‘It’s a fairytale Nasdaq listing for MakeMyTrip’

At least 14 Chinese companies have sold shares in initial public offerings (IPOs) in the US this year, but Indian companies have been slow off the starting block. MakeMyTrip’s listing on the Nasdaq on Thursday was the first IPO by an Indian company in the US since July 2006.

And though the IPO market in the US has seen a far slower pick-up than many had hoped for, as well as lacklustre valuations, India’s biggest online travel company got a thumbs-up from investors. It raised the full amount it sought at the top end of its forecast price range after the last eight US companies to complete IPOs sold shares well below the forecast range.

MakeMyTrip raised $70 million by pricing 5 million shares for $14 each, the high end of its expected $12-$14 range. It also exercised the green shoe option for another 15%, bringing the entire amount to $80.5 million. And happily for the investors, too, the shares surged 80% on the Nasdaq to $25.16 on listing.

“It’s a good sign for Indian companies wanting to raise funds through the US IPO market,” Deep Kalra, founder and chief executive officer of MakeMyTrip told DNA in an interview in New York. Investors have bought into the India story, he said. Excerpts:

MakeMyTrip’s debut on the Nasdaq stock exchange has been ranked by the US media as the best first-day performance for an IPO this year. Did you expect such a response?
I would be lying if I said we expected to do so well. But we were confident it would do decently. People were saying what a bad day to go out but we figured we had strong demand coming from our roadshow; our equity oversubscription was so overwhelming that we weren’t worried. We thought the stock might get to $20; it was great to see it rise above that price. It was a great fairytale opening.

Investors have bought into the India story and the fact that the online travel industry is growing. Forrester Research expects Internet penetration in India to grow 10-20% annually over the next five years and says that India will have the third largest number of Internet users in the world by 2013, after China and the US.

Instead of tapping the Indian market why did you opt to sell MakeMyTrip Ltd shares in the US market?
As Indian companies have been increasing their participation in and capitalisation of the global market, we decided to explore opportunities, just as other Indian companies have listed on the Nasdaq in the past.

How do you plan to use the proceeds of the share sale?
We intend to use the proceeds to expand our operations by acquiring strategic businesses, enhance our technology and for working capital.

Cox and Kings has alleged that MakeMyTrip didn’t disclose the existence of a criminal case against it to Nasdaq. What’s your reaction to their legal suit which alleges that your firm stole business from their company Ezeego1 by creating similar URL domain names in violation of India’s Trade Marks Act?
We have not been served any legal notice by any investigating agency, court or competitor. We have made a disclosure in form 6K in our SEC filing that we have not been served any notice from a court or competitor. There is no question of us hiding anything. In fact, we have made a full disclosure of all our pending cases in the prospectus.

MakeMyTrip’s revenue has surged during the downturn, but it has a history of losses. It was profitable in 2009 but returned to a loss in the first half of 2010. How do you see the year ending?
We have been through various phases of investment and growth. As a market leader, we have always tried to stay ahead of the curve.

MakeMyTrip has succeeded where a lot of other online travel companies have crashed. What is the secret to your success?
We believe the strength of our brand, quality of our services and user-friendly website enabled us to capture a significant share of the domestic air tickets market. We leveraged our strength in air travel to grow into non-air travel segments, specifically hotels and packages.

We built an advanced and secure technology platform, which integrates our sales, customer service and fulfilment operations. Our tech platform is scalable and can be upgraded to handle increased traffic and complexity of products with limited investment. We also utilise call centres and travel stores in India, as well as our travel agents’ network in India.

Why has MakeMyTrip opened stores in India despite being an online travel company?
We have 19 travel stores, which primarily sell packages. Our main office in Gurgaon also serves customers seeking to purchase outbound packages from India. We believe these stores are important for our growth as they represent a direct interface between our customers and us. At our travel stores, customers can consult sales reps, receive real time flight, hotel and package information and make travel bookings.

How would you rate the growth of the Indian travel industry, which is linked to the online travel market?
According to PhoCusWright, the Indian online travel market grew 11% to reach $3.4 billion in 2009. Approximately 34% of air tickets and 14% of train tickets booked in India were sold online. We believe the online market is underpenetrated and will grow faster than the Indian travel industry, which is pegged to grow 7.8% annually over the next 10 years.

What is the money spinner for MakeMyTrip.com —- domestic flight bookings, railway ticket sales, international plane tickets or hotel and vacation packages?
We are the largest online travel company in India based on gross bookings for 2009. In fiscal year 2010, 1.6 million transactions for domestic air tickets in India were booked through us, and we generated $31.1 million in revenue less service cost from our air ticketing business. We leverage our strength in air travel to grow into non-air travel segments of the travel industry, specifically hotels and packages. Revenue less service cost from our hotels and packages business totalled $8.0 million in fiscal year 2010 and accounted for 19.8% of our total revenue.

Despite stints at GE Capital and ABN Amro Bank, did you know deep down that you were going to be running your own company?
Yes, I have always had entrepreneurial ambitions. Giving up the stability of my job was not that difficult. I received a great deal of support from my wife who was working. I think you can do a lot of things when you are 30 that you don’t dare do 10 years later.

During my stint at GE Capital as the VP - business development, I had the opportunity to be involved with India’s nascent Internet industry. I had the mandate to develop new distribution channels for the company’s consumer financial products and the Internet was an obvious choice.

About this time I was thinking about my entrepreneurial aspirations and was interested in a couple of business sectors.

Having observed the growth and evolution of the Internet in other markets, I saw the opportunity. After studying verticals that could work for the Indian online market, I found that the travel industry —- being a service industry with automated processes at the supplier-end and undergoing significant changes at the consumer level —- lent itself to the Internet. Being a travel bug, this choice was close to my heart. I started MakeMyTrip to provide travellers with choice and flexibility.