MakeMyTrip Ltd (MMYT) wants to reduce dependence on selling airline tickets and extend its focus to hotels and holiday packages, which have a wider profit margin, and is backing the strategy with the acquisition of firms that specialize in these areas.
“Till 2006-07, we were having 98% of business coming from products that are selling airline tickets,” Deep Kalra, founder and chief executive officer, MakeMyTrip.com, said in an interview. “We have now changed our product mix to 30:70 for the current year,” with the pure airline ticketing business having the lower share.
He said the company has adopted a mergers and acquisitions (M&A) strategy to buy firms closer to customers—selling niche holiday products such as pilgrimages, adventure tourism and luxury; closer to suppliers—having inventory from hotels, airlines and car companies; and technology companies that support these businesses.
MakeMyTrip is the parent of MakeMyTrip India Pvt. Ltd, that runs online travel website, www.makemytrip.com. The company was successfully listed on the Nasdaq in August 2010.
The company has $100 million cash on its balance sheet for proposed acquisitions, said Rajesh Magow, co-founder and chief financial officer. It has already embarked on its shopping spree.
In July, MakeMyTrip.com entered into a share purchase agreement to acquire 19.9% of Le Travenues Technology Pvt. Ltd, which owns www.ixigo.com, an online travel meta search engine, for $4.8 million. In May, it acquired a majority stake in Luxury Tours and Travel Pte Ltd, a Singapore-based travel agency that provides hotel reservations and excursion tours, for $3.4 million.
“MMYT has redefined patience. It struck to its intent amidst several companies that went bust during the dotcom crisis,” said Alok Kejriwal, chief executive officer at online company Games2win and a serial digital entrepreneur. “Kalra and his team executed the business in such a way that the business grew despite the lacklustre growth of the Internet in India—by going offline.”
Magow said the company wanted to be present in all spheres of travel with a focus on leisure and small and medium enterprises.
MakeMyTrip.com leads the online travel category for monthly unique users according to June data from ViziSense.com, an online audience and advertisement measurement platform, said its business head Amit Bhartiya.
Still, the reasons for broadening the business are evident.
The company could face challenges from airlines seeking to reach out to customers directly, Bhartiya said. New entrants could also take away value-conscious customers from time to time, he said.
Games2win’s Kejriwal warned that profitability could be an issue going forward.
“The risky part of MMYT is that it has sold a promise to investors of becoming profitable quickly,” he said. “MMYT needs to quickly show that it can grow both top line and bottom line to meet the expectations of investors on Wall Street.”
While announcing June quarter results, the company said it is optimistic about long-term growth prospects as the travel industry continues to increase capacity to accommodate the demands for travel by the fast-growing middle class and Internet population in India. Profit fell to $0.8 million from $1.3 million in the year earlier.
“The company is currently maintaining its fiscal 2012 full-year guidance range for revenue less service costs at $86-89 million as global economic uncertainties persist,” it had said at the time.