Ixigo targets MakeMyTrip with 1,600 crore IPO
Online travel company ixigo was born in 2007 as a flight search metasite. So its algorithm would crisscross websites selling tickets for a search query, say a Delhi-Mumbai flight, and direct users to options like MakeMyTrip (MMT). In 2011, driven by the synergies of this user journey, MMT invested $ 4.8 million in ixigo. Except in 2019, ixigo started selling its own tickets. Earlier this year, he facilitated an 8X bumper release for MMT. Now if he finishes his ??Public issue of 1,600 crore, ixigo’s next set of plans with the biggest cash vault he’s ever had could see him go up against his former shareholder.
The likely site of this confrontation will be bus tickets, the mode of transport least penetrated online. MMT, India’s online travel goliath with a 60% share, owns RedBus, India’s leading online bus ticketing company. In 2020-2021, hit by the pandemic, MMT sold bus tickets worth $ 25 million (approximately ??186 crores). This was only 40% of bus revenue from the previous year, but still about 35% more than all ixigo revenue that year.
This current disparity in size must be seen in the context of two recent developments at ixigo. Earlier this month, ixigo acquired AbhiBus, an online bus aggregator. In addition, after having noted ??270 crore in july, ixigo could add another ??750 crore to his stack of cash from his public issue ( ??850 crore will go to current shareholders). As the founders of ixigo reiterate the importance of capital efficiency, the IPO will close the gap to MMT on one important metric in this space: purchasing power.
MMT and ixigo are multimodal (OTA) online travel aggregators. Just like EaseMyTrip, the other company listed in this space besides MMT. OTAs largely cover plane, train and bus tickets and hotel reservations. Although they all cast a wide net, only MMT has choices that reflect that wide net. The other two operate in niches that they have carved out for themselves or on which they are focusing. EaseMyTrip focuses on airline tickets. In 2019-2020, 94% of its revenue came from airline tickets. The goal of ixigo is the “next billion users,” or users beyond Tier I cities.
In the travel space, discounts and promotional offers to acquire customers and retain them are essential. Even ixigo has done it and intends to continue to do so. However, in general, marketing and advertising spending has been tighter than, say, MMT and EaseMyTrip. The IPO brings the pressure to grow, which will also require some expense.
Road to growth
ixigo sees rail and road, not air, as its growth path. In 2020-2021, in 93% of its transactions, the origin or destination city was not a Level I city. As of March, its top two cities in terms of monthly active users were Lucknow and Patna. To continue on this path, it made two acquisitions this year. In February, it acquired Confirm Ticket, a train service and reservation platform. In August, it acquired AbhiBus, a bus ticketing platform.
In its prospectus project, ixigo gives three nuggets of data to build its dossier for road transport. First, of the 100 million trips Indians make each day, 70% are en route and 24% are by train. Second, there is 65% overlap between bus and train routes, suggesting that a good user experience can encourage substitutability. Third, during the pandemic, 35% of bus tickets were booked online, up from 15% in 2020.
Ixigo and EaseMyTrip, due to being smaller and having their niches, resisted the pandemic better. They even managed to grow and do it profitably. By comparison, market leader MMT paid the price, with revenues reduced to a third. But MMT also threw up the gauntlet in February 2021, when it raised $ 224 million via a zero coupon instrument convertible into MMT shares in 2028 at a price of $ 38.75 per share. That’s 55% higher than its current price of $ 25.
MMT was listed on the US Nasdaq Stock Exchange in August 2010. During its 11 years of existence, MMT has built its size and influence in the Indian online travel space, but has generated neither profits nor returns. for shareholders. On its issue price of $ 14, the annual compound return is 5.4%.
EaseMyTrip, which was listed last March, has more than doubled since then. If ixigo lists, how it balances expense and profitability will influence the type of shareholder returns it is able to generate over the long term.
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