MakeMyTrip Limited

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

MakeMyTrip Limited is a leading online travel company in India, offering a wide range of services including flights, hotels, and package bookings across the country and abroad.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

MakeMyTrip Limited (MMYT) operates as a leading online travel company, primarily focusing on the Indian market, but with international presence as well. The company’s services include air ticketing, hotels and alternative accommodations, holiday packages, rail tickets, bus tickets, cab booking, and other travel-related services. MMT’s business model can be broadly described as that of a digital marketplace, connecting travelers with various travel providers such as airlines, hotels, and other service vendors.

Revenue Distribution:

MMT’s revenue streams are primarily derived from three sources: Air ticketing, Hotels and Packages, and Other Revenue.

  • Air Ticketing: Revenue from the sale of air tickets for both domestic and international flights. This is one of the major segments for the company.
  • Hotels and Packages: Revenue generated from booking of hotels, holiday packages, as well as the sale of other accommodations.
  • Other Revenue: Includes revenues from bus and train tickets, and from other segments.
  • Growing Online Travel: The online travel market in India continues to experience strong growth. This growth is driven by increasing internet penetration, the rising middle class, and a growing preference for online transactions.
  • Digital Transformation: There has been a push towards the digitization of travel as customers tend to find convenience, transparency and ease of access on the online platforms.
  • Intensified Competition: This comes from domestic and international travel platforms looking to enter and gain market share in India.
  • Consolidation and Partnerships: The Indian market has seen several collaborations between online and offline platforms.
  • Preference for Low-Cost Carriers: Growth of low-cost carriers has significantly impacted the price sensitive travel sector in the country.
  • Increase in Domestic travel: In recent periods, the domestic travel has increased as people chose to vacation within the country rather than international travels.

Competitive Landscape:

  • Market Leaders: MakeMyTrip has a relatively large market share in the Indian market. However, competition from other major companies exists. Companies like EaseMyTrip, ClearTrip, and Yatra compete with MakeMyTrip.
  • Global Players: Global competitors include Booking and Expedia which could make major inroads into the Indian markets.
  • Hotel Aggregators: With low barriers to entry, several smaller hotel aggregators also participate in this space.
  • OTA vs. Traditional players: While the traditional travel industry has been losing market share, many traditional brick and mortar companies have made major investments in technology.

What Makes the Company Different

While many other companies provide online travel services, MakeMyTrip stands out because of its strong brand, widespread network, and significant market share in India.

  • Brand Loyalty: MMT has invested heavily in building and sustaining its brand. The loyalty programs like MyBiz and MMT Black helps it retain its customer base.
  • Wide Variety of Services: MMT has an extensive range of services under one platform, catering to a wide variety of travel needs from ticketing, to lodging, and to holiday packages.
  • Strong Technology platform: As an online focused company, MMT has made considerable investments in creating an efficient online platform, which has been instrumental in its growth and expansion.
  • Customer Base: MMT has a large and varied customer base, especially in India.

Financials:

MMT’s financial performance is a mixed bag with strong top-line growth, but with low profitability.

  • Revenues: The company’s revenue has shown consistent growth year over year, indicating increasing user adoption and market penetration, albeit with increased volatility due to factors like travel restrictions in place for periods of time and overall economic uncertainty.
  • Profitability: While the top line has grown steadily, MMT’s profitability metrics remain a point of concern for investors. While the gross margin is at relatively high levels, the company’s profitability is heavily affected by employee expenses, and marketing and promotion expenses. This has led to a large gap between the gross profit and operating income. MMT’s profitability has been negatively affected by the effects of Covid and the lockdowns.
  • Operating Margins: MMT has had fluctuating operating margins, particularly since the start of Covid-19. As travel and tourism has picked up again, the margins have improved, but they remain volatile and below the averages seen in the periods prior to Covid.
  • Capital Structure: Debt is a minor part of MMTs capital structure. This gives the company more flexibility, but given the company’s low profitability, this might become a point of concern over time.

