Fountainheadinvesting

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Consumer Discretionary Industry Stocks

Make My Trip – Plenty to Like And Some Risks As Well. 

Make My Trip (MMYT) $88 

What’s to like:  

Secular growth in Indian tourism. That’s likely to last several years, less cyclical. 

Market leader with 54% share 

High awareness of brands. 

20% Three Year Forward Rev Growth consensus estimates 

Turned the corner – first year of Operating Profits of $56Mn on $782Mn in revenue or 7% operating profit margins and $125Mn operating cash or 16% cash flow margin. 

Management emphasized profitability from the entire industry, which should curtail some of the undercutting…Online travel booking can be a commodity, so this will help. 

Risks and challenges. 

Cyclicality – From 2015 to to 2018 (March Y/E) Make My Trip grew revenue from $295Mn to $658Mn, then drop 2 years in a row to $475Mn by March 2020 – Pre covid there was a slowdown in travel. Post Covid it has recovered strongly to $792Mn in revenue last year.  

Market returns were commensurate with this performance – the stocks best performance was in the past 12 months returning 183%, the vast majority of the 219% of the last 10 years. Simply, the market has discounted some the 20% growth of the next 3 years. 

Overall revenue growth from 2015-2024 was 10%, more like the industry average, and 20% forward growth will put it in a different league. 

Valuation: 10X sales with 20% growth, it’s not a profit story yet. That’s a P/S growth ratio of 0.5, ideally, I like to get in below 0.3 for a better margin of safety, unless the cash flow or operating profit is growing very strongly. 

It’s a good story, well managed, strong branding, market leadership and lots of growth ahead – valuation is a bit stretched because of secular growth Indian travel story 2X its normal multiple. Buying on declines and averaging it would be better.