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MakeMyTrip's Valuation Is Pricing In Profitability, Goldman Sachs Says In Downgrade

MakeMyTrip's Valuation Is Pricing In Profitability, Goldman Sachs Says In Downgrade

Shares of MakeMyTrip Limited (NASDAQ: MMYT), one of India's leading online travel agencies, have gained nearly 40 percent since the start of 2018, which implies investors should no longer be aggressive on the stock, according to Goldman Sachs.

The Analyst

Goldman Sachs' Manish Adukia downgraded MakeMyTrip from Buy to Neutral with a price target lifted from $38 to $41.

The Thesis

India-based MakeMyTrip's decision to cut ties with its e-commerce payment provider Paytm — coupled with a partnership with the country's largest hospitality company Oyo — has resulted in a "more benign" competitive environment, Adukia said in the downgrade note. 

MakeMyTrip's "strong" balance sheet, including $400 million in cash, implies it can grow the business inorganically and realize a faster path toward profitability versus expectations of EBITDA break-even in fiscal 2020, the analyst said. 

The OTA faces some near-term concerns, as hotel room night growth in the next few quarters will likely be "subdued" due to difficult comps, Adukia said. The penetration of travel segments like hotels, airfare and buses in India continues to grow, which implies MakeMyTrip must increase its selling and marketing expenses, the analyst said.

The stock's strong gains throughout 2018 pushed its valuation above historical averages, and Goldman Sachs' lifted price target of $41 "takes into account better visibility" into the company's path to profitability in the coming years, Adukia said.

With the stock closing at $41.05 on Monday, a bullish stance can no longer be justified, the analyst said. 

Price Action

MakeMyTrip shares were trading higher by 0.73 percent at $41.35 at the time of publication Tuesday. 

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Latest Ratings for MMYT

Nov 2019Bank of AmericaUpgradesUnderperformBuy
Apr 2019Bank of AmericaDowngradesBuyUnderperform
Oct 2018Goldman SachsUpgradesNeutralBuy

View More Analyst Ratings for MMYT
View the Latest Analyst Ratings


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