% of the Hotel & Packages revenue at MMYT. Exhibit 22: Hotel Transaction and Bookings Growth Trends 20 0
35 0
18 0
30 0
Transac tions
25 0
Boo kin gs
16 0 14 0 12 0
20 0
10 0 15 0
3 02.3
10 0
0
60
1 82.1
50
81.4
40
109 .7
20
25.9 20 08
80
0 20 09
2 010
2011
201 2
Source: Oppenheimer & Co. Inc.
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Hotel & Packages transactions totaled 109.7 million in FY10 and we are estimating transaction volume to grow to 182.1 million in FY11 and 302.3 million in FY12 for a FY08FY12 CAGR of 192%. We estimate gross bookings to grow at a CAGR of 81% from FY08FY12 to reach $188.5 million in FY12. Hotel net revenue contribution increased from 14% in FY08 to 20% in FY10. We estimate hotel revenue mix to rise to 29% in FY12 as it increases its supplier relationships in the hotel segment and increased penetration levels of direct connects. Exhibit 23: Revenue Mix Shift – FY08-FY12 100% 90%
14%
20%
22%
24%
80% 70%
29%
60% 50% 40%
85%
75%
77%
2009A
2010A
71%
30% 20%
64%
10% 0% 2008A
Air
Hotel
2011E
2012E
Other
Source: Company reports, Oppenheimer & Co. Inc. estimates
Brand Recognition Leads to Market Share Gains As of the end of 2009, MakeMyTrip had ~48% share of the OTA market in India measured in terms of gross bookings and it consistently ranks high (top five) in travel searches on major search engines. India site traffic has grown 178% YoY, totaling more than one million visits per month. Clearly benefitting from a first mover advantage, MMYT’s brand recall scores higher in our local surveys in large metropolitan areas such as Mumbai, Delhi and Bangalore than its closest competitors’ Yatra and Cleartrip. We expect this trend to continue in tandem with marketing expenditures. We are estimating marketing spend to increase from $9.7 million in FY10 to $12.7 million in FY11 and $18.1 million in FY12.
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Competition MMYT faces competition from OTAs, suppliers, met search engines and traditional travel agencies. PhoCusWright estimates that the total “business-to-customer” online travel agency market (i.e., businesses serving end consumers with travel products and/or services through an online channel) in India is valued at $1 billion and is dominated by four players—MakeMyTrip, Yatra, Cleartrip and Travelguru (which was acquired by Travelocity in August 2009). Of these, MakeMyTrip commands a market share of 48%, followed by Yatra at 24% and Cleartrip at 18%, based on gross bookings for 2009. These online travel agencies face competition from traditional travel agents as well as meta search engines, such as Ixigo, Ezeego1 and Zoomtra. Exhibit 24: OTA Market Share in India
Others, 10% Yatra, 18% MakeMyTrip, 48%
Cleartrip, 24%
Source: PhocusWright & Oppenheimer & Co. Inc.
In addition to its rival Indian OTAs, MMYT also faces competition from supplier direct websites as suppliers have been steadily focusing on increasing online demand on their own websites and decreasing or eliminating their dependence on third-party distributors. For instance, many low-cost airlines may, subject to applicable regulations, reduce commissions to agents including OTAs or restrict the amount of service fees that OTAs are able to charge customers. Suppliers who sell on their own websites typically do not charge a processing fee, and, in some instances, offer advantages such as their own bonus miles or loyalty points, which could make their offerings more attractive to customers rather than OTAs.
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Exhibit 25: Supplier Direct Vs. OTAs
OTAs, 45%
Supplier Direct, 55%
Source: Reserve Bank of India and Euromonitor
Cleartrip.com recently launched website operations in the United Arab Emirates. Large, established internet search engines have also recently launched applications offering travel itineraries in destinations around the world, and meta-search companies who can aggregate travel search results also compete against MMYT for customers. Many airlines, hotels, car rental companies and tour operators have call centers and have established their own travel distribution websites. From time to time, travel suppliers offer advantages, such as bonus loyalty awards and lower transaction fees or discounted prices, when their services and products are purchased from supplier-related channels. On the hotel end of the business MMYT competes with large traditional travel agencies in India such as Cox & Kings, Kuoni India and Thomas Cook, all of which are established industry players in the Indian travel market. Travel Suppliers: Generally, at the top of the travel distribution value chain are suppliers that seek cost-effective ways to reach end-user travelers. Historically, these suppliers relied largely on traditional GDS to connect their inventory of products and services with travel agencies, which in turn distribute the products and services to travelers. Meta Travel Search Engines: These are online travel search sites such as Ixigo, Ezeego1, Zoomtra and Kayak.com, and travel research sites that have search functionality, such as TripAdvisor (Expedia-owned). Supplier Websites: Recently, travel suppliers have begun to utilize other forms of distribution, including direct distribution via their own websites. Many travel suppliers such as airlines and hotel companies have their own branded websites to drive business Traditional Travel Agencies: Traditional retail travel agencies, supplier reservation centers and ticket offices remain the largest distribution channels for travel in India. While the emergence of the Internet, has added additional channels for travel fulfillment penetration however remains low due to the nascent nature of this channel.
