MakeMyTrip stock rating upgraded to Outperform by Macquarie

Macquarie upgraded MakeMyTrip (MMYT) and raised its price target to $110 following the company's announcement of a $3.1 billion share restructuring. This strategic move involves issuing 18.4 million shares at $90 and $1.43 billion in convertible notes to repurchase a majority of Trip.com's Class B shares, significantly reducing Trip.com's ownership from 45.3% to approximately 17% and its board representation from five to two seats. Macquarie estimates this transaction will decrease MMYT's basic share count by about 12%, with a 2-3% decline on a diluted basis, and projects robust future growth, forecasting gross booking value could reach $16 billion by FY28 with sustained 20% free cash flow margins.

Analysis

MakeMyTrip is executing a significant capital and governance restructuring by raising $3.1 billion to repurchase a majority of Trip.com's stake. The transaction, funded by an 18.4 million share issuance at $90 and $1.43 billion in zero-coupon convertible notes, will reduce Trip.com's ownership from 45.3% to approximately 17% and diminish its board representation from five to two seats. This move is projected to be accretive on a basic share count basis, with Macquarie estimating a net reduction of 13.6-14.6 million shares, or a ~12% decrease. However, the new convertible notes, with a conversion price of $121.50, will temper this effect, resulting in a more modest 2-3% decline in the diluted share count. The restructuring underpins a bullish outlook from Macquarie, which upgraded the stock to Outperform with a $110 price target. This optimism is supported by forecasts of gross booking value reaching $16 billion by FY28, driven by compound annual growth rates of 20% in Hotels-Bus and 15% in Air segments. Critically, the company is expected to maintain robust profitability, with free cash flow margins projected to hold around 20% through FY28, even while allocating 5% of revenue to sales and marketing.

Key Decisions for Investors

• The share restructuring is a significant positive catalyst for MakeMyTrip, as it simplifies the ownership structure and reduces the influence of a single large shareholder, potentially warranting a re-evaluation of the stock's valuation multiples.
• Investors should model the impact of the new convertible notes, as the 2-3% potential dilution at a conversion price of $121.50 could act as a technical resistance level and will affect long-term earnings per share calculations.
• Monitor MakeMyTrip's execution on its growth targets, particularly the projected 20% CAGR in non-air segments and the stability of its 20% free cash flow margin, as these are the key drivers underpinning the positive analyst outlook.
• For those holding Trip.com, this transaction signals a strategic shift, monetizing a large asset but reducing exposure to the high-growth Indian market, which should be factored into analysis of Trip.com's future growth profile.