Recent Concerns/Controversies and Management View:

  • Competition: MMT has seen greater competition especially with the introduction of several international players into the Indian market. Also, established airlines have been creating and pushing their own distribution channels.
  • Impact of COVID-19: The travel industry is highly susceptible to external shocks, and the pandemic was a major crisis that significantly affected MMT. In the recent earnings calls, the management has expressed confidence that business will continue to improve with relaxation of travel restrictions. The company is emphasizing on developing new streams of revenue, particularly on the domestic side, with travel options that are increasingly flexible.
  • Promotional Expenses: The company is spending a significant portion of their revenue on promotions, which has had a negative effect on its earnings. This expense is expected to continue as the company tries to fight off competition and attract new customers.
  • Restructuring and Reorganizing: The company has announced a change in its reporting structure to better reflect the different aspects of the business. This was done with the aim of bettering visibility, internal functioning, and the ability to streamline operations.

Moat Rating: 2/5 While MMT is a leader in India’s online travel market, several factors limit its moat.

  • Brand Loyalty: While they have a strong brand with customer loyalty programs, they can’t completely shield themselves from competition in a price sensitive market.
  • Switching Costs: It’s easy for a user to switch to another booking platform. Switching costs are low for users, especially for the highly commoditized segments like flight tickets and lodging. For these, if one platform doesn’t meet the user’s requirements (like availability or pricing), the user can easily move to another platform.
  • Technology: While the platform is quite advanced and user-friendly, replicating a similar platform or offering might be easily achieved by competitors. Thus, technology does not present a high barrier.
  • Low Cost Advantages: Since most of the industry has access to the same resources, or can develop similar operational capabilities, the cost advantage doesn’t create a sustainable moat.

These factors lead us to believe that MMT has only a narrow moat currently.

Risks to Moat & Business Resilience:

  • Increased competition: New entrants and existing players looking to make inroads into the online travel sector can negatively impact MMT’s market share and pricing power.
  • Technological disruptions: The rapid rate of change in technology and digital platforms could make MMT’s platform/products obsolete and create new winners.
  • Changing customer preferences: Rapid change in preferences in travel requirements and booking behavior can lead to losing customers if the company can’t keep track and provide relevant services.
  • Macroeconomic Vulnerability: The travel and hospitality sector is heavily impacted by external macro factors, including political, economic and natural factors. Any external force that affects travel can significantly impact the company’s financials.
  • Regulatory Risks: Travel industry is often subject to a variety of regulatory hurdles, including permits, compliance and taxes. This poses a risk to the company because changes in these could affect the company’s profitability and its overall valuations.
  • Reliance on OTAs: MMT is heavily reliant on the OTAs for getting most of their bookings, and thus it depends on the technology platform, revenue sharing arrangements, policies and regulations of such OTAs.

Given these, the company’s business resilience is not too high since an external crisis may have significant effects on its financials. However, they are doing well enough currently to navigate most challenges.

Understandability Rating: 3 / 5

  • The business model is reasonably straightforward to understand. It is an online travel agency (OTA) that provides a variety of services in the travel sector.
  • However, the company’s financial statements are complicated and have a lot of moving pieces. This could take some time to understand, and is not immediately simple. Also, some parts of MMT’s business are tied closely to the Indian market and its characteristics, which might not be familiar to investors from other countries.
  • The revenue distribution is also quite complex, stemming from a mixture of different types of travel offerings.
  • The company’s regulatory and risk factors may require some time for investors to understand. For an easy understanding of the company’s business, this might require a bit of effort.

Balance Sheet Health: 3 / 5

  • Debt levels: MMT has relatively lower long-term debt, which is a positive thing in terms of capital structure and ability to withstand crises.
  • Profitability: While the cash flows are positive and the company has a low debt burden, the high dependence of profits on tourism, which are susceptible to external factors, is somewhat concerning.
  • Cash flow management: While MMT has shown improvement in cash flow from operations in recent periods, and is mostly able to cover its costs of operations, a significant increase in profitability is needed to increase the cash flows substantially.
  • Impact of Covid: The company’s balance sheet has been directly affected by Covid, with high reliance on equity financing due to low profitability. While the situation is improving, the company will take time to recover from this.

While MMT’s debt levels are under check, several factors like profitability, volatile cash flows and dependence on travel leave a certain amount of uncertainty related to the company’s financial position. This gives a rating of 3 out of 5.