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India Online Travel Boom To Drive M&A

14 June, 2011

Travel firm MakeMyTrip Ltd expects to see the country’s online travel industry consolidate in the near-term, as the fast-growing market becomes one of the world’s largest, its chief executive said.

“In the next 10 years, you will probably have (India as) the third- or fourth-largest travel market in the world. We will have everyone here,” CEO Deep Kalra said in an interview.

After shifting to online ticket booking in the past 5 years — for planes, trains, buses, and car rental — India’s online travel market is taking business from traditional agents by offering special packages and the convenience factor, attracting India’s increasingly affluent middle class, Kalra said.

The Indian travel industry will grow 13 percent to $23 billion next year, estimates travel research company PhoCusWright. The $4 billion online business is expected to grow faster, at 28 percent, to top $7 billion.

MakeMyTrip, which went public last August, said the market growth would drive more mergers and acquisitions, and possible initial public offerings.

“IPOs are obviously the tougher route, where you need more scale to grow. I’d think there’s going to be more consolidation. You’re going to see fewer bigger players, undoubtedly,” said Kalra, who previously worked at GE Capital and ABN AMRO before founding MakeMyTrip in 2000.

No Cakewalk

The company has around 48 percent market share among online travel agents, followed by privately-held Yatra.com, according to industry estimates. Kalra said the challenge is to maintain and grow that dominance as the market expands and attracts new entrants.

“It’s not going to be a cakewalk for sure. We have the strategies in place, not just to hold our market leadership, but to actually grow it,” Kalra said.

MakeMyTrip currently competes with international firms such as Expedia Inc and Travelocity, and Kalra expects these competitors to also be aggressive.

“Expedia and Travelocity have been here for a while. They have now upped the ante. Expedia did some serious advertising some time back. They are more interested and it’s a lucrative market,” he said.

Kalra expects acquisitions to play an important role in MakeMyTrip’s growth strategy, and they won’t all be small add-on deals.

“I don’t think we’re constrained too much by balance sheet. We just completed our secondary follow-on offering, and we have over $100 million cash. Plus, we have a stock which can now be leveraged and used as currency,” he said.

In February, MakeMyTrip bought Singapore-based Luxury Tours and Travel, eyeing a Southeast Asia market that Kalra sees becoming a preferred destination for Indians in five years.

“The idea is to build the supply side of our business in these markets, so we can offer the same kind of breadth and depth in our hotel products in these markets,” said Kalra, who likes to travel the road less travelled.

MakeMyTrip, valued at more than $810 million, had revenue of almost $125 million in its fiscal 2011. Revenue less service costs was $61 million. Hotel revenue rose more than 80 percent in January-March.

Shares in the company last traded nearly 60 percent above their $14 August IPO price, but have dropped 36 percent since mid-April. A sub-index of U.S. Internet retail stocks has gained 16 percent since mid-March.


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India Online Travel Boom To Drive M&A

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