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Backed by SOFTBANK Asia and Tiger Global, MakeMyTrip launched a US website in 2000 focused on US-to-India airline tickets. In 2005, it launched its Indian website and has rapidly grown into the dominant player in the country's online travel market. The company targets leisure travelers in the fast-growing Indian middle class, offering domestic and international airline tickets, reservations and travel packages for over 4,000 hotels, and other services such as rail and bus ticketing. With a leading brand and a scalable model, MakeMyTrip is poised to take advantage of rapid secular growth in India's online travel industry, fueled by rising discretionary income and Internet penetration. MakeMyTrip is offering 6.2 million shares at a range of $12 to $14 and plans to list on the NASDAQ under the symbol (MMYT). Morgan Stanley (MS) is the lead book runner on the deal, which is slated to price today as one of six deals on the IPO calendar for the week of August 9.

Cleared for takeoff

With nearly half a billion US dollars in gross bookings, MakeMyTrip is the largest online travel company in India and its primary website, www.makemytrip.com, is the country's second-most visited travel website, with over 1.7 million unique visitors per month (it trails only the Indian Railways' website). As an intermediary, the company focuses on net revenues, which grew 62% in the latest fiscal year to $60 million and outpaced 42% industry bookings growth. The company also turned EBITDA positive in its fiscal 2010 ended March ($2 million), aided by a mix shift to higher-margin hotels and packages business. With India's travel and tourism market expected to double in size by 2020, MakeMyTrip will need to make only incremental investments to support additional website traffic, and though outsourced call center costs should scale with higher volumes, it should gain strong leverage on sales and administrative overhead. In other words, the company's margins are in line to get an upgrade from coach to first class.

Potential detours

The trend in MakeMyTrip's net revenue margins, or the sales it recognizes as a proportion of gross bookings, may be a sticking point for potential IPO investors. After rising in fiscal 2010, this key metric declined slightly in the June quarter as MakeMyTrip's suppliers cut incentives, and management anticipates long-term pressure on airline commissions and service fees. Addiitonally, given the rapid projected growth in the industry, competition is bound to intensify and some travel suppliers may promote in-house call centers and websites in order to reduce reliance on intermediaries.

Outlook

With a commanding market share in a large and growing addressable market, investors will likely draw parallels between this IPO and the highly successful 2005 debut of China-based Ctrip.com (CTRP), which has seen its market value soar more than 20x since its IPO. Although Ctrip.com had a more mature margin profile at the time of its IPO, MakeMyTrip's recent results suggest that its scalable model has reached a profitability inflection point, and larger industry players have demonstrated that the online travel model is capable of generating operating margins of 30% or more. Clearly, IPO investors remain highly sensitive to deal valuations, but strong deal demand and first day returns for Tesla Motors (TSLA), RealD (RLD) and Qlik Technologies (QLIK) show that the finicky market will still reward deals with an intriguing growth angle. With that in mind, investors that believe in MakeMyTrip's growth potential will likely see an opportunity to book their seat before this story takes off.

Source: IPO Analysis: Go Ahead, MakeMyTrip