MakeMyTrip's stock recently plummeted to its lowest level in a year following a short-seller report that questioned the company's profit definitions. Central to the controversy is how the largest online travel agency (OTA) in India calculates its adjusted margins, a practice that has been outlined in its SEC filings for several years.
Understanding Adjusted Margin: The adjusted margin metric has become a key indicator of profitability in the OTA sector. MakeMyTrip's definition, as stated in its 20-F filing, includes revenue plus customer discounts and cashbacks, subtracting only the costs of hotel or package procurement. This approach has raised eyebrows, particularly because discounts and cashbacks, which represent actual costs, are added back into the margin calculation.
In the fiscal year 2025, MakeMyTrip reported $978 million in revenue but added back $302 million in discounts and cashbacks. Over four years, this add-back totals $899 million, raising questions about the transparency of its profit reporting.
Recent Financial Performance: In the second quarter of FY26, MakeMyTrip reported a net loss of $5.7 million under IFRS, contrasting sharply with a $17.9 million profit in the same period the previous year. Despite a 9% year-on-year revenue increase, the company faced significant losses primarily due to foreign exchange fluctuations and the impact of a major capital restructuring.
While MakeMyTrip's adjusted metrics indicated a $44.2 million operating profit for the same period, analysts suggest that the finance costs leading to the IFRS loss were largely one-off events. However, a deeper analysis of customer acquisition and retention costs is necessary to assess the accuracy of these figures.
Implications for Investors: Investors may view the substantial discounts as necessary business costs or as reinvestments for growth. However, there are concerns about the sustainability of this model, especially if regulatory scrutiny or investor pressure prompts a reevaluation of financial practices.
MakeMyTrip has also faced allegations from Morpheus Research regarding unfair practices, including manipulating booking interfaces and maintaining price parity clauses that restrict hotels from offering lower prices on their own platforms. The Competition Commission of India previously fined the company for these practices, which raises further concerns about its upcoming IPO plans in India.
Market Dynamics: The fallout from the short-seller report has already affected MakeMyTrip's stock, which fell to $32.67, a significant drop from its twelve-month high. The company is preparing for a potential listing in India, which could provide access to a broader investor base and enhance its acquisition capabilities.
As MakeMyTrip aims to consolidate its market position and expand its services, it must navigate the challenges posed by its financial reporting methods and the competitive landscape. Smaller OTAs may find opportunities if MakeMyTrip's discount strategy is curtailed, potentially reshaping the market dynamics.
Ultimately, MakeMyTrip's ability to communicate its financial health and operational metrics effectively will be crucial as it seeks to attract new investors and maintain its competitive edge in the travel industry.
