Morningstar | Ctrip Steps Up Its International Expansion by Increasing MakeMyTrip’s Stake to 49%. See Updated Analyst Note from 29 Apr 2019
Ctrip will issue new shares to Naspers for its 42.5% stake in MakeMyTrip, the largest Indian online travel company. We estimate the consideration is at a 15% premium to MakeMyTrip’s last close before the announcement of the deal. Ctrip will invest certain ordinary shares and class B shares of MakeMyTrip in a third-party investment entity concurrently with the share exchange. Subsequent to the transaction, Naspers will own approximately 5.6% of Ctrip's ordinary shares, and Ctrip and the third-party investment entity will own ordinary shares and class B shares of MakeMyTrip, which will represent approximately 49% and 4% of MakeMyTrip's total voting power, respectively. This is up from the 10.5% stake Ctrip currently holds. The deal is expected to complete in the second half of this year if regulators approve. For our modelling purpose, we assume completion at the end of September this year. Our fair value estimate is unchanged at USD 47. We estimate that Ctrip’s 2019 earnings per share will be lower by 13% due to dilution and the share of MakeMyTrip net loss based on consensus estimate. We have added the market valuation of Ctrip’s stake in MakeMyTrip to our fair value estimate.We believe that the investments in MakeMyTrip and the Indian online travel market help offset the eventual slowdown in Ctrip’s main market, China, resulting from the stagnation of population growth and saturation of online and mobile population in China. It is also another major step of its international expansion strategy. MakeMyTrip and Ctrip will work more closely together--Ctrip will offer technology support to MakeMyTrip and help MakeMyTrip to offer better products and services. MakeMyTrip will be classified as a long-term equity investment upon the completion of the transaction. Ctrip will use equity method to pick up the gain or loss of MakeMyTrip. Ctrip will consider applying a quarter-lag accounting for MakeMyTrip’s reporting.
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