9 March 2021
Company Update | Sector: Technology
Info Edge (India)
BSE SENSEX
51,025
S&P CNX
15,098
CMP: INR4,873
TP: INR5,440 (+12%)
Neutral
Amazon’s foray into Food Delivery poses a risk to incumbents
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
INFOE IN
104
626.6 / 8.6
5876 / 1580
-1/15/50
2289
Amazon has started its much awaited Food Delivery service (Amazon Food) in Bengaluru,
exactly a year after launching internally for employees. While we see a marginal impact
on Zomato/Swiggy’s duopoly from the much delayed and limited launch, Amazon Food
will pose a risk to both players as it can shake up an established setup with a focus on
profitability.
Launch is slower than expected
Financials Snapshot (INR b)
Y/E Mar
FY21E FY22E FY23E
Sales
10.9 13.7 17.2
EBITDA
3.0
4.1
6.2
PAT
2.7
3.7
5.0
EPS (INR)
21.5 28.6 39.1
EPS Gr. (%)
28.6 33.0 36.5
BV/Sh. (INR)
345.5 359.7 384.4
Ratios
7.9
8.1 10.5
RoE (%)
7.9
8.1 10.5
RoCE (%)
50.8 50.1 36.7
Payout (%)
Valuations
224.4 168.7 123.5
P/E (x)
14.0 13.4 12.5
P/BV (x)
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
38.5
38.5
40.5
DII
11.4
12.8
12.9
FII
40.7
39.