Business Context and Reporting Period
Company: MakeMyTrip Limited (Mauritius-incorporated holding company; principal operations via Indian subsidiary MakeMyTrip (India) Private Limited).
Reporting Period: Fiscal year ended March 31, 2011.
Business Overview: The largest online travel company in India based on gross bookings (2009). The company operates a technology platform enabling the booking of air tickets, hotels, packages, rail tickets, bus tickets, and car hire. Revenue is recognized on a "net" basis for air ticketing (commissions/fees) and a "gross" basis for hotels and packages (total customer payment).
Accounting Basis: International Financial Reporting Standards (IFRS).
Key Financial Metrics (Fiscal Year 2011)
| Metric | Value (USD) |
|---|---|
| Total Revenue | $124.7 million |
| Revenue Less Service Cost (Non-IFRS) | $61.1 million |
| Operating Profit | $4.1 million |
| Net Profit | $4.8 million |
| Net Profit Per Share (Basic) | $0.17 |
| Cash and Cash Equivalents | $51.7 million |
| Term Deposits | $16.9 million |
| Total Assets | $112.9 million |
| Loans and Borrowings | $0.2 million |
| Shareholders' Equity | $76.3 million |
Note: The company achieved profitability in FY2011 after sustaining operating losses in prior years. Net profit includes a $2.7 million income tax benefit from deferred tax assets.
Material Changes vs. Prior Period (FY2010)
- Revenue Growth: Total revenue increased 49.3% to $124.7 million from $83.6 million. Air ticketing revenue grew 48.3% and Hotels/Packages revenue grew 48.3%.
- Profitability Turnaround: The company moved from a net loss of $6.2 million in FY2010 to a net profit of $4.8 million in FY2011. Operating results improved from a loss of $6.0 million to a profit of $4.1 million.
- Transaction Volume: Air ticketing transactions increased 59.9% to 2.8 million. Hotels and packages transactions increased 60.3% to 175,869.
- Margin Compression: Despite volume growth, net revenue margins declined. Air ticketing margins fell to 7.4% (from 7.6%) due to reduced service fees to gain market share. Hotels/Packages margins fell to 11.5% (from 14.0%) due to strategic margin reductions to promote new packages.
- Capital Structure: Following an IPO in August 2010 and a follow-on offering in June 2011, the company significantly reduced debt. Loans and borrowings dropped from $41.0 million (FY2010, largely preferred share liability) to $0.2 million (FY2011).
- Liquidity: Cash and cash equivalents surged to $51.7 million from $9.3 million, driven by equity offerings.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
- Growth Strategy: Focus on expanding the hotels and packages business (higher margins), increasing "direct connects" with hotel suppliers, and expanding into new geographic markets (e.g., Singapore, Malaysia, UAE, Canada).
- Investment Plans: Management expects to spend approximately $5.0–$6.0 million on capital expenditures in FY2012 and approximately $2.0 million on marketing for the "Memories Unlimited" campaign.
- Seasonality: Results are subject to seasonal fluctuations, with higher hotel revenue in Q2 and Q4 (summer and year-end holidays) and higher air ticketing revenue in Q3 and Q4.
Risks and Contingencies
- Supplier Dependence: Heavy reliance on third-party systems (GDS, airlines, hotels) and outsourcing providers for call centers. Many agreements are short-term or terminable on short notice.
- Regulatory and Tax Risks: Significant exposure to Indian tax authorities regarding transfer pricing and service tax. The company is currently appealing assessments totaling approximately $7.2 million in adjusted income (though no immediate tax demand was issued due to carried-forward losses).
- Competition: Intense competition from other online travel agencies, traditional agencies, and direct supplier channels. Competitors may have greater financial resources.
- Foreign Exchange: Exposure to USD/INR fluctuations. A 10% appreciation of the USD against the INR would decrease FY2011 profit by approximately $0.6 million.
- Legal Proceedings: Ongoing domain name dispute with Tata Sons regarding "oktatabyebye.com" and various tax assessments.
Unusual Items
- Share-Based Compensation: Personnel expenses in FY2010 were significantly inflated by $6.8 million in share-based compensation costs (fully vested options). FY2011 share-based compensation was only $0.5 million. Excluding these costs, the company was operationally profitable in FY2010 ($0.8 million) and FY2011 ($4.6 million).
- Acquisitions: Acquired 79% of Luxury Tours & Travel Pte Ltd (Singapore) in May 2011 and 19.9% of Le Travenues Technology (owner of ixigo.com) in August 2011.
Investor Verification Checklist
- Revenue Recognition: Verify the distinction between "gross" (hotels) and "net" (air) revenue recognition and the impact on reported margins.
- Tax Liabilities: Monitor the status of Indian income tax and service tax assessments, specifically the $7.2 million transfer pricing adjustment and potential penalties.
- Supplier Contracts: Assess the stability of relationships with key airline and hotel suppliers, given the lack of long-term formal agreements with many partners.
- Outsourcing Risks: Evaluate the concentration risk regarding outsourced call center providers (e.g., Intelenet, IBM Daksh) and the potential cost/quality impact of contract terminations.
- Share-Based Compensation: Review future equity grant plans to understand potential volatility in personnel expenses.
- Foreign Exchange Sensitivity: Track USD/INR exchange rates, as a significant portion of revenue is USD-denominated while expenses are INR-denominated.