MakeMyTrip Stock: A High-Return Play on Rising India Income

MakeMyTrip Stock: A High-Return Play on Rising India Income
iStock.com/suman bhaumik

MakeMyTrip to Benefit From Rising India Wealth

For years, the financial media has been fixated on the explosive economic development in China. While this is valid, investors seem to ignore the strong wealth creation in India, which, like China, has over a billion inhabitants.

Yet, unlike China, with its focus on manufacturing, India is primarily known as a service economy.

But there may be more in common than different. India and China have seen a staggering rise in income levels as capitalist economic development lifts the poor. In fact, India’s economy has been growing at a faster rate than China’s.

One opportunity for investors is to play the growing income in India. When income levels rise, consumers will have more money to spend on non-essential services and goods.

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A major area for growth will be the travel segment. With that in mind, the top online travel presence in India is the mid-cap MakeMyTrip Limited (NASDAQ:MMYT).

With a market cap of just over $3.0 billion, MakeMyTrip is much smaller than the major online travel companies based in the U.S. and China.

MakeMyTrip is India’s leading provider of online flight, hotel, and holiday bookings. Its brands include “MakeMyTrip,” “Goibibo,” and “redBus.”

The below chart shows MMYT stock plummeting from its $40.00 level in June 2018 to just below $20.00 a few months later.

Yet the chart is showing some encouraging technical signs for MakeMyTrip stock after the rally from its low to the breakout at $28.00–$29.00 resistance.

Chart courtesy of StockCharts.com

If MMYT stock can hold its gains, we could see a move to somewhere between $35.00 and $40.00. The stock’s rising relative strength index (RSI) and upward-trending moving average convergence/divergence (MACD) indicators support that kind of move.

My Bullish Thesis for MakeMyTrip Limited

MakeMyTrip Limited has recorded impressive revenue growth over the last four years, highlighted by a record 50.9% surge in fiscal-year 2018 ending in March 2018.

In the period from fiscal-year 2014 to fiscal-year 2018, revenue grew at a compound annual growth rate (CAGR) of 27.5%.

Fiscal Year Revenue (Millions) Growth
2014 $225.4
2015 $299.7 17.3%
2016 $336.1 12.1%
2017 $447.6 33.2%
2018 $675.3 50.9%

(Source: “MakeMyTrip Ltd.,” MarketWatch, last accessed March 7, 2019.)

The revenue growth is expected to continue for MakeMyTrip, and could reach $862.8 million in fiscal-year 2020. (Source: “MakeMyTrip Limited (MMYT),“ Yahoo! Finance, last accessed March 7, 2019.)

MakeMyTrip has been reporting negative earnings before interest, taxes, depreciation, and amortization (EBITDA). A common view, however, is that the EBITDA will improve as MakeMyTrip Limited drives its revenue higher.

Fiscal Year EBITDA (Millions)
2014 -$12.9
2015 -$7.0
2016 -$57.5
2017 -$107.7
2018 -$187.2

(Source: MarketWatch, op cit.)

On the bottom line, MakeMyTrip has been losing money, but the losses are expected to narrow.

The following table shows the company’s generally accepted accounting principles (GAAP) diluted earnings per share (EPS):

Fiscal Year GAAP Diluted EPS
2014 -$0.55
2015 -$0.44
2016 -$2.12
2017 -$2.09
2018 -$2.18

(Source: Ibid.)

MakeMyTrip Limited’s GAAP adjusted loss per diluted share is expected to narrow to as low as $1.17 in fiscal-year 2019 and to as low as $0.35 in fiscal-year 2020. (Source: Yahoo! Finance, op cit.)

Free cash flow has been negative in four of the last five years, but that should improve as revenue rises and losses decline.

Fiscal Year Free Cash Flow (Millions)
2014 -$5.0
2015 $9.3
2016 -$69.6
2017 -$119.1
2018 -$127.6

(Source: MarketWatch, op cit.)

Analyst Take

My bull story for MakeMyTrip Limited is dependent on the Indian economy continuing to grow at high levels. If this happens, Indian consumers armed with newfound income will look to spend it on non-essential goods and services, such as travel. That would likely benefit MakeMyTrip and increase its stock value.