MMYT - MakeMyTrip: Gross Bookings Growth Encouraging

2023-11-24 06:21:46 ET

Summary

• MakeMyTrip Limited has the potential for continued growth based on strong growth in gross bookings.
• I take a bullish view on MMYT.
• I also acknowledge that the company needs to keep showing strong growth in bookings, revenue, and earnings for the upside to continue from here.

Investment Thesis

I take a bullish view on MakeMyTrip Limited given continued growth in gross bookings.

In a previous article back in August, I made the argument that MakeMyTrip Limited ( MMYT ) has the capacity to continue to see upside going forward, based on strong growth in gross bookings and earnings, as well as impressive balance sheet metrics.

Since then, the stock has ascended to a price of $42.46 at the time of writing:

The purpose of this article is to assess whether MakeMyTrip Limited has the ability to see continued growth from here taking recent performance into consideration.

Performance

When looking at Q2 2024 earnings results for MakeMyTrip Limited (as released on October 31 2023), we can see that the company continued to see double-digit growth in revenue across all segments, with Hotels and Packages (the company's largest segment by revenue) also showing the largest YoY growth in constant currency at 35.1%.

I had previously commended MakeMyTrip on seeing a strong recovery in gross bookings across the Air Ticketing segment, with growth across Q1 having been particularly impressive considering that April to June does not traditionally represent a high season for travel across India.

We can see that Q2 still showed growth of just over 16% on that of the prior year quarter:

Moreover, with the months of October to March representing the high season for travel across India - we can see that Q3 and Q4 has (with the exception of 2020) shown a higher level of gross bookings as compared to Q1 and Q2. In this regard, I take the view that gross bookings have further room for growth heading into Q3 and Q4 and this could allow for further upside in the stock accordingly.

With regards to short-term liquidity, we can see that the quick ratio of MakeMyTrip Limited (calculated as total current assets less inventories all over total current liabilities) still remains above 1 as compared to the prior year quarter - indicating that the company possesses sufficient liquid assets to meet its current liabilities. However, the company's long-term debt to total assets ratio has also increased substantially over the period:

Source: Figures (in USD thousands) sourced from MakeMyTrip Q2 2023 and Q2 2024 Press Releases. Quick ratio and long-term debt to total assets ratio calculated by author.

The reason for this was due to a large portion of current loans and borrowings in Q2 2023 being re-designated as non-current in Q2 2024 - with current loans and borrowings currently standing at USD 14.972 million, down from USD 222.275 million in the prior year quarter.

My Perspective and Looking Forward

As regards my take on the above results and the implications for the growth trajectory of the stock going forward, continued growth in gross bookings for MakeMyTrip has been encouraging, and as we head into Q3 and Q4 - I am optimistic that we can expect to see further booking growth in line with the high season for Indian travel approaching.

When looking at the earnings trajectory for MakeMyTrip, we can see that the forward P/E ratio has fallen over the past year while earnings per share has seen growth from negative territory.

In my view, the stock's upward momentum is being driven on anticipated future earnings growth from ongoing growth that we have been seeing in gross bookings and revenues

From this standpoint, I do not deem it appropriate to necessarily provide an assessment of fair value for the stock at this time - given that price is largely being driven by future growth prospects.

With that being said, while investors may be willing to tolerate growth in long-term debt for as long as gross bookings maintain an upward trajectory - there will come a point at which investors will expect MakeMyTrip to eventually pay down its long-term debt load. At present - while revenue and gross bookings have been seeing strong growth - diluted earnings per share for this quarter came in at $0.02 per share, which was modest yet up from a diluted loss per share of -$0.06 from the prior year quarter. Adjusted diluted earnings per share came in at $0.25 and $0.07 for the two periods respectively.

In this regard, I take the view that while MakeMyTrip has the capacity for further upside based on growth in gross bookings and revenues - there will eventually come a point where the company will have to show further growth in earnings and a capacity to reduce long-term debt.

Risks

In terms of the potential risks to MakeMyTrip Limited at this time, there is the possibility that in line with trends across the West - booking demand may be reaching capacity following a post-COVID recovery.

For instance, it was reported that U.S. spending on travel had slowed this summer in response to inflation and broader macroeconomic pressures - signalling that pent-up demand for "revenge travel" post-COVID had ultimately dissipated.

While India benefits from a strong domestic travel market - foreign demand for Indian travel has also been responsible for the strong surge in gross bookings that we have seen following the post-COVID recovery. In this regard, should we see a slowing of growth in the next two quarters as compared to the previous year - then investor enthusiasm for the stock may falter and we could see a risk of downside under this scenario.

Conclusion

To conclude, MakeMyTrip Limited has seen encouraging growth in gross bookings. For this reason, I continue to take a bullish view on the stock. That said, I also acknowledge that the company needs to keep showing strong growth in bookings, revenue and earnings for upside to continue from here.

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