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Management Team Exhibit 26: Management Team Name
Deep Kalra
Rajesh Magow
Keyur Joshi
Mohit Gupta
Amit Somani
Rajnish Kapur
Role
Founder and CEO
Mr. Deep Kalra founded MakeMyTrip in April, 2000. Past experience includes stints at GE Capital, AMF Bowling Inc. and ABN AMRO Bank. Mr. Kalra holds a Bachelor's degree in Economics from St. Stephen's College, Delhi (1990), and a MBA (PGDM) degree from the Indian Institute of Management, Ahmedabad (1992).
Co-Founder and CFO
Mr. Rajesh Magow is the Chief Financial Officer of the company. Along with F&A, Mr. Magow oversees Outsourced Operations, Automation and Quality FunctionHe has over 18 years of functional expertise in the IT, ITES and Internet industries. Prior to MakeMyTrip, Mr. Magow worked with ebookers/Cendant (now Travelport) as CFO and Head of Financial Operations as well as being the Active CEO for a year. Mr. Magow is a Chartered Accountant from the Institute of Chartered Accountants of India, New Delhi
Co-Founder and COO
Along with being responsible for sales and business development, Mr. Joshi's portfolio includes establishing MakeMyTrip's presence in the US market. Before founding MakeMyTrip, Mr. Joshi worked with Around the World Travel (now called JustFares.com). He has also worked with Tata Motors, in Market Research and Product Management. Mr. Joshi holds a Bachelor's degree in Chemistry from Gujarat University and a MBA degree from the City University of New York, New York.
Chief Marketing Officer
Mr. Mohit Gupta oversees all marketing activities for the company. Mr. Gupta has over 11 years of experience in marketing at Pepsi Foods as VP Marketing and Voltas. Mr. Gupta holds a B.Tech degree in Mechanical Engineering and an MBA from the Indian Institute of Management, Calcutta.
Chief Products Officer
Mr. Amit Somani heads the online product portfolio at MakeMyTrip. Mr. Somani comes with over 15 years of experience at Google as Head of Mobile Products AsiaPac and IBM as Director for the Enterprise Search and Discovery business. Mr. Somani holds 7 patents and a B.Tech in Computer Science and Engineering from ITBHU and an M.S. in Computer Science.
Chief Innovation Officer
Mr. Rajnish Kapur is responsible for Automation, UI, Content and Quality Assurance. Mr. Kapur has over 20 years of professional experience at the Travel & Distribution practice and Solution Delivery at Kale Consultants Limited. Mr. Kapur was also CEO/CTO of Cognosys, a company focused on Travel Technology, which he founded in 2000. He also co-founded eTravelIndia.com. He holds a Bachelor's degree in Engineering (CS) and a Bachelors degree in Economics from Delhi University.
Source: Company Reports & Oppenheimer & Co
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Financial and Outlook Exhibit 27: Financials at a Glance 100
Net Revenues
80 60 93.8
40 61.6
20 16.4
25.0
A 8 0 0 2
A 9 0 0 2
40.3
0 E 1 1 0 2
A 0 1 0 2
E 2 1 0 2
Gross Bookings
1500
9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0%
Net Rev as % of Gross Bookings
A 8 0 0 2
A 9 0 0 2
A 0 1 0 2
E 1 1 0 2
E 2 1 0 2
Tra nsa c tions
3500 3000 2500
1000
2000 3328
1500
1,048
500 225
313
2008A
2009A
1000 500
724 466 2011E
EBITDA
30
1877 9 19
1332
0
0 2010A
2550
2012E
A 8 0 0 2
A 9 0 0 2
A 0 1 0 2
E 1 1 0 2
E 2 1 0 2
22.3
20 7.9
10
2.3
0 -10 -20
2008A
2009A
2010A
2011E
2012E
-8.6 -14.9
Source: Company reports, Oppenheimer & Co. Inc. estimates
FY09 Review FY09 revenue of $68.6 million was up 79% YoY. Airline segment was up 36% to $19.2 million with the Hotel and Packages segment more than doubling to $48.6 million. Airline Gross Bookings increased 31% YoY benefiting from transaction growth of 21% and 8% higher Average value per transaction. Net revenue margins remained flat YoY at 7.2%. Loss reported for FY09 was $7.3 million a significant improvement over the $18.9 million loss in 2008. Net revenues of $25 million constituted 75% Airlines, 22% Hotels & Packages and 3% other. Blended gross margin of 8% was up 70bps YoY.
Balance Sheet & Cash Flow Cash on the balance sheet inclusive of term deposits held in various banks in India and its recent IPO proceeds as of FY10 was $78.68 million ($10.2 million in cash, $14.04 million in term deposits and ~$54.44 million in net IPO proceeds). 30
MakeMyTrip Limited
Capital expenditures of $0.9 million and $1.1 million were made in FY09 and FY10. The company expects to make ~$2.2 million in Capex in FY11.
