MakemyTrip looks for buys

Online travel portal MakemyTrip is exploring further acquisitions to shore up revenues and expand its international footprint.

While MakemyTrip recently acquired Singapore-based Luxury Tours, rival firms like Cleartrip are tapping the Gulf market, which is now connected with low-cost carrier IndiGo.

The Gurgaon-based and Nasdaq-listed portal turned profitable this year for the first time since its launch 11 years ago. The company posted a net profit of $4.8 million (Rs 23 crore) for the year ended March 2011. Its market capitalisation of $831.8 million (Rs 3,993 crore) is higher than Jet Airways (Rs 2,096 crore) and Kingfiser (Rs 1,164 crore), the two largest Indian carriers. However, still its capitalisation is much less in comparison to other travel portals such as Ctrip.com, Expedia and Priceline — all of which are listed on Nasdaq.

A MakemyTrip spokesperson said the company now planned to use the funds it raised during its initial public offering and follow-on offering on mergers and acquisitions largely. “We are exploring opportunities to acquire travel firms. Along with picking up a 79 per cent stake in luxury tours, we also acquired 19 per cent in online travel search engine ixigo.com last month,” he added.

Over 90 per cent of MakemyTrip’s revenues come from India, and airline ticking accounted for 68 per cent of revenues in the first quarter of 2011-12. However, the company is now scaling up operations outside India and is focussing on hotels reservations and leisure travel business. “Margins in airline business are under pressure and agent commissions are reducing. Every website is trying to hardsell holiday packages as margins are higher in that business,” says a travel analyst.

In the first quarter of FY 2012, air business contributed 68 per cent of the net revenue, while hotels and packages contributed 28 per cent and emerging segments (like rail, bus and travel insurance) contributed the balance four per cent.

“Our hotels’ and packages’ net revenue contribution has been growing over quarters,” the MMT spokesperson said. “With a recent acquisition of Luxury Tour and Travels, we have strengthened our supply side further in Singapore and Malaysia market with more contracts with hotels.”

The company did not face the impact of the economic slowdown in its business. In the first quarter of current financial year, it, in fact, earned $21.1 million (Rs 102 crore) in net revenue and posted a net profit of $0.8 million (Rs 3.8 crore).

Rival firm Cleartrip, too, is focusing on expanding its tie-up with hotels and increase business from Gulf market. “The hotel segment has grown 170 per cent in the first two quarters of 2012 over similar period last year,”' said Noel Swain, Cleartrip assistant vice-president (supplier relations). “Another area of focus is the Middle-East, where we have launched customised products.”

Added Raj Halve, a management consultant: “E-commerce business in India is booming and since January it has attracted private equity investment of over Rs 700 crore. E-commerce companies have a tremendous ability to scale operations because of very nature of business. If an airline wants to expand, it has to buy more planes and hire crew. However an online travel portal can overnight start offering holiday packages across the world at a minor incremental cost. After the initial phase, the risks are less and rewards much higher for e-commerce companies. Hence every body is betting on them.”

Since MMT began in 2000 (catering to NRIs in US), it has a headstart over other travel portals. Executives from rival firms also say the company is a big spender on advertising, and MMT brand has a high recall value.