MMYT

Business Context and Reporting Period

Company: MakeMyTrip Limited (Mauritius-incorporated, principal operations in India)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended March 31, 2013
Accounting Standards: International Financial Reporting Standards (IFRS)
Business Overview: MakeMyTrip is the largest online travel company in India based on gross bookings. It operates primarily through its Indian subsidiary, MakeMyTrip (India) Private Limited, offering air ticketing, hotels, packages, rail, bus, and car hire services. The company utilizes a mix of online platforms, call centers, and travel stores.

Key Financial Metrics (Fiscal Year 2013)

Material Changes vs. Prior Period (FY 2012)

• Revenue Growth: Total revenue increased 16.4% to $228.8 million from $196.6 million in FY 2012.
• Profitability Reversal: The company swung from a net profit of $7.0 million in FY 2012 to a net loss of $27.6 million in FY 2013.
• Segment Performance:
  • Air Ticketing: Revenue decreased 20.1% to $60.9 million due to a decline in net revenue margins (6.0% vs 7.9%) caused by Indian airlines reducing base commissions.
  • Hotels and Packages: Revenue increased 40.6% to $164.1 million, driven by a 65.6% increase in transaction volume and acquisitions.
• Acquisitions: Significant expansion occurred via the acquisition of 100% of the Hotel Travel Group (Southeast Asia) and a 51% stake in the ITC Group (Thailand) in November 2012.
• Deferred Tax Impairment: A non-cash impairment of deferred tax assets of $8.5 million was recorded due to the Indian subsidiary incurring losses in FY 2013 after two years of profit.
• Share-Based Compensation: Personnel expenses rose significantly, partly due to share-based compensation costs of $11.7 million (up from $6.9 million in FY 2012).

Guidance, Outlook, and Risks

Management Commentary & Strategy:

• Management intends to shift the business mix toward the higher-margin "Hotels and Packages" segment.
• Strategy includes expanding into new geographic markets (e.g., UAE, Canada, Southeast Asia) and enhancing technology platforms.
• Excluding share-based compensation, M&A expenses, and amortization of acquisition-related intangibles, the company would have recorded an operating loss of $5.1 million in FY 2013 compared to an operating profit of $11.2 million in FY 2012.

Key Risks and Contingencies:

• Supplier Relationships: Heavy reliance on airline commissions; airlines have reduced or eliminated commissions, directly impacting margins.
• Competition: Intense competition in the Indian online travel market from established players and new entrants.
• Regulatory & Tax: Ongoing disputes with Indian tax authorities regarding service tax and transfer pricing adjustments. Potential for significant tax liabilities.
• Foreign Exchange: Exposure to USD/INR fluctuations. A 10% appreciation of the USD against the INR would increase the FY 2013 loss by $1.4 million.
• Integration Risk: Risks associated with integrating recent acquisitions (Hotel Travel Group, ITC Group) and managing international operations.

Investor Verification Checklist

• Deferred Tax Asset Realizability: Verify the assumptions regarding future profitability of the Indian subsidiary to support the reversal of the $8.5 million deferred tax impairment.
• Airline Commission Trends: Monitor ongoing negotiations with Indian airlines to assess if the 6.0% net revenue margin in air ticketing is sustainable or if further reductions are likely.
• Acquisition Integration: Review the financial performance of the Hotel Travel Group and ITC Group to ensure they are contributing to the strategic shift toward higher-margin hotel bookings.
• Tax Litigation Status: Track the status of pending tax proceedings in India regarding service tax and transfer pricing, as adverse rulings could materially impact future cash flows.
• Cash Flow Sustainability: Confirm that operating cash flows ($13.6 million positive in FY 2013) remain sufficient to fund growth initiatives and M&A activities without requiring immediate equity dilution.