Recent Results/News IPO Details MakeMyTrip went public on August 12, 2010 at $14/share and is listed on the Nasdaq under the ticker MMYT. Total net proceeds to the company (net of underwriting discount and expenses) were ~$54.44 million and are expected to be used for expanding operations through acquisitions of ongoing operations. The percentage of shares under lock-up for 180 days post listing is 85.4%. Following the public issue of 5.75 million shares (including a greenshoe of 750K shares), the total number of pro-forma outstanding shares is 34.4 million, and there are 36.6 million fully diluted shares.
US Investors Thirsty for India Investment Options There has been a scarcity of options to invest in the Indian market for US investors with less than 20 Indian companies listed in the US market and just a handful of mutual funds. MMYT is the first IPO from India since 2006 to list in the US. Couple that with a float size of just 5.75 million or 16.7% of shares outstanding and it’s no surprise to see the demand for MMYT.
FY10 Results FY10 revenue of $83.6 million was up 22% YoY largely on the 67% YoY growth in airline revenue of $32.1 million. Airline gross bookings increased 57% YoY benefiting from transaction growth of 41% and 11% higher average value per transaction. Net revenue margins improved 40bps YoY to 7.6% largely due to incentives paid by some airlines, better commissions from certain consolidators. Hotel & Packages growth slowed to 3.4% large due to an unfavorable macro scenario both in India and overseas. While gross bookings were up 9.4%, average value per transaction declined 19% in FY10 as consumers chose to travel domestically (lower price point) in a weak macro. Transaction growth in Hotel & Packages was healthy at 35%. On a non-GAAP basis FY10 marked the first profitable year for MakeMYTrip posting a net profit of $1.5 million, or $0.05 in EPS.
F2Q11 Outlook For the Sep-quarter (F2Q), due to seasonality, we estimate transaction volume for Airticketing to decline 8% QoQ, and gross bookings to decline 4% QoQ to $140.1 million yielding net revenues of $10.1 million. We believe seasonality will have a greater impact on the Hotel and Packages business and are estimating Hotel transaction volume to decline 15% QoQ with gross bookings down 28% QoQ due to a 15% decline in ASPs as well. We estimate Hotel and Packages net revenue of $2.8 million for total net revenue of $13.6 million for the Sep-quarter. We estimate $0.01 in non-GAAP EPS for the Sepquarter.
FY11 Outlook For FY11 we estimate net revenues of $61.6 million with Air representing 71% of the mix, Hotels 24% and Other 5%. We estimate transaction volumes (Air and Hotel) to grow 36% 31
MakeMyTrip Limited
YoY to yield bookings growth of 55% with blended average value per transaction up 11%. We estimate $0.18 in non-GAAP EPS for FY11.
FY12 Outlook For FY12, we estimate net revenues of $93.8 million (up 52% YoY) with Air representing 64% of mix, Hotels 30% and Other 6%. We estimate transaction volumes (Air and Hotel) to grow 31% YoY to yield bookings growth of 45% with blended average value per transaction up 14%. We estimate $0.46 in Non-GAAP EPS for FY12.
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Exhibit 28: MMYT Revenue/Margin Trends 100%
10.0% 14%
90%
9.0%
20%
22%
80%
24%
29%
8.0%
70%
7.0%
60% 50%
6.0% 5.0% 85%
40%
77%
75%
71%
30%
4.0% 64%
3.0%
20%
2.0%
10% 0%
1.0% 0.0% 2008A
2009A Air
2010A Hotel
2011E
Other
2012E
Gross Margin
Source: Company Reports and Oppenheimer & Co. Inc. estimates
Valuation Exhibit 29: MMYT Valuation (share price a/o 9/21/10)
Share Price Shares Outstanding (M) Market Cap ($M)
$34.07 36.6 $1,247.62
CY10 EPS CY11 EPS
$0.11 $0.40
CY10 EBITDA ($M) CY11 EBITDA ($M)
$4.9 $19.2
CY10 Growth CY11 Growth CY10 Revenue CY11 Revenue
52% 56% $54.8 $85.7
CY10 PE CY11 PE
309.7x 85.2x
CY10 EBITDA Multiple CY11 EBITDA multiple
253.3x 65.0x
CY10 Rev multiple CY11 Rev Multiple CY10 PEG CY11 PEG
22.7x 14.6x 5.9x 1.5x
Source: Oppenheimer & Co. Inc. estimates
Our rating on MMYT shares is Perform. MMYT currently trades at a multiple of 85x our CY11E EPS of $0.40 vs. the peer average of 33x and a PEG of 1.5x CY11 estimated 33
MakeMyTrip Limited
revenue growth of 56% vs. its closest peer CTRP at 1.2x and a peer median PEG multiple of 1.3x. Our DCF analysis yields a share price of $35, rendering the shares fairly valued at current levels. We arrive at our DCF using an 11% WACC and a terminal value of $2.8 billion in FY20. Since its IPO (August 12, 2010), MMYT has catapulted nearly 150% from its offer price of $14, and we believe the upside from current levels is limited. In addition, we believe volatility due to a small float size remains a near-term risk.
