Ever since MakeMyTrip Ltd announced the acquisition of Ibibo Group’s travel business in India last October, the combined entity’s valuation has roughly doubled. The company even raised $330 million from a clutch of investors in May this year. The acquisition created India’s largest online travel firm and investors are betting that the consolidation in the sector will result in reduced cash burn.

But the perceived dominance in the online travel space is missing from MakeMyTrip’s financials. If anything, losses are widening with the company doling out heavy discounts to customers.

In fact, MakeMyTrip’s marketing and sales promotion expenses were higher than its net revenues, analysts at Nomura Research pointed out in a note to clients. In the June quarter, the firm’s marketing and sales promotion expenses rose to $142.3 million, higher than its net revenues of $141.2 million. Net revenues are reported after deducting costs related to procuring airline tickets, hotel rooms and other products sold by the company. This is the first full quarter after Ibibo’s financials have been consolidated.

Not surprisingly, losses widened to $52.1 million last quarter, up from $33.1 million in the March quarter, which included two months of Ibibo’s operations.

Ibibo may be partly to blame for the unusually high marketing and promotion spends. Nomura’s analysts say that based on pro forma numbers shared by the company earlier this year, Ibibo possibly spent 1.25 times what MakeMyTrip did on marketing and sales promotion last year, despite being roughly 0.6 time the size in revenue terms.

But instead of reining in Ibibo’s extravagance post the acquisition, MakeMyTrip appears to be catching up with its former competitor in making lavish offers to customers. The company said that primary drivers of the increase in promotional spend were “significant customer inducement and acquisition programs expenses incurred to accelerate growth in the stand-alone hotel booking business and increases in brand advertisement expenses".

Nomura’s analysts expect expenditure on promotions to stay elevated and say MakeMyTrip’s break-even could get pushed beyond fiscal year 2020, compared to its earlier estimate of a break-even in the next fiscal year.

Moreover, while the company managed to eliminate a pesky competitor when it acquired Ibibo, another one, with deeper pockets has emerged. Paytm, on the back of a $1.4 billion fundraise led by SoftBank, has been aggressive in the air ticketing segment, and may enter the hotel booking segment. “Currently, competition is largely from much smaller and less funded competition such as Cleartrip/Yatra and Paytm in air ticketing. We expect Paytm to relaunch its hotel booking offering and replicate the aggression shown in air ticketing on cash back/promotions. (Besides), it is well capitalised to disrupt the market in the near term," Nomura’s analysts said in the note. To think that spend on promotions has skyrocketed even before Paytm’s entry in the hotel booking space is a telling sign.

MakeMyTrip’s investors have shown tremendous patience thus far, but need to be prepared for a much longer haul. While their company is the clear leader in the online travel space and may well retain that mantle, it is evident that this will come at a great cost.

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