Post Merger With Ibibo, Online Travel Portal MakeMyTrip Grapples With Rising Losses

Online travel portal MakeMyTrip (MMYT) reported a 135% increase in net revenue to around $141.2 Mn in Q1 of 2017, despite soaring losses due to increased expenses. Overall revenue has grown by around 55% to $192.1 Mn, compared to the same quarter last year.

In the first quarter, MakeMyTrip’s net revenue from hotels and tourism packages stood at $134.6 Mn; a 40.8% spike from Q1 2016. In Q1 2017, the company raked more than $41.3 Mn through its air ticketing business. This segment witnessed around 73% growth compared to the same quarter last year.

According to the latest SEC filings, the NASDAQ-listed company posted net losses of over $52.1 Mn in the first-quarter ending on June 30, 2017. This marked a near-72% jump from $30.3 Mn in the same quarter last year.

Increased expenses are one of the main reasons the Gurugram-headquartered company has been incurring massive losses. In the first quarter of this year, marketing and sales promotion-related spendings of MakeMyTrip surged from $52.7 Mn to over $133 Mn.

Commenting on the company’s promotion-driven growth strategy, MakeMyTrip CFO Mohit Kabra added, “We will continue to drive new customer acquisition in a significant manner, and therefore, continue to invest behind (sic) marketing and promotions at least right through this fiscal. We will continue with our high-spend strategy so that the market share gains continue to be there.”

The amount also includes the brand advertisement and customer inducement expenses of Ibibo Group, which was acquired by MakeMyTrip in October 2016.

Once the merger deal with Ibibo was finalised in February 2017, the parent company’s overall operational costs also underwent a sizeable 58.5% increase, to about $29.6 Mn. Between April and June 2017, employee costs of MakeMyTrip also grew to $29.8 Mn, from the earlier $13.1 Mn.

The MakeMyTrip-Ibibo Merger: Rise Of A Mega Entity

Initiated in October 2016, MakeMyTrip-Ibibo merger was completed in February 2017, after the deal received the approval of Competition Commission of India. In the original announcement conference call, MMYT’s founder Deep Kalra stated, “With this transaction, our focus going forward is to continue accelerating the pace of travel bookings growth from off to online, since online travel penetration remains fairly low at around 15%, for the accommodations industry, and 18% for the organised bus industry in India.”

The Ibibo group, which is owned by Naspers (91% stake) and Tencent (9% stake), was sold against the issuance of 38.91 Mn Class B shares (38,971,539 Class B shares) to MakeMyTrip. As per the terms of the deal, Naspers and Tencent remain the largest shareholders in the resulting company with a combined stake of about 40%.

The merger has resulted in the consolidation of the online traveltech space. Consequently, MakeMyTrip has emerged as a mega entity that aims to control a fifth of the lucrative airline booking market and also have significant shares in the bus and hotel bookings and ride-sharing spaces.

In February 2017, venture capital firm SAIF Partners made a strategic exit from the travel platform, making a 16x return on its $25 Mn investment. In May 2017, travel portal MMYT raised $330 Mn from a group of investors, including Naspers and Ctrip.

Yatra Bogged Down Under Soaring Losses

Despite an influx of funds from overseas investors, the country’s $48 Bn travel (offline and online) industry has not been immune to surging losses, competition and untimely exits. MakeMyTrip’s biggest competitor Yatra, for instance, reported losses of more than $94.99 Mn (INR 593.7 Cr) in 2016-17, which is an estimated 377% increase from the $19.88 Mn (INR 124.3 Cr) of the previous year.

In its latest annual report, travel portal Yatra stated that it was running low on funds. Given the burn rate at the time, it currently has less than a year of cash runway and is in dire need of external investment to stay relevant and develop new technologies.

The report said, “We (Yatra) may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favourable terms, if at all. If we raise additional equity financing, our shareholders may experience significant dilution. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness. In addition, the availability of funds depends in significant measure on capital markets and liquidity factors over which we exert no control.”

Apart from Yatra, MakeMyTrip competes against a host of players in the online travel space. Among these are ixigo, TravelTriangle, YuMiGo, HolidayIQ, Wandertrails, Expedia, Hotels.com and Booking.com.

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