Can MakeMyTrip (MMT) survive for long now?

MMT’s share price hit an all-time low of around USD10 in Apr’20. While it has recovered to around USD15, it is still much less than its normal trading range.

While one can blame the share price fall on Covid, but for MMT, this may not be a passing malady. Things don’t look good for MMT. While it is not in the ICU, its days look numbered.

For FY20, the company reported an operating loss of USD70m. For FY19, the operating loss was USD99m, and USD154m in FY18. It has generally been a loss-making company, despite market leading positions in all its key online ticketing agent (OTA) businesses – Air, Hotels and Bus.

Over the course of its history, MMT has racked up ~USD1150 of accumulated losses. While some of this is write-offs (for example, in FY20, the company took a goodwill impairment of USD272m on its 2017 merger with IBIBO, which had occurred at a value of around USD720m via a share swap), a considerable portion is cash losses.

As on 31-Mar-20, the company has USD130m of cash. The situation is not dire, but hard to see how the company can turn in profits in the next 1-2 years. In other words, it once again needs to raise equity to survive.

Raising equity hasn’t been a problem for MMT in the past. But will it get money now?

Why do we say so? We believe that while MMT has built a market leading business, it is seriously hard to comprehend why is it making such high losses. If a company with dominant position in 3 verticals – air, hotels and bus – is making losses after so many years of existence, then there is something fundamentally wrong with some of its assumptions.

More importantly, things could get very rough for MMT going forward, as some formidable competition is looming. While so far it has fought fellow startups like Yatra or Cleartrip, now far bigger rivals could be entering the fray. Google, Amazon, Flipkart, Paytm have all entered flight ticketing, with various partnerships. Right now, the offerings are poor, but it is likely they will get their act together. Jio would also most likely enter sooner or later. Another credible threat could be rail booking leader IRCTC, that has a very impressive and functional air booking engine. What’s more, it takes only Rs 50 per domestic ticket as ‘convenience fee’ – a fee the OTAs charge for making the booking – as compared to Rs 200 or more by Makemytrip.

In e-commerce, there is no such thing as customer loyalty. IRCTC is already undercutting MMT. An Amazon or Google can undercut or waive the convenience fee altogether for first few transactions, and severely dent MMT’s market share. MMT could have fought off the entrants had it been profitable, and had a good market cap.

With its string of losses, and depressed market cap, MMT’s hands are tied in this fight. At a time when it once again needs to entice large investors and create a war chest, MMT’s options look limited.

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