Why Did Ctrip Invest In India’s Biggest OTA, MakeMyTrip?

CTRP: Ctrip logo
CTRP
Ctrip

Ctrip International  (NASDAQ:CTRP) recently announced its plans to invest $180 million in India’s largest OTA, MakeMyTrip. Along with this, Ctrip will also have the option of buying MakeMyTrip’s shares in the open market which might provide Ctrip up to a 26.6% stake in the Indian OTA. Post the investment, Ctrip would have the rights to appoint a director to MakeMyTrip’s board of directors.  (Read Press Release.) Ctrip’s interest in India might be because of the similarities in the travel scenario in both the countries, India and China. MakeMyTrip, for its part, can further strengthen its position in India with the backing of Ctrip’s technological expertise. The collaboration of two OTA leaders from the two fastest growing economies in the world does speak of great developments in the online travel arena in the future.

Our price estimate of $53 for Ctrip is around  25% above the current market price.

See Our Complete Analysis For Ctrip International

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Why Did Ctrip Choose India?

India and China together comprise around 60% to 70% of the world’s economic growth, currently. Hence, a partnership of the OTA leaders from these two nations is expected to lead to a promising future. According to Deep Kalra, Founder and Group CEO, MakeMyTrip, the similarities in the Chinese and Indian online travel markets is one of the primary reasons for this alliance between the two respective market leaders. [1] The points of similarities are that both the nations are mobile-first unlike the Europe and the U.S., the consumer’s psyches are also similar with a focus on spending in products offering them “value for money,” finally, both these markets require “micro-marketing” strategies as the consumer preferences vary across different tiered cities, across urban and rural areas, etc. [2]

The Indian tourism and hospitality industry is the third-largest sub-segment of India’s services sector, which generated revenues worth $188 billion and contributed to 12.5% of India’s GDP in 2014-2015. The industry is currently growing at a Compound Annual Growth Rate (CAGR) of around 12% over the period between 2011-2012 and 2014-2015. [3] The number of mobile internet users in India is expected to reach from 236 million in 2016 to 314 million by 2017. Online travel sales are estimated to have grown by 16% year-on-year in 2015. The world’s second largest populated country (1.252 billion), with a rising middle and upper middle class and a 20% internet penetration does look like a promising destination for the Chinese behemoth to expand its presence.

How Will MakeMyTrip Be Benefited?

MakeMyTrip plans to utilize the capital to further strengthen its presence in India. The company aims to provide an enhanced mobile booking experience to its user base through this collaboration with Ctrip. This will give MakeMyTrip a competitive advantage over its peers such as Yatra and Cleartrip.

mmt

(Image Source: MakeMyTrip)

In April 2015, MakeMyTrip acquired Mygola, a travel planner platform based out of Bengaluru, India. This investment was a part of MakeMyTrip’s $15 million innovation fund to support fledgling companies in the travel sector. [4]

Ctrip Had Been On A Strategic Alliance Spree Since 2015

In May last year, Ctrip bought a 40% stake in eLong from Expedia after which the two OTA giants entered into a partnership to share inventories in some geographies, mainly in the air and packaged tours segment.  Shortly after this, Priceline also increased its investment in Ctrip. Again in December 2015, Priceline declared fresh investments of $500 million. After this decision, Priceline’s total investment in Ctrip since 2014 amounts to around $2 billion. Post the issuance of the new bonds, Priceline might own up to a 15% stake in Ctrip.

Along with Ctrip’s international alliances, its domestic dominance also strengthened when, in October, Ctrip announced a partnership with its chief rival, Qunar, and its backer, Baidu, through an exchange of shares. An alliance with two of its biggest rivals, Qunar and eLong, might lead to more robust growth for Ctrip primarily on account of a reduced price war. In its Q3 2015 earnings call, Ctrip’s management stated that the company, along with its allies, will determine the optimal commission rate and reduce irrational competition, which was erstwhile undermining the profitability of all the major players. [5]

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Notes:
  1. MakeMyTrip to raise USD 180M from Chinese travel service provider Ctrip, YourStory, January 8, 2016 []
  2. China gears up for a strong impression on Indian e-commerce footprint, China Travel News, Jan 9, 2016 []
  3. India In Business, Ministry of External Affairs, Government of India, September 2015 []
  4. Makemytrip announces $15 million innovation fund for travel startups, Your Story, Sep 14, 2014 []
  5. Q3 2015 Ctrip.com International, Ltd. Earnings Conference Call, Ctrip Investor Relations, Nov 19, 2015 []