Stock pick: MakeMyTrip Ltd. (MMYT) benefits from India’s tourism boom

Analysts see $34 billion travel market in 2017

Trailing 12-month stock chart for MakeMyTrip Ltd.

These days, nearly everyone books travel using some sort of online site. There’s Expedia, Orbitz, Kayak and many more that you either use or at least know of. However, there is one budding site that most Canadians have never seen:

This Gurgaon, India-based site—run by MakeMyTrip Ltd. (NASDAQ: MMYT)—is one of the most popular travel sites in India and, with international travel numbers only improving, it’s only increasing its user base.

That growth has been reflected in the company’s stock price—it’s up 92% over the last 12 months—but a number of analysts think there are more gains to come.

On March 19, Manish Hemrajani, a New York-based analyst with Oppenheimer & Co., upgraded the stock from perform to outperform for a number of reasons, including an increase in smartphone usage and higher e-commerce adoption in the country.

One big catalyst for the upgrade, though, is an improving Indian travel market. Hemrajani points out that the country’s travel market is expected to rise from $23 billion to $34 billion in 2017 with online penetration growing from 38% to 45%.

It also helps that India’s middle class is quickly expanding; McKinsey & Co expects it to grow from 160 million people in 2013 to 547 million in 2026.

“Rising incomes and supportive demographics make India one of the world’s fastest growing discretionary spend markets,” wrote Hemranjani.

He thinks the company will make $120 million in net revenue in fiscal year 2015 and $142 million in fiscal year 2016, up from about $100 million this year.

In January, Deutsche Bank analyst Lloyd Walmsley, released a more cautionary note on the company—he has a hold rating on the stock—but he still sees a lot of promise.

He sees more gains coming in mobile and hotel booking, and says the air market is stabilizing. The depreciating rupee is still concern of his and it has affected revenues, he wrote in a January report.

The stock is currently trading at $25 a share, but Hemranjani says it can hit $28 — which is also the median price target according to S&P Capital IQ—over the next 12 months. Other analysts say it could climb as high as $31.