MakeMyTrip (MMYT, Financial) is one of the stocks that I am bullish on from a 3-5 year investment horizon. MakeMyTrip is India’s leading online travel company, and the company has just started its long-term journey in terms of revenue growth and value creation for investors.
From a country perspective, India is home to nearly 1.2 billion people and the country has excellent demographics with the country estimated to have the world’s youngest population by 2020. Further, the current government is focused on development, and this will translate into higher disposable income for the young population in the years to come. This makes India one of the most attractive consumer-driven markets globally from a growth upside potential.
MakeMyTrip is India’s largest online travel company and the company’s latest results further underscore my point that the company is worth considering for 2015 and for the long-term. This article discusses the bullish factors in the company’s latest result announcement.
For 3Q15, the company’s revenue and revenue less service cost increased by 8.2% and 22.9% respectively as compared to 3Q14. While the growth was decent, the company still reported loss of $3.6 million for 3Q15. However, in my view, the losses are not a cause of concern when considering the reason for MakeMyTrip reporting losses for the quarter. The losses were primarily due to higher advertising cost as the company tries to increase its visibility and gain further market share.
The impact of higher advertising was clearly evident in the company’s operating metrics for the quarter. For air ticketing, the gross booking increase by 34.6% and gross bookings increased by 34.7% for hotels & packages. For the same period, the number of transactions also increased by 47.3% and 46.5% for the two segments respectively. Therefore, MakeMyTrip has been increasing its volume of transactions and this is an indication of strong market conditions.
In terms of outlook for 2015, MakeMyTrip has increased its guidance for revenue less service cost growth with the current guidance at 30% to 31%. Therefore, FY15 growth is likely to be robust and I expect the trend to continue or accelerate in FY16 considering the point that the Indian economy is on a recovery path.
While the company’s margins have depressed in the current quarter, the long-term outlook for key margins is also positive considering the fact that MakeMyTrip’s revenue contribution from the holidays & packages segment is gradually increasing. The segment commands a higher margin as compared to the air ticketing segment and will provide a long-term EBITDA boost.
The key point here is that there are some good changes happening, but the changes are gradual and the overall growth remains robust. Investors therefore need to be patient with the stock and I believe that the stock can be a portfolio catalyst when considering a time horizon of 3-5 years. Companies such as Expedia (EXPE, Financial) have proved that the business model is attractive and MakeMyTrip has the early-mover advantage in a market that is just beginning to grow.
In conclusion, my view is that MakeMyTrip is an excellent stock to buy at current levels of $24.87. I further believe that the stock has the potential to provide strong returns in 2015 considering the growth trajectory the management is aiming.
