MakeMyTrip, Ibibo merger shakes up India’s travel sector
India's big online travel deal offers a new way forward. Shares of the US listed online travel group MakeMyTrip jumped almost 50% on October 18 on the back of an all-stock merger with its privately held rival ibido, backed by South African investor Naspers.
That catapults MakeMyTrip back into the select group of $ 1 billion-plus Indian tech companies, which includes the e-tailer Flipkart and mobile wallet provider Paytm. But the investor reaction is enthusiastic given scant detail offered on deal mechanics or financials.
There are some clues to the valuation. Chinese travel giant Ctrip will swap $ 180 million of convertible notes issued by MakeMyTrip in January into roughly 10 percent of the enlarged entity, implying a $1.8 billion equity valuation.
Local online travel is growing at a blistering pace. The segment accounted for almost 60% of India's ecommerce market in 2014, when more than half of air tickets were booked online, compared to just 12% in China, according to analysts at IIFL. Intense competition has hit profitability, however. As a result, MakeMyTrip has recorded operating losses for almost two years.
Investors are clearly bet- ting the deal provides a path to profitability. A price war in China has eased since Ctrip started tying up with competitors including eLong and Qunar . The Indian deal creates a decent gap in size between MakeMyTrip and other rivals like Yatra.
Given that India enjoys high commissions on things like air ticketing compared to other countries, MakeMyTrip could eventually match the 30-%- plus operating margins of players like US rival Priceline.
The union also provides plenty of balance- sheet comfort. MakeMyTrip had around $196 million of cash as of July, while ibibo raised $250 million in February. At the current burn rate, the enlarged entity will not have to raise fresh funds for a couple of years. If that changes, though, it could turn to some of the world's biggest tech investors that now rank as its top shareholders. MakeMyTrip hasn't offered much detail but the direction is clear.
India's oldest travel website operator MakeMyTrip said it would buy rival ibibo Group to create the biggest player in the fast-growing flight, hotel and bus bookings market in the country.
The all-stock deal values the combined company at $ 1.5 billion, according to a source familiar with the deal.
The deal will add popular online ticketing websites such as, goibibo.com and redbus.com, to MakeMyTrip's portfolio, which owns the flagship brand and the alternate accommodation site Rightstay.
South Africa- based Naspers is the majority owner of ibibo, with a 91% stake, with the rest being owned by China's Tencent Holdings. Their combined stake is valued at about $600 million, according to the source.
MakeMyTrip had a market capitalization of about $861.3 million as of Monday's close.
The online travel agency has been facing increased competition in its hotels booking business from established Indian companies such as Cox & Kings, Thomas Cook and new entrant such as OYO Rooms. MakeMyTrip, which missed profit estimates for the last seven quarters partly due to higher marketing costs, is expected to report a second-quarter loss of 63 cents and revenue of $50 million, according to Thomson Reuters I/B/E/S.
The company said on Tuesday that the ibibo deal would help “unlock meaningful synergies”, but did not provide any deal value.
The online travel market in India is estimated to be about $10 billion in terms of gross booking value, according to an analyst tracking the sector. MakeMyTrip shares rose as much as 56.4% to $31.90 on Tuesday, hitting a more than two-year high.
The combined company will command a market share of about 20% of the Indian online flight bookings, MakeMyTrip said on a call with analysts on Tuesday.
The combined company's market share in online hotel and bus bookings will be in single digits, the companies added. REUTERS
The Indian deal creates a decent gap in size between MakeMyTrip and other rivals like Yatra. The company said on Tuesday that the ibibo deal would help “unlock meaningful synergies”, but did not provide any deal value.