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What MakeMyTrip’s potential foray into budget hotels means for the segment

20 April, 2017

Online travel and accommodation player MakeMyTrip India Pvt. Ltd has been in a purple patch for quite some time.

In October last year, it took the consumer internet space by surprise when it merged its key rival ibibo with itself. The biggest-ever consolidation move in India’s online travel segment, the deal saw South Africa’s Naspers and China’s Tencent, which owned 91% and 9%, respectively, in ibibo Group, sell their stakes to MakeMyTrip in exchange for 40% of the combined entity.

Early this year, MakeMyTrip gave its main investor SAIF Partners a dream exit, with the venture capital firm selling its remaining stake in the company for about $150 million, according to VCCircle estimates. This took the total amount that SAIF Partners generated from exiting MakeMyTrip since the first stake sale in 2010 to around $400 million, or about 16 times the money invested in stages.

The country’s largest online travel services firm also narrowed its adjusted net loss to $5.9 million for the October-December quarter, a big improvement over the $14.8-million adjusted net loss in the same quarter of the previous fiscal.

All these developments indicate that things continue to look up at MakeMyTrip. However, in the hotel space, a key focus area for the company apart from traditional segments like ticketing and tours and travels, competition is mounting with the heavily-funded OYO Rooms and international behemoths Airbnb and Booking.com expanding rapidly.

And given the stagnating margins in air ticketing, MakeMyTrip can’t afford to take the hotel space lightly. That’s probably why it is now going all-out to get a stronghold on the segment.

Earlier this week, The Times of India reported that the company, founded by internet commerce pioneer Deep Kalra, was in talks with budget hotels player FabHotels for a strategic stake buy, after talks with another budget hotel chain Treebo Hotels fell out.

A MakeMyTrip spokesperson told VCCircle that the company “will not comment on speculation.” Messages sent to Treebo co-founder Sidharth Gupta didn’t elicit a response till the time of publishing this story. Calls made to FabHotels went unanswered.

Anil Kumar, chief executive at RedSeer Consulting, says, “[Hotel] This is one of the fastest-growing industries in India. There is enough space for multiple players. Airbnb is not going anywhere and will compete with MakeMyTrip. Similarly, you have Booking.com and TripAdvisor kind of companies that cater to more metro customers, especially when it comes to exploring deals.”

The media report had said that the investment in FabHotels, if the deal goes through, will be in the $5-10 million range.

So what will happen to smaller players in the market such as Treebo or FabHotels?

“The smaller players may end up consolidating or having strategic tie-ups with online travel aggregators. They will not compete head-on with the MakeMyTrips of the world,” adds Kumar.

Ankur Bisen, senior vice president at Technopak Advisors, says,”The industry is transitioning towards a mature plain. The question is, how do they achieve sustainable growth? They have to look at all the options: aggregation; integration between lodging and travel; or catering to different kinds of customer demands. Earlier, the travel industry was compartmentalized. But I think that is not there anymore.”

In the latest quarterly results, MakeMyTrip’s net revenue jumped 81%.

Net revenue from the air ticketing business increased 120% to $38.2 million while that from the hotels and packages business increased 52% to $35.5 million. The company attributed the growth in the hotels and packages segment to a 24.1% rise (in constant currency) in gross bookings, a 77.8% increase in the number of transactions and an improvement in net revenue margin from 15.9% to 19.4%.

“The way forward for smaller players will not be very different from e-commerce players. Beyond a point, it becomes difficult for smaller players to survive only on their existing business models. The path ahead will be some sort of consolidation, or coming together of players that have synergies,” adds Bisen.

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What MakeMyTrip’s potential foray into budget hotels means for the segment

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