FX Impact MMYT’s exposure to FX risk primarily arises with respect to its non-India rupee denominated trade and other receivables and other payables. In FY10 a 10.0% appreciation of the USD against the INR assuming all other variables remained constant, would have decreased MMYT’s loss for the year by $0.2 million. Similarly, a 10.0% depreciation of the USD against the INR in FY10, assuming all other variables remained constant, would have increased MMYT’s loss for the year by $0.2 million. On the operations side 9.1% of revenue was in USD reflecting inbound air-ticket revenue booked through the offline channel. MMYT does not have any hedging agreements in place.
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Investment Risks Areas of Consideration Supplier Relationships: Inability to maintain existing and establish new relationships with travel suppliers could adversely affect the business. Technology Risk: Being an online technology-driven business any disruption in the technology infrastructure could adversely impact the business. Competition Risk: The travel industry in India is intensely competitive. MMYT may not have the financial resources to maintain its competitiveness in the marketplace against deeper pocketed competitors. Increasing Competition from Supplier Direct Channels: MMYT faces competition not only from other OTAs but also from its own travel suppliers such as airline, hotels, rental cars who may have their own websites. Continued Competition from Traditional Travel Agencies: MMYT competes with all traditional travel companies who may also have online initiatives given all travel agents are targeting the same customer. Air Commission Pressures: Air suppliers (including Amadeus its GDS provider) may reduce or eliminate commissions in the future, which could adversely affect the profitability of the business. International Operations, recently launched in the UAE and Canada, constitute an additional risk. Online Security Risk: Being an online business, MakeMyTrip is susceptible to online security breaches and Credit card fraud. Significant Shareholder Risk: SAIF owning over 43% of shares outstanding constitutes a risk. Extraneous Event Risk: The travel industry in India is susceptible to extraneous events such as terrorist attacks and other acts of violence, which may result in a reduction in travel volumes. Driving the Hotel Business Growth Online Could Be Challenging: MMYT sells hotels and packages largely through its offline channel. Given a highly fragmented and immature hotel industry in India, we believe driving the hotel business online could be challenging. Internet Penetration Risk: India lags several Asia Pacific markets and is well behind the developed markets in terms of internet and broadband penetration with ~7% penetration levels (81 million internet users) currently. Internet penetration may not grow as expected given various challenges in the marketplace. Credit Card Penetration Risk: According to Euromonitor and the Reserve Bank of India, the number of credit cards in India in 2009 was over 25.5 million, having risen at an annualized growth rate of 19% since 2000, while the number of debit cards in India was over 130 million, having expanded at an annualized growth rate of 84% since 2000. Euromonitor expects the number of credit cards in India to reach 73.7 million by 2014 (i.e., an annual growth rate of over 25%) and the number of debit cards in India to reach 350 35
MakeMyTrip Limited
million by 2014 (i.e., an annual growth rate of over 22%). Credit card growth may not pan out as estimated due to the highly risk-averse nature of the Indian consumer.
