Nomura has maintained its ‘Buy’ rating on online travel booking company MakeMyTrip after the recent fourth-quarter results. In a note, analysts at Nomura said that MakeMyTrip’s fourth-quarter results were ahead of their estimates, backed by better than expected net revenue margins and faster than expected recovery. The brokerage firm has a price target of $35 per share on MakeMyTrip, a 30% upside from the current market price of $27 apiece. The stock is down 3.2% so far this year.
Quarterly results surprise
“MakeMyTrip (MMYT) continues to surprise on profitability with adjusted Earnings Before Interest and Taxes (EBIT) of $11.1 million in the fourth quarter against our estimate of $6.1 million and is the second consecutive quarter of operating break-even,” analysts at Nomura said. They added that the better than expected performance was driven by a sharp control on fixed costs and automation. Revenues were down 34% on-year basis for MMYT, operating expenses including employee expenses and other expenses combined were down 53% from the previous year. Adjusted net profit came in at over $2.1 million, against Nomura estimates of $5.9 million.
Recovery picked up
The recovery was further aided by a better than expected recovery in the air ticketing and the hotels and packages business. Nomura highlighted the pace of recovery improved in January-February and the number of transactions in air ticketing and hotel room nights were almost 70-73% compared to the base quarter in the last year. The total room nights booked were down ~27% on-year basis and the air tickets booked were down only ~25% from last year in the January-March quarter. “This was largely driven by demand recovery in the domestic market led by leisure travel, while corporate travel demand is still subdued.”
However, suffering from the second wave of the pandemic, recovery took a back seat in March. “The recovery was derailed in March due to the impact of second-wave in India and the full quarter impact will be visible in the first quarter of the financial year 2022,” analysts at Nomura said.
Going ahead, MMYT said it has launched its products in the Arabic language for its Hotel and Air Travel business segment both for mobile and web users in the Middle East and GCC countries. Further, the company could see demand recovery by the end of 2021, with 60% of the country expected to be vaccinated by then. The brokerage firm sees limited competition for MMYT from horizontal players due to their inability to service the customers effectively. However, Flipkart’s acquisition of Cleartrip could result in a clear competitor emerging.