On Thursday, UBS maintained a Buy rating on MakeMyTrip (NASDAQ:MMYT), while raising the price target to $70 from $54. The firm's updated valuation reflects a positive outlook on the company's future performance, citing several factors that could support the travel service provider's stock price.
The analyst from UBS highlighted three main drivers behind the decision to increase the price target. Firstly, structural growth tailwinds are expected to benefit MakeMyTrip, supported by both demand and supply-side drivers. Secondly, the company's dominant market position, with over 60% market share, is seen as a key advantage in what is described as an "increasingly rational market." Lastly, the current valuations are believed to offer room for an upside in the stock price.
Despite the price target adjustment, UBS's revenue and EBITDA estimates for MakeMyTrip remain largely unchanged. However, the firm's net income (profit after tax or PAT) estimates have been increased by 25-30% in the near term, attributed to lower tax rates.
UBS also updated its valuation approach, rolling forward to FY26E (Fiscal Year 2026 Estimates) and shifting the target multiple from enterprise value to sales (EV/Sales) to enterprise value to EBITDA (EV/EBITDA). This change is based on MakeMyTrip's consistent performance, having reported positive EBITDA for eight consecutive quarters.
The new target multiple is set at 40x EV/EBITDA, which implies about 7x EV/Sales compared to the previous 5x. This multiple is considered comparable to the Indian consumer sector average but reflects MakeMyTrip's superior top-line and bottom-line growth projections.
InvestingPro Insights
Following UBS's positive stance on MakeMyTrip (NASDAQ:MMYT), insights from InvestingPro further enrich the investment outlook. With a market capitalization of $6.61 billion, the company's financial health and growth prospects are of keen interest to investors. Notably, MakeMyTrip holds more cash than debt on its balance sheet, which is a solid indicator of financial stability. This aligns with UBS's optimistic view and could underscore the company's ability to invest in growth or weather economic downturns.
The data from InvestingPro also shows that MakeMyTrip has a high Price/Earnings (P/E) ratio of 133.36, signaling that investors may expect high earnings growth in the future. This is further supported by the company's impressive gross profit margin of 52.88% for the last twelve months as of Q3 2024, indicating efficient management and a strong market position. Additionally, the company's revenue growth of 36.59% over the same period highlights its robust performance in an expanding market.
InvestingPro Tips suggest that MakeMyTrip's net income is expected to grow this year, which may validate UBS's increased net income estimates. Furthermore, with a significant return of 127.31% over the last year, the company has demonstrated its ability to deliver value to shareholders. For those interested in exploring more about MakeMyTrip's potential, InvestingPro offers a comprehensive list of tips, with a total of 18 additional InvestingPro Tips available. These tips could provide deeper insights into the company's valuation, market position, and future prospects.
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