Companies Mentioned in This Report Not Covered by Opco (prices are a/o 9/21/10) Jet Airways (BOM: 532617, Rs. 792.30) Kingfisher Airlines (BOM: 532747, Rs. 63.30) United Airlines (UAUA, NASDAQ, $23.50) Spicejet (BOM:500285, Rs. 75.50) IBM (IBM, NYSE, $131.98) India Hotels (BOM: 500850, Rs. 104) Advani Hotels & Resorts India Ltd. (BOM: 523269, Rs. 58.20)
36
MakeMyTrip Limited
MMYT Comps Company
($ in million, except per share data) 9/21/2010 Price
Ticker
Comparable Values 52-Week Share Market High Low O/S (dil) Cap
Debt
Cash
Net Debt
Enterprise Value
US Travel Expedia
EXPE
$28.65
$28.96
$18.30
284.0
8,138
$895
$1,130
Orbitz
OWW
$6.18
$8.11
$3.56
102.3
632
511
$162
Priceline
PCLN
$341.02 $349.97
$154.12
48.4
16,501
558
$1,240
($235) 349
$7,903 $981
(682)
$15,819
$6,028
Asia Travel Ctrip.com
CTRP
$43.99
$47.01
$26.52
147.9
6,504
0
$477
(477)
eLong Inc
LONG
$19.58
$19.87
$9.10
23.7
464
0
$140
(140)
$323
MakeMyTrip
MMYT
$34.07
$41.47
$20.75
1,247
3
$79
(76)
$1,171
PEG
Revenue Growth 11.9% 9.8% 21.4%
Operating and Valuation Statistics FY Enterprise CY Rev Company End Value 2010E 2011E US Travel Expedia Orbitz Priceline
Asia Travel Ctrip.com eLong Inc MakeMyTrip
Dec Dec Dec
$7,903 $981 $15,819
36.6
EV/Revenue 2010E 2011E
$3,258.3 $3,645.5 $759.6 $834.0 $2,992.8 $3,633.1
2.43x 1.29x 5.29x
2.17x 1.18x 4.35x
Average Median
5.6x 4.5x
4.5x 3.7x
Dec Dec
$6,028 $323
$422.5 $72.0
$550.8 $87.3
14.27x 4.49x
10.94x 3.71x
Mar
$1,171
$54.8
$85.7
21.37x
13.67x
CY EPS 2010E 2011E $1.67 $0.11 $12.26
$0.93 $0.19 $0.11
P/E 2010E
2011E
$1.95 $0.26 $15.01
17.2x 56.2x 27.8x
14.7x 23.8x 22.7x
1.2 2.4 1.1
Average Median
50.3x 47.3x
34.5x 23.8x
1.9x 1.2x
$1.22 $0.26
47.3x 103.1x
36.1x 75.3x
1.2 3.5
30.4% 21.2%
309.7x
85.2x
1.5
56.4%
$0.40
Source: Oppenheimer & Co. estimates
37
MakeMyTrip Limited DCF Valuation ($ in Millions, except per share amounts) COST OF EQUITY ANALYSIS SUBJECT COMPANY ASSUMPTIONS: Industry Unlevered Beta MVD% MVE% Subject Company Marginal Corporate Tax Rate Subject Company Levered Beta
1.50 0.2% 99.8% 20.0% 1.50
Market Return Assumptions Risk Free Rate Market Risk Premium Small Capitalization Premium (if applicable)
2.00% 6.00% 0.00%
Cost of Equity
11.0%
Terminal Growth Rate
4.00%
COST OF DEBT ANALYSIS SUBJECT COMPANY DEBT: Cost Bank Debt
2.8%
Amount $12
Total Debt
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS Assumed Capitalization % of Total MVD% MVE%
Total Capitalization
Source: Oppenheimer & Co
38
0.2% 99.8% 100.0%
Capital Cost 2.8% 11.0%
Tax Shield 20.0% 0.0%
After Tax Capital Cost 2.2% 11.0%
Contribution to WACC 0.0% 11.0% 11.0%
MakeMyTrip Limited DISCOUNTED CASH FLOW ANALYSIS WACC Based on CAPM Model WACC Used to Discount Cash Flow
11.0% 11.0%
NOMINAL CASH FLOW TO THE UNLEVERED FIRM: 2010 Revenue
2011
2012
Projected FYE Mar 31 2013 2014
2015
2016
2017
2018
2019
2020
$40 61.2% $2
$62 52.8% $8
$94 52.3% $22
$136 45.0% $45
$190 40.0% $63
$257 35.0% $85
$339 32.0% $112
$431 27.0% $142
$517 20.0% $171
$610 18.0% $201
$702 15.0% $232
Operating Income Less: Income Taxes Unlevered Cash Net Income
$1 (0) $1
$6 (1) $5
$20 (4) $16
$45 (9) $36
$63 (13) $50
$85 (17) $68
$112 (22) $90
$142 (28) $114
$171 (34) $136
$201 (40) $161
$232 (46) $185
Plus: Plus: Less:
0 3 0 $4
0 4 0 $9
0 5 0 $21
0 6 0 $41
0 6 0 $56
0 7 0 $75
0 7 0 $97
0 8 0 $122
0 9 0 $145
0 10 0 $171
0 11 0 $196
$4
$9
$21
$41
$56
$75
$97
$122
$145
$171
$196
0.00
0.75
1.75
2.75
3.75
4.75
5.75
6.75
7.75
8.75
9.75
$4
$8
$17
$31
$38
$45
$53
$60
$65
$69
$71
% Growth EBITDA
Depreciation and Amortization (Increase) Decrease in Operating Working Capital Cash Flow from Investing Unlevered Free Cash Flow
Terminal Value
$2,801
Nominal Period Cash Flow to the Unlevered Firm Number of Periods to Discount Back Unlevered Free Cash Flow Imputed Present Value of Period Cash Flow to the Unlevered Firm Imputed Present Value Of Terminal Value
