Friday, August 13, 2010

MakeMyTrip (MMYT) - Why Can a Barely Profitable Travel Firm IPO Rally 90% in 1 Day? It's Indian.

A reader highlighted a company I was not aware of in the comments section yesterday - MakeMyTrip (MMYT).  I went to look up the stock and saw it was an IPO up nearly 80% on the session (at the time).... in a bad tape no less.  I did a lot more digging on it last night and quite an interesting story with some very interesting facts about Indian ADRs to boot.

In almost all my pieces on Indian stocks I complain about how few there are that trade on U.S. markets.  There might be 15, tops.  You have your IT/outsource guys led by big fish Wipro (WIT) and Infosys (INFY), and then some smaller guys.  You have the 2 banks HDFC Bank (HDB) and IBN Bank (ICICI).  There is Tata Motors (TTM), Dr. Reddy's Laboratories (RDY), Sterlite Industries (SLT) - all 3 of which we've held at one point or another.   I might be missing another 1-2-3 names but that is your universe of Indian stocks.  Over the past 10+ years I've either used the 2 banks or one of two closed end funds to get Indian exposure - it's been slim pickings.  One positive is a couple new ETFs that have been introduced to the marketplace in the past 2 years... but individual equities remain barren. [Mar 6m 2008: 2 New ETFs for "India Bugs"]


Which apparently is part of the reason a travel company barely in the green named MakeMyTrip was able to skyrocket yesterday.  I also believe it is due to the dearth of any great American companies coming to market - the last big IPO of an American company was a tiny firm called Visa (V). You may have heard of it. (Where is all the so called American innovation?)

Maybe one day MakeMyTrip will be India's version of one of our favorites - China's (CTRP).  (that's how it is being valued)  Or perhaps in 5 years it will be an also ran - who knows.  But amazingly this is the first Indian IPO in the U.S. since 2006!  And only the third since 1999.  For comparison, this year alone China has brought 14 issues in a very poor marketplace for IPOs, and back in the salad days (2006-2007) the amount was mind numbing; every week it seemed another 2-4 names popped up.  Personally, I hope the success of MakeMyTrip encourages other Indian firms to list domestically.

To put current valuation in place - its IPO price placed it at a higher price to sales than - and it jumped nearly 90% over that price on day 1.  Now that's what we call in economics "Scarcity Value".

Two nice background stories here (a) Bloomberg (b) Investors Business Daily

A few clips:
  • MakeMyTrip Ltd. MakeMyTrip Ltd. posted the biggest first-day gain for a U.S. initial public offering since 2007 after becoming the first Indian company in four years to complete an IPO in America.   MakeMyTrip’s first-day climb was the biggest on a U.S. exchange since Athenahealth Inc. of Watertown, Massachusetts, jumped 97% after completing its IPO in September 2007
  • India’s largest online travel company surged 89 percent to $26.45 in Nasdaq Stock Market trading yesterday after selling 5 million shares at $14 each. The original midpoint price had valued the Gurgaon, India-based company at 5.41 times next year’s sales, higher than the average of 4.16 for its U.S.- traded rivals.
  • MakeMyTrip was the first IPO by an India-based company in the U.S. since WNS Holdings Ltd.raised $255 million in July 2006.
  • MakeMyTrip reported net income of $1.3 million last quarter, reversing a loss from a year earlier, after increasing sales by 49 percent. In the prior three fiscal years, it lost a combined $32.5 million.
  • About 48% of the $1 billion in online travel reservations made in India last year were booked through the company, while and accounted for a combined 42 percent of sales. MakeMyTrip also cited Expedia and Inc. as competitors.

Some interesting statistics on India internet penetration; they seem to be lagging China substantially.  Credit is also at a completely different stage than in Western Europe, the U.S. or Japan; something we take for granted here.
  • India still suffers from poor Internet penetration, slow data speeds and low consumer use of mobile travel services despite the country's huge number of cell phone users.  Web site Internet World Stats says Internet penetration in India was only 7% in 2009, vs. 74.1% in the U.S.  
  • What's more, relatively few Indians use credit cards for online travel and other dealings; only 20M Indians have credit cards, but 180M have debit cards they can use to book online.

The company does have a fascinating background - it shows you how a good idea can make you multi millions in 10 years or less.  From an idea to help Indians travel from the U.S. back home, to the leading online agency in the country!
  • MakeMyTrip started in 2000 as a travel Web site for expatriate Indian executives in the U.S. who wanted to make trips to India.  The firm had offices in New York City and Gurgaon, India, from the start and more recently opened a third office in Silicon Valley.

Long in fund; no personal position

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