MakeMyTrip's $1.25 Billion Convertible Notes: A Strategic Bet on Travel's Next Wave

MakeMyTrip Limited (NASDAQ: MMYT) has made a bold move with its recent $1.25 billion convertible senior notes offering due 2030—a debt instrument with a 0.00% coupon rate, no periodic interest payments, and a conversion feature tied to its equity. The move reflects a calculated strategy to capitalize on the rebounding travel sector while optimizing its capital structure for growth. Here's why this deal matters for investors and how it positions MakeMyTrip to thrive in India's booming travel market.

The Convertible Notes: A Zero-Coupon Gamble on Growth

The convertible senior notes due 2030 are structured to offer investors a chance to participate in MakeMyTrip's upside while minimizing upfront interest costs for the company. Key terms include:
- Conversion Premium: The notes convert into ordinary shares at a 35% premium to the concurrent equity offering price of $90 per share, implying a conversion price of ~$121.50. This suggests management believes its stock has room to rise, or it's using the premium to limit immediate dilution.
- Leverage-Free Financing: By avoiding interest payments, MakeMyTrip preserves cash flow for strategic initiatives like AI integration, market expansion, or debt reduction.
- Share Repurchase Focus: Proceeds will repurchase Class B shares from Trip.com Group, potentially reducing the Chinese conglomerate's ownership stake and enhancing control over strategic decisions.

Why This Structure Makes Strategic Sense

The convertible notes are a masterclass in capital structuring for a growth company in a cyclical industry. Travel demand is surging, but the sector remains volatile. By issuing zero-coupon convertibles, MakeMyTrip:
1. Avoids Interest Costs: With interest rates still elevated, this saves ~$37.5 million in annual interest payments (assuming a hypothetical 3% rate on $1.25 billion).
2. Balances Dilution: The 35% conversion premium acts as a “price floor” for investors, reducing the risk of immediate equity dilution. If MakeMyTrip's stock outperforms, the conversion could align with growth milestones.
3. Flexibility for Share Buybacks: Repurchasing shares from Trip.com Group could reduce its ~50% stake, potentially unlocking value for minority shareholders.

The Travel Sector's Growth Tailwinds

MakeMyTrip's bet on growth is backed by India's red-hot travel market, which is expanding at a 12-15% annual rate (domestic) and 18-20% (international). Key drivers include:

• Middle-Income Expansion: India's middle class is growing by ~20 million people, with rising disposable income fueling travel demand.
• Tech-Driven Efficiency: AI tools like the Myra chatbot (cutting customer service costs by 45%) and data analytics are boosting margins.
• International Outbound Surge: Q2 2025 results showed 39% YoY growth in international air ticketing revenue, driven by millennials seeking global experiences.

Risks to Consider

• Conversion Pressure: If shares lag below the conversion price, the company could face dilution or higher debt levels.
• Geopolitical Risks: Escalating tensions (e.g., India-China border disputes) or economic slowdowns could crimp travel demand.
• Domestic Air Competition: While international travel shines, domestic air ticketing grew just 6% YoY in Q2, hinting at market saturation.

Investment Takeaways

The convertible notes are a win-win if MakeMyTrip continues its growth trajectory. Investors should:
1. Monitor Stock Performance: A sustained move above $120/share would signal the conversion is working as intended.
2. Track Margin Expansion: The company's adjusted operating margin hit 8.5% in Q2—expanding this further could justify the premium.
3. Watch for Buyback Impact: Reducing Trip.com's stake could unlock a “control premium” for shareholders.

However, historical data reveals that a simple buy-and-hold strategy following quarters with over 20% YoY revenue growth has underperformed. From 2020 to 2025, such a strategy produced a compound annual growth rate (CAGR) of -52.29%, with a Sharpe ratio of 0, indicating poor risk-adjusted returns. This underscores the importance of avoiding short-term momentum bets and focusing on long-term fundamentals.

Final Verdict

MakeMyTrip's convertible notes are a shrewd move to capitalize on India's travel boom while minimizing debt costs. With Q2 revenue up 26.5% YoY, a strong liquidity position ($700M+ cash), and secular tailwinds in outbound travel, the company is well-positioned to convert this debt into growth equity. For investors, the convertible notes—paired with MakeMyTrip's stock—could be a compelling bet on Asia's travel recovery.

Investors should proceed with caution, however. While the convertible structure is innovative, the company's success hinges on executing its tech-driven growth strategy amid a still-fragile global travel landscape.