[What The Financials] MakeMyTrip Narrows Costs In FY20 To Absorb Covid-19 Revenue Shock

The biggest impact of the coronavirus pandemic has been on the travel sector, which has had to bear the brunt of flight cancellations, hotels being shut down and movement restrictions across the world. MakeMyTrip was among the travel tech startups that had to cut down on expenses, salaries and rethink the future.

Addressing the analysts in an earnings call announcing the results of Q4 and annual FY20 results, MakeMyTrip founder and group chairman Deep Kalra said that the disruptions to business have been unprecedented in the history of the travel industry and the company. He noted that leading up to Q4, the company had made great progress in reducing its operating losses as its investments in the standalone hotel segment have come to the full cycle.

“We, therefore, acted swiftly in sharply reducing our fixed costs to give us a runway of about two years, even in such unforeseen lockdowns,” Kalra added about MMT’s response to the crisis.

In terms of business performance, MakeMyTrip in Q4 FY20 has recorded a revenue of $104.94 Mn, a fall of 12.6% Y-o-Y from $120.1 Mn in Q4 FY19. However, the company’s loss for the quarter has grown 9.66X from $30.9 Mn from Q4 FY19 to $330.25 Mn in Q4 FY20.

The company’s gross bookings have fallen 12.1% Y-o-Y from $1.3 Bn to $1.2 Bn.

The higher losses are largely due to the massive jump in operating expenses, which have grown from $35.7 Mn to $65.73 Mn in Q4 FY20 on a Y-o-Y basis. Explaining the reason for the same, the company said that this is primarily due to a one-time provision for litigations of $30.8 Mn in the quarter ended March 2020 for a dispute related to a prior acquisition, partially offset by decrease in payment gateway charges on account of fewer bookings due to lower travel demand due to COVID-19 in the month of March 2020.

The company has reduced its marketing expenses as well, bringing it down to $27 Mn from $41.7 Mn, while personnel expenses have grown from $28.2 Mn to $34.45 Mn in Q4 FY20.

The company noted that the increase in personnel expenses reflects the annual wage increases implemented in earlier quarters of FY 2019-2020. It also said that personnel expenses as a percentage of adjusted revenue increased by 3.6%, reflecting the decline in adjusted revenue and increases in the annual wage bill.

In terms of marketing expenses, the company said that the decrease in marketing and sales promotion expense reflects its gradual reduction in marketing and sales promotion activities as well as the impact of its significant curtailment of the variable costs due to the impact of the Covid-19 pandemic.

In terms of revenue, the major source of revenue in Q4 2020 were hotel and package bookings, but this suffered as the travel restrictions due to the Covid-19 pandemic began to take effect in late February and early March. Bookings fell to $47.53 Mn in Q4 FY20 from $58.18 Mn the year before, which is nearly a 20% decline. Further, the air ticketing revenue also fell to $35.84 Mn from $41.69 Mn the previous year.

MakeMyTrip Sums Up Covid-19 Impact 

One of the major notable factors for the company in Q4 FY20 and the full fiscal year overall has been its goodwill impairment. Explaining the same, the company said that as a result of the significant negative impact related to COVID-19 pandemic on the travel industry and its stock price and market capitalization, the company concluded that sufficient indicators existed to require it to perform a quantitative assessment of goodwill.

Following that assessment, it recorded an impairment charge of its goodwill amounting to $272.2 Mn primarily related to the Goibibo business, which it had acquired in the fiscal year 2017.

In FY20, the company recorded revenue of $511.52 Mn, a Y-o-Y growth of 5.3% from $486.11 Mn in FY19. However, the company’s loss for the year has grown nearly 3x from $167.83 Mn in FY19 to $447.57 Mn in FY20.

The company’s gross bookings have grown 11.9% Y-o-Y from $5.44 Bn to $6.09 Bn.

Overall expenses grew from $133.29 Mn to $185.4 Mn in FY20, but MMT reduced its marketing expenses as well, bringing it down to $166.6 Mn from $192.08 Mn, while personnel expenses have grown from $113.5 Mn to $129.8 Mn in FY20.

The drop in marketing expenses was part of the gradual reduction of overall costs as well as the impact of Covid-19 pandemic, the company said. Besides brand advertisement expenses, this includes significant customer retention and acquisition costs, discounts and loyalty programme costs, which are meant to accelerate standalone hotel booking revenue.

In terms of revenue, the major source of revenue in FY20 continued to be hotels and packages, but this fell to $235.84 Mn in FY20 from $237.52 Mn the year before. So overall, the pandemic has had very little impact on the hotels and packages business. However, air ticketing revenue fell more sharply to $166.7 Mn from $177.36 Mn in the previous year.

Future Expectations Of Recovery

Addressing analysts, CEO Rajesh Magow said that MMT had reduced its adjusted operating losses down to $10.3 Mn or $5.5 Mn adjusted operating cash loss. “Starting in April, we implemented salary reductions to further preserve cash for our business. We also addressed other fixed costs by working with outsourcing partners to greatly reduce the amount spent,” Magow said.

Kalra added that domestic travel in India will lead the recovery of the travel sector as well as the business. He noted that business, family and medical travel for essential purposes will be one of the first drivers of the pent-up travel demand.

This is likely to be followed by a demand for self-drive or road trip holidays to destinations that can offer social distancing. “However, with international flights still grounded today, we believe outbound travel is likely to take longer to open up given the multitude of travel restrictions that are in place,” he added.

He noted that there is a huge challenge ahead, but the travel business will rebound. “Probably the days of carefree leisure, discretionary travel will gradually return once the virus is adequately controlled or effective treatment of vaccine gets developed,” he noted.

“We believe this pandemic will only push the pedal on digitization and drive online booking adoption even faster. As a result, we continue to invest during these challenging times to make sure our brands, technology and service platforms are ready to scale and support the rebound and demand,” Kalra said.

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