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Investing.com -- Macquarie has upgraded MakeMyTrip (NASDAQ:MMYT) shares to “outperform” from “neutral” following a recent share-price correction, citing improved risk-reward dynamics, in a note dated Tesday.
The upgrade follows MakeMyTrip’s announcement of a $3.1 billion capital raise aimed at reducing Trip.com’s stake.
The funding includes a primary share issuance of 18.4 million shares at $90 per share and $1.43 billion in zero-coupon convertible notes due 2030, with a conversion price of $121.50.
The proceeds will repurchase most of Trip.com’s Class B shares, lowering its holding from 45.3% to approximately 17% and cutting board representation from five to two seats.
Macquarie analysts estimate MakeMyTrip’s basic share count will fall by about 12% due to the buyback, offset by new shares issued. Including the convertible notes, diluted share count is projected to drop 2-3%. Macquarie stated this capital raise is not a precursor to an India listing.
Forecasts remain robust, with gross booking value projected to reach $16 billion by FY28, driven by a 20% CAGR for Hotels and Bus, and 15% for Air. Ancillary services, with higher margins, are forecast to grow 25% annually.
Despite allocating 5% of revenue to sales, marketing, and subsidies, free cash flow margins are projected to average 20% for FY26-FY28, equating to around $275 million annually. Net cash is expected to rise sharply from $530 million in FY25.
Revenue is forecast to grow from $978.3 million in FY25 to $1.64 billion in FY28. EBITDA is projected to rise from $146.7 million to $370.5 million, while reported net profit is expected to reach $296.1 million by FY28. Return on equity is estimated to increase from 8.2% in FY25 to 17.8% by FY28.
Following adjustments for the lower share count, Macquarie raised FY26-FY28 basic EPS estimates by 1-3%. The 12-month price target remains at $110, based on a scenario-weighted discounted cash flow model. Continued strong travel demand in India is seen as a key driver.
Macquarie noted risks including slower growth momentum, heightened competition delaying margin improvements, and dilution from potential additional employee stock option plans.