Rising Internet Access, Disposable Incomes In India - Profit Through MakeMyTrip

JPMorgan (JPM) recently shook the Indian parliament by saying that the changes in the recent immigration bill could actually reduce India's GDP by some 0.3-0.4%. The sector impacted is IT outsourcing, which has quite a few listed ADRs. However, the impact on the sector could in turn have a multiplier effect on other sectors, such as travel - a key clause in the new bill effectively doubles the visa fees for H1B visa applicants to close to $5,000.

Travel is a sector in India which is seeing significant investment interest. South African private equity giant Naspers recently bought online bus ticketing company Redbus.in for a rumoured >$100 million payment. The acquisition is significant for two reasons: (a) it underscores the rising interest in e-commerce in India, considering Naspers purchased a 10% stake in e-retail giant Flipkart for $100 million only last year; and (b) it highlights the fact that bus bookings are more profitable than airline bookings in India.

Capital investment into India's travel and tourism industry grew at 26.5% annually over 2005-2011. The country's domestic tourism and hospitality industry grew at 13% annually for the same period, and foreign tourists coming to India grew at 6.6%. This is a fairly low figure, because the opportunity is in fact in domestic tourism. Domestic travellers make up 83% of the total revenues of the tourism industry in India, and spending by them was estimated to be $73 million in 2011. Furthermore, over 70% of all air tickets in India are now being booked online, and online travel is growing at 35%. The aviation sector in India is, however, in turmoil, and airline operators in the country are struggling to stay afloat. There have been several major deals in the space, and international giants like Etihad are picking up local players like Jet Airways at throwaway valuations. Consequently margins/commissions on air travel are fairly low, and declining. The opportunity for players in the space is in other business, such as bus travel, as we can see for Redbus.in.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Alpha Stockman 3 years ago Member's comment

Good read, thanks.