$1,013
IMPUTED PRESENT VALUE OF ENTERPRISE
$1,210
Plus: Less: Plus:
Cash and cash equivalents Debt Non Cash Generating Assets
IMPUTED PRESENT VALUE OF EQUITY Diluted Shares Outstanding EQUITY VALUE PER SHARE
76 12 0 $1,273 37 $34.78
Source: Oppenheimer & Co
39
MakeMyTrip Limited
MMYT - Income Statement FY
FY
(In millions except per shr or as indicated) 2008A
1Q10
2009A
2Q10
Jun-09
3Q10
Sep-09
4Q10
Dec-09
FY
Mar-10
1Q11A
2010A
2Q11E
Jun-10
3Q11E
Sep-10
4Q11E
Dec-10
Mar-11
FY
FY
2011E
2012E
Revenues: Air-ticketing Revenues
14.0
19.2
7.8
7.3
8.4
8.6
32.1
10.3
10.4
11.6
12.9
45.2
-
0.5
0.8
0.0
0.2
0.0
1.0
0.3
0.3
0.3
0.5
1.4
1.9
14.0
18.7
7.1
7.3
8.2
8.6
31.1
10.0
10.1
11.3
12.4
43.8
60.1
Revenues
24.2
48.6
14.6
9.4
14.1
12.2
50.3
15.4
14.8
16.4
16.1
62.7
78.6
Service Cost
21.8
43.1
12.4
7.9
11.8
10.3
42.3
12.0
12.0
12.0
12.0
48.0
51.0
2.4
5.6
2.2
1.5
2.3
2.0
8.0
3.4
2.8
4.4
4.1
14.7
27.6
0.3
0.2
0.4
0.3
0.5
0.7
0.9
1.0
68.6
22.6
17.0
22.8
21.1
26.2
25.9
28.9
30.0
Service Cost Net Revenues
62.0
Hotels & Packages
Net Revenues Others
0.1
0.7
38.3
Total revenues
1.2 83.6
3.1
6.0
110.9
146.7
Less: Service Cost
21.8
43.6
13.1
7.9
12.0
10.3
43.3
12.3
12.3
12.3
12.5
49.4
52.9
Net revenues
16.4
25.0
9.5
9.1
10.9
10.8
40.3
13.9
13.6
16.6
17.5
61.6
93.8
Total Gross Bookings
225.0
313.3
109.8
107.3
123.9
124.9
465.8
174.6
160.4
188.3
201.2
724.5
1,047.7
Total Transactions
919.5
1,332.1
453.1
440.3
492.3
490.9
1,876.6
633.0
576.7
643.3
696.7
2,549.8
3,328.2
Blended ASP (Air, H&P)
244.7
235.2
242.2
243.7
251.6
254.4
248.2
275.8
278.1
292.6
288.8
284.1
314.8
8.1
9.3
Operating expenses: Payment Gateway
5.0
Personnel Expenses SG&A
11.9
Marketing Expenses Depreciation Total operating expenses Non-GAAP Operating Income
1.4
1.6
2.4
2.9
2.7
2.3
1.7
2.4 3.3
2.2
2.6
2.2
2.4
2.8
2.8
10.3
2.8
9.8
6.1
3.3
3.8
4.3
4.2
15.6
18.7
3.5
12.3
3.9
3.5
3.8
3.9
15.1
18.5
2.6
9.7
3.5
12.7
18.2
2.6
3.1
3.5
16.1
23.2
7.5
1.1
1.6
0.4
0.4
0.4
0.4
1.6
0.4
0.4
0.4
0.4
1.8
2.4
32.5
35.2
9.1
9.1
10.3
11.0
39.5
12.4
13.4
14.9
14.8
55.5
73.8 19.9
(16.0)
(10.2)
0.4
0.0
0.5
(0.2)
0.8
1.4
0.2
1.7
2.7
6.1
Miscellaneous
0.2
(0.7)
0.2
0.1
0.1
0.2
0.7
0.3
0.4
0.3
0.3
1.4
1.8
Pre-tax Income
(15.8)
(10.9)
0.7
0.1
0.6
0.0
1.5
1.7
0.6
2.0
3.0
7.4
21.7
Income tax benefit (expense) Non-GAAP Net Income GAAP Net Income
0.0
0.0
-
-
-
(0.0)
(0.0)
(0.0)
(0.1)
(0.4)
(0.6)
(1.1)
(4.3)
(15.8)
(10.9)
0.7
0.1
0.6
0.0
1.5
1.7
0.5
1.6
2.4
6.3
17.4
(19.0)
(7.3)
(6.1)
Non GAAP EPS (diluted)
$
(0.59)
$
(0.37)
$
GAAP EPS
$
(0.70)
$
(0.25)
$
0.02
(0.1) $
(0.21) $
0.00
0.5
(0.4)
$
0.02
$
(0.00) $
0.02
$
0.00
(6.2) $
(0.01) $
1.3
0.1
1.2
2.1
0.05
$
0.05
$
0.01
$
0.04
$
(0.21)
$
0.04
$
0.00
$
0.03
$
4.7
0.07
$
0.06
$
15.8
0.18
$
0.13
$
0.46 0.42
Basic
12.0
12.2
12.5
12.6
12.7
12.9
12.7
29.9
34.1
34.1
34.1
33.1
35.0
Shares outstanding (diluted)
27.0
29.8
29.8
29.8
29.8
29.8
29.8
32.5
36.6
36.6
36.6
35.6
37.5
EBIT
(16.0)
(10.2)
0.4
0.0
0.5
(0.2)
0.8
1.4
0.2
1.7
2.7
6.1
19.9
EBITDA
(14.9)
(8.6)
0.8
0.4
0.9
0.2
2.3
1.9
0.7
2.2
3.2
7.9
22.3
Exchange Rate (INR/USD)
48.58
46.40
46.30
45.72
Source: Company reports, Oppenheimer & Co. estimates
40
1.4 2.2
MakeMyTrip Limited
MMYT - Margin Analysis FY
FY
2008A
2009A
1Q10 Jun-09
2Q10 Sep-09
3Q10 Dec-09
4Q10 Mar-10
FY 2010A
1Q11A Jun-10
2Q11E Sep-10
3Q11E Dec-10
4Q11E Mar-11
FY
FY
2011E
2012E
Margin Analysis Revenue Mix Air-ticketing
85.3%
75.0%
74.2%
80.6%
75.5%
79.0%
77.3%
72.1%
74.2%
68.1%
70.9%
71.1%
64.1%
Hotels & Packages
14.4%
22.2%
23.1%
16.8%
21.3%
18.1%
19.8%
24.2%
20.8%
26.5%
23.4%
23.8%
29.5%
0.3%
2.8%
2.7%
2.7%
3.2%
2.8%
2.9%
3.7%
5.0%
5.4%
5.7%
5.0%
6.4%
Others Air Gross Margin Service Cost Margin
7.1%
7.4%
7.6%
7.6%
7.6%
7.7%
7.9%
6.8%
7.2%
7.2%
7.2%
7.3%
7.0%
0%
2.6%
9.7%
0.2%
2.2%
0.3%
3.1%
0.8%
