Make My Trip Is Still A Kohinoor

Inflection quarters are rare. Make My Trip inflected last August. The Stock has gained 170% since.

An inflection quarter, in investment terms, is when investors can observe that a business is undergoing a significant positive change in key performance indicators. Sales, earnings, and cash flow are accelerating.

I wrote about Make My Trip in October A Hidden Kohinoor.

However, I do not want to give the impression that this was a perfectly timed purchase, right before lift-off.

Here is the background.

I have followed Make My Trip for the last 8 years. Then, the competitive dynamics in Indian travel were intense. In this land grab mode, leading OTA’s (online travel agents) were losing money on each hotel booking.

In 2017, Make My Trip bought GoIbibo, the second leading player. It was a game-changer. The competitive dynamics slowly improved.

By 1Q2020, it was clear that MMYT had established a dominant position in the Travel ecosystem. The end market was strong, MMYT was the #1 brand, and repeat bookings were outpacing new bookings. Therefore, the sales & marketing costs would drop and operating income would grow faster than revenues.

Then came Covid. In India, the Delta wave was deadly and sad. Travel plummeted twice.

The long and uncertain COVID cycle worked in MMYT’s favor because competitive intensity dropped, and VC capital receded. The rate increases in 2022 reinforced the higher cost of capital.

MMYT is the undisputed leader. The proof is in the results.

Bookings and revenues have outpaced expectations while sales and marketing costs as a percentage of bookings have dropped over the past 9 quarters.

Over the years, Management has made many savvy, strategic acquisitions. GoIbibo, as mentioned earlier, was the game changer. Redbus, an online bus booking platform, rail ticketing for public rail, Cab bookings, credit, and international expansion are other contributors

Remember, only a small cohort of Indians travel by air. Therefore, the complementary platforms for cabs, rail, and bus are low-cost customer acquisition tools for the parent MMYT.

Big Picture

On a go-forward basis, MMYT stock should roughly follow the growth in the business. Indian travel end market is growing 10%+ and MMYT is confident it can grow 2X market growth. If we add a small positive impact from acquisition, operating leverage, and capital allocation, underlying free cash flow should grow 20-25% annually.

The big move in the stock is behind us. Remember, the goodness of FY24 turns into tougher comparisons for FY25. A consolidation phase for the stock is likely.

I plan on owning this business for a very long time, just in a smaller allocation.

4Q Details

4Q was a positive surprise. Hotel and bus bookings grew faster and air bookings were in line. The take rate (commission) was generally in line with historical norms.

MMYT has a 30-35% share of domestic air bookings. International travel is growing, which should be an incremental benefit. The significant order book for both Air India and Indigo brings a decade-long tailwind for the air business. Remember, as air seat capacity grows, OTAs play a critical role in maintaining seat utilization.

MMYT has 84,000 hotels on the platform in 2,000 Indian cities. The penetration in the Middle East and East Asia is growing. Overall, the budget segment has low utilization, and most budget hotels need to be on MMYT’s platform to increase traffic. As the budget mix grows, so will MMYT’s hotel take rate as MMYT is exclusively contracting with many budget hotels.

For details, refer to How India Travels.

Total sales and marketing costs for the year were 4.6% of gross bookings vs 5% last year. 70% of bookings come from repeat customers, a big contributor to marketing efficiency. In 2024, total marketing only grew 11% while revenues grew 32%. The competitive intensity (local and international competitors) is low but has to be monitored. Going forward, management needs to balance growth and efficiency. I anticipate sales & marketing expenses in this general range of 4-5%.

Generative AI provides a near-term opportunity to reduce customer service and support costs.

Ebitda grew 42% for the quarter and 51% for the year. Free cash flow per share doubled.

Negatives

Shares outstanding grew 5% in 4Q. While companies offset dilution with buybacks, that is a suboptimal use of capital and we would discourage that behavior.

History doesn’t repeat, but it rhymes. Booking had a decade long period of consistent growth between 2005-2015. So did Trip.Com, in China. The next decade belongs to Make My Trip.

Make My Trip is still a Kohinoor (a famous diamond that originated in India) in the Indian travel ecosystem.