Travel agency MakeMyTrip soars in market debut
By TALI ARBEL , 08.12.10, 02:45 PM EDT
NEW YORK --
Shares of Indian travel agency MakeMyTrip Ltd. soared as much as 80 percent in their market debut on the Nasdaq exchange, even as the broader markets declined.
The stock is on track to log the best first-day performance for an IPO since 2007. Financial advisory firm Financial Engines Inc., which has posted the top first-day return this year, closed up nearly 44 percent in its debut in mid-March. Since the recession began, online restaurant reservation company, OpenTable Inc. had the best first day with a 59 percent gain in May 2009.
MakeMyTrip likely attracted so much investor interest because there are very few Indian companies listed in the U.S. that focus on growth within India, said Josef Schuster of IPOX Capital Management, IPO investment advisors.
MakeMyTrip Ltd. began as a website in the U.S., mainly serving Indian expats wanting to travel to India. In 2005, it began operations in India, offering airline tickets as well as hotel bookings, bus tickets and other services to the country's fast growing demographic of middle-class consumers. MakeMyTrip cites data from consultancy McKinsey saying that the Indian middle class is expected to grow to 583 million people in 2025 from 50 million people in 2005.
India has a much smaller segment of its population on the Internet than the U.S. does, and the company says its revenue will rise as increasingly wealthy Indians get online.
The company's revenue grew throughout the recession, and MakeMyTrip claims it is the largest online travel company in India based on bookings in 2009. In the year ended March 31, 1.6 million domestic air ticket transactions were booked through MakeMyTrip's website in India, up from 1.2 million in the previous 12 months.
"There's a taste for companies that will dominate a possible niche," said Francis Gaskins of IPO research firm IPOdesktop.
But some analysts, such as Scott Sweet, the owner of IPO Boutique, expressed surprise at MakeMyTrip's performance Thursday, saying the company has never posted an annual operating profit and faces competition from Indian versions of big travel sites such as Expedia Inc. and Travelocity.
"They're a long way from making money," Sweet said.
But Schuster suggested that MakeMyTrip could be an acquisition target for rival companies such as Expedia or Priceline.com Inc. Another factor likely propelling MakeMyTrip's shares were strong second-quarter results from Orbitz Worldwide Inc. and Priceline, Schuster said.
MakeMyTrip plans to use proceeds from the IPO for acquisitions, new investments in technology and for working capital. The company raised $70 million by pricing 5 million shares for $14 each, the high end of its expected $12 to $14 range.
In late afternoon trading, shares gained $10.50, or 75 percent, to $24.50 on the Nasdaq, having risen as high as $25.16 earlier in the session. Another Thursday IPO debut, real estate software company RealPage Inc., also jumped $3.56, or 32 percent, to $14.56.
Meanwhile, broader markets dipped further after big losses on Wednesday, with the Standard & Poor's 500 dropping 0.8 percent.
It's a good sign for companies wanting to raise funds through the IPO market. Many companies have postponed their offerings because of weak demand from investors wary of the volatile stock market, or had to cut the prices on shares steeply to get to market.
RealPage, for example, priced shares at $11 apiece, significantly below expectations. It had hoped shares would fetch $13 to $15 each.
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