0.8%
0.8%
0.8%
3.1%
3.1%
9.1%
10.6%
13.0%
14.0%
14.4%
14.6%
14.0%
11.9%
14.0%
13.9%
14.4%
14.5%
15.7%
90.2%
88.6%
84.9%
83.7%
83.7%
83.9%
84.1%
83.7%
83.6%
83.5%
83.4%
76.6%
64.9%
H&P Gross Margin Service Cost Margin Blended Gross margin Service Cost Margin
7.3%
8.0%
8.7%
8.5%
8.8%
8.7%
8.6%
8.7%
8.7%
8.7%
8.7%
8.5%
9.0%
57.0%
63.5%
58.0%
46.4%
52.5%
48.7%
51.8%
47.0%
47.5%
42.6%
41.6%
44.5%
36.1% 17.0%
Payment Gateway Personnel Expenses SG&A
20.0%
15.0%
15.0%
15.0%
15.9%
15.3%
18.0%
18.0%
17.0%
16.0%
17.0%
49.5%
22.0%
24.0%
24.0%
24.0%
25.7%
24.3%
26.0%
28.0%
26.0%
24.0%
26.0%
20.0%
141.3%
35.0%
30.0%
30.0%
30.0%
24.3%
30.5%
25.0%
26.0%
23.0%
22.0%
25.0%
20.0%
Marketing Expenses
30.0%
24.0%
24.0%
24.0%
24.0%
24.1%
21.0%
23.0%
21.0%
20.0%
21.0%
19.5%
6.7%
6.2%
3.8%
4.2%
3.7%
3.9%
3.9%
3.2%
3.3%
2.7%
2.6%
2.9%
2.6%
Operating margin (%)
-97%
-41%
4%
0%
5%
-2%
2%
10%
2%
10%
15%
10%
21%
Effective tax rate (%)
0%
0%
0%
0%
0%
0%
0%
20%
20%
20%
20%
20%
20%
-96%
-44%
7%
1%
6%
0%
4%
12%
4%
10%
14%
10%
19%
Depreciation
Net margin (%)
Source: Company reports, Oppenheimer & Co. estimates
41
MakeMyTrip Limited
MMYT - Growth Analysis FY
FY
2008A
2009A
1Q10 Jun-09
2Q10 Sep-09
3Q10 Dec-09
4Q10 Mar-10
FY 2010A
3.3 Jun-10
2Q11E Sep-10
3Q11E Dec-10
4Q11E Mar-11
FY
FY
2011E
2012E
37.3%
Sequential Growth Rates Air Revenues
43.0%
-6.1%
14.2%
2.4%
19.9%
1.0%
11.5%
11.6%
Service Cost
54.4%
-98.4%
1429.9%
-83.7%
898.7%
0.0%
0.0%
62.1%
41.9%
3.8%
11.9%
4.4%
16.8%
1.0%
11.8%
10.3%
-1.7%
Net Revenues
-
Hotels & Packages Revenues
65.1%
-35.5%
50.4%
-13.3%
25.6%
-3.4%
10.4%
Service Cost
65.9%
-36.4%
50.3%
-13.1%
16.9%
0.0%
0.0%
0.0%
Net Revenues
60.4%
-30.5%
51.1%
-14.8%
71.0%
-15.6%
54.6%
-6.5% 12%
-
Others
-7%
-4%
45%
-12%
66%
33%
31%
Total revenues
55%
-25%
35%
-8%
24%
-1%
11%
4%
Service Cost
65%
-40%
52%
-14%
19%
0%
0%
2%
Net revenues
44%
-4%
19%
0%
28%
-2%
22%
6%
Total Gross Bookings
30%
-2%
15%
1%
40%
-8%
17%
7%
88.3%
53.0%
74.1%
31.6%
41.6%
38.2%
Payment Gateway Non-GAAP Operating Income Pre-tax Income Non-GAAP Net Income GAAP Net Income YoY Growth Rates Air Revenues
37.0%
57.1%
67.1%
-93.9%
100.4%
70.3%
72.0%
66.2%
Service Cost Net Revenues
33.5%
70.0%
52.7%
50.6%
40.7%
1519.3%
40.7%
37.3%
40.7%
37.3%
25.5%
41.6%
37.7%
37.7%
45.4%
Hotels & Packages Revenues Service Cost Net Revenues Others Total revenues
101.0%
-7.7%
-9.2%
3.0%
38.7%
3.4%
5.5%
58.1%
16.1%
31.6%
24.6%
97.3%
-14.7%
-15.6%
-0.1%
37.8%
-1.8%
-2.9%
52.7%
1.6%
16.9%
13.5%
6.3%
134.8%
71.3%
49.4%
22.8%
43.4%
44.0%
52.9%
85.7%
90.1%
108.7%
83.6%
88.2%
1308%
118%
42%
140%
13%
64%
90%
95%
100%
120%
167%
95%
79%
13%
13%
13%
13%
22%
16%
16%
16%
16%
33%
32%
Service Cost
100%
-9%
-9%
-9%
-9%
-1%
-6%
-6%
-6%
-6%
14%
7%
Net revenues
52%
71%
71%
71%
71%
61%
46%
46%
46%
46%
53%
52%
Total Gross Bookings
39%
55%
55%
55%
55%
49%
59%
59%
59%
59%
Total Transactions
45%
41%
56%
45%
36%
31%
262.9%
162.1%
Payment Gateway Non-GAAP Operating Income Pre-tax Income Non-GAAP Net Income GAAP Net Income Diluted EPS Source: Company reports, Oppenheimer & Co. estimates
42
-37.4%
-106.7%
-102.0%
-124.9%
-100.6%
-113.3%
138.2%
232.2%
110.2%
5650.1%
MakeMyTrip Limited
MMYT Consolidated Balance Sheet In $Millions
FY
FY
FY
FY
2009A
2010A
2011E
2012E
Cash & Cash Eq
5.5
9.3
64.0
75.0
Term Deposits
8.3
13.2
14.0
15.1
Inventories
0.8
0.0
0.0
0.0
Current Tax Assets
0.9
0.9
0.9
1.0
Trade and Other Rec
5.1
12.0
18.0
23.4
Other Current Assets
3.7
7.5
7.5
9.0
$24.2
$43.0
$104.5
$123.6
3.5
3.7
5.9
8.1
Intangible Assets
2.0
2.0
2.0
2.0
Trade Rec
0.3
0.4
0.4
0.4
Term Deposits
7.8
1.3
1.4
1.5
Other Assets
0.2
0.1
0.1
0.1
Total Assets
$37.9
$50.6
$114.4
$135.8
7.9
4.0
3.0
4.0
Loans
39.7
40.8
0.0
0.0
Trade Payables
13.4
26.5
34.4
44.7
Deferred Income
0.6
0.8
1.0
1.2
Other current liabilities
0.3
0.6
0.6
0.6
Total Current Liabilities
$62
$73
$39
$50
Loans and Borrowings
0.0
0.1
0.0
0.0
Employee Benefits
0.3
0.4
0.4
0.4
Deferred Income
2.3
1.9
2.2
2.5
Derivatives
0.3
0.0
0.0
0.0
Other non-current liab
0.3
0.4
2.2
3.3
65.1
75.6
43.8
56.8
($27.2)
($25.0)
$70.5
$79.1
$37.9
$50.6
$114.4
$135.8
Total Current Assets PPE
Liabilities and Equity Bank Overdraft
Total liabilities Owners Equity (SE) Total Liabilities and Equity
Source: Company reports, Oppenheimer & Co. estimates
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MakeMyTrip Limited
Investment Thesis We are bullish on the growth prospects of India's largest OTA (48% share of gross bookings) on both revenues and margins. We forecast top line growth of 52% in FY11 and FY12 and expect margins to expand 40bps from FY10 to FY12. Growth levers such as LCC growth, especially at the domestic level, rise in credit/debit card penetration levels and increasing internet penetration are positive for the name, in our view. However, we believe at current levels near-term valuation is stretched. Since its IPO (Aug 12), MMYT has catapulted ~150% from its offer price of $14, and we believe the upside from current levels is limited.
Important Disclosures and Certifications Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc: Stock Prices as of September 23, 2010
Ctrip.com International Ltd. (CTRP - Nasdaq, 44.38, OUTPERFORM) Rating and Price Target History for: Ctrip.com International Ltd. (CTRP) as of 09-22-2010 05/06/09 I:O:$37
05/12/09 O:$40
07/24/09 O:$51
11/12/09 O:$71
02/22/10 O:$41
03/03/10 O:$40
08/09/10 O:$45
50
40
30
20
10
0 2008
2009
2010
Created by BlueMatrix
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MakeMyTrip Limited
Rating and Price Target History for: MakeMyTrip Limited (MMYT) as of 09-22-2010 09/22/10 I:P:NA
45
40
35
30
25
20 2008
2009
2010
Created by BlueMatrix
All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research Department, Business Manager.
Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months. Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.
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MakeMyTrip Limited
Distribution of Ratings/IB Services Firmwide
IB Serv/Past 12 Mos. Rating
Count
Percent
Count
Percent
OUTPERFORM [O]
336
51.60
142
42.26
PERFORM [P]
295
45.30
79
26.78
UNDERPERFORM [U]
20
3.10
4
20.00
Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.
Company Specific Disclosures In the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for MMYT. Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3 months from MMYT. In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for MMYT. In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from MMYT. Oppenheimer & Co. Inc. makes a market in the securities of MMYT, CTRP, EXPE, and PCLN.
Additional Information Available Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research Department, Business Manager.
Other Disclosures This report is issued and approved for distribution by Oppenheimer & Co. Inc., a member of all Principal Exchanges and SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients of Oppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances.
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MakeMyTrip Limited
We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor.Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report.Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal. Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable to Oppenheimer & Co. Inc.All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer & Co. Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice.Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2010.
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