A Hidden Kohinoor In Indian Travel With Rapid Free Cash Flow Per Share Growth

Make My Trip (MMYT) is a hidden Kohinoor in plain sight. The Company is a dominant operator in a fast-growing Indian travel ecosystem. We expect free cash flow per share to grow at a 36% cagr from FY23-FY26.

If this interests you, keep reading.

{A disclaimer: While this business has tremendous secular growth prospects, MMYT is also a volatile small-cap stock}

Background (2000-2010)

Today, Make My Trip is the largest Online Travel Agent (OTA) in India.  However, at inception, Make My Trip was an inbound booking site for US –> India travel.  It expanded its domestic operations in 2005 and filed for IPO in 2010.  At IPO, ~90% of bookings were air ticketing.  At 15x EV/Revenues, the IPO valuation was too expensive.  As a result, it took an entire decade for the business to grow into its valuation.

Source - Make My Trip IPO Filing

A Period of Rapid Growth and Intense Competition (2010-2020)

An obvious large market with secular long-term prospects invited lots of entrants.  The decade of 2010 was characterized by intense competition. To acquire new customers,  Make My Trip and peers discounted aggressively and lost money on each booking. As losses ballooned, something had to give.  In 2016, Make My Trip purchased GoIbibo, the second largest player.  The combination of the #1 and #2 player slowly changed the competitive dynamics.  Covid bankrupted new entrants. The end of ‘free money and the growth at any cost’ eliminated the rest of the competition. However, MMYT economics regressed during this time frame. 

Source - Make My Trip Filing

Post this shakeout, Make My Trip has emerged as the dominant operator with a leading market share in a disciplined market. 

Source - JP Morgan

Why does it matter? A Large and Growing Market

The Indian travel market has a strong demographic tailwind as ~140 million Indian households are projected to join the middle class this decade.  With rising per capita incomes, a greater proportion of discretionary spending will go towards travel and exploration.  Make My Trip is a direct beneficiary of this rising tide.

Source - Make My Trip

Due to these secular tailwinds, the Indian travel market can grow at a double-digit cagr for the rest of the decade.

Source – JP Morgan

Within travel, online travel will grow considerably faster as millions of households book travel experiences online.  As the undisputed leader, Make My Trip should grow 1.5x-2x the rate of growth in Indian travel.

Source – JP Morgan

Rapid Growth In Commercial Fleet

In anticipation of this secular growth, 1700 total aircraft are on order this decade. This will grow the Indian commercial fleet size by 2.5x

Airlines Need the OTAs

With mid-80s utilization and a growing capacity, airlines need OTAs to maximize seat utilization.

Source - DGCA

6% Hotel Supply Growth

The large brands are committed to growing room supply at a mid-high single digit cagr over the next five years.  Make My Trip has 20-30% room allocation from the major chains that rely heavily on their partner to maximize revenues and capacity utilization. A rising tide lifts all boats.

Source - IHCL

Growth in Airport Infrastructure

India currently has 137 airports. 18 projects are in the works for new airport development or expansion of the current footprint.

Strongest Brand In Travel

Make My Trip has invested in its brand over the past decade, which is finally paying dividends.  70% of MMYT’s traffic is organic.  As the competitive intensity has receded, MMYT has been able to spend considerably less on customer acquisition, its largest expense.

Source - UBS

Growing Margins And Cash Flows

As a result, unit economics have improved remarkably resulting in a dramatic improvement in profitability and cash flows. 

Source - UBS Estimates

What does it mean for the stock?

We are modeling free cash flow per share to grow from $0.67/share in FY23 to $1.69/share in FY26. If we are approximately right, the stock should follow its cash flow growth over the next three years.

Make My Trip reports tomorrow….