MakeMyTrip offers shares at premium to listed peers

Written by Nitin Shrivastava | Mumbai | Updated: Mar 15 2014, 09:32am hrs
MakeMyTrip, the countrys largest online travel service provider, seems to be offering shares in its follow-on offer at a valuation which is slightly higher than its listed peers in the US.

The company on March 13 announced that it would be offering a total of 5.5 million shares in the follow-on public offer instead of 4.5 million share sale announced few days back in its prospectus. However, out of total 5.5 million shares, only 3.5 million shares will be freshly issued by the company while the remaining 2 million shares are being offered by certain existing shareholders. Based on the offer price of $23 apiece, the company is expected to raise nearly $69 million.

The share sale seems to have been appropriately timed by the company as the stock price for the Nasdaq-listed firm has seen nearly a 72.79% jump in the last six months from $13.60 to $25.45. This compares with 42-47% jump in share price of its listed peers like Tripadvisor and Expedia in the last six months.

On the valuations front, the stock seems to be more or less fully priced in the near term based on one-year forward enterprise value (EV) to sales ratio of 6.94 times (on pre-issue basis). This is slightly higher than Priceline.coms one-year forward EV/sales ratio of 6.18 times and much higher than Expedias EV/sales ratio of 1.63 times. However, the companys valuations seem attractive when compared with TripAdvisor whose EV to sales ratio for CY15E is likely to be 9.85 times.

As MakeMyTrip is expected to become ebitda positive from next fiscal and is currently reporting net loss, sales based multiple provides the meaningful comparison.

However, at the same time, MakeMyTrip being in initial growth phase, its sales base is quite low at $121.6 million (expected for next fiscal) compared with expected sales figures of over $6 billion and $10 billion for Expedia and, respectively. The company has in the first nine months of current fiscal reported nearly a 17.3% jump in its net revenues (revenue less service cost) over the corresponding nine month period of fiscal 2013 to $77.87 million.

The analysts continue to remain overweight on MakeMyTrip as the company is likely to benefit from faster growth being witnessed in Indian market.

Expected increase in internet/smartphone penetration and favourable demographic profile in India provide the ideal macro backdrop for online travel services market growth. MakeMyTrip will likely benefit disproportionally from this given its dominant market position, wrote Viju K George and Amit Sharma, analysts at JP Morgan in a report last month.

The company has proposed to utilise the net proceeds of the issue to expand its services and operations by acquiring or investing in strategic businesses or assets that complement its existing service and product offerings, apart from investing in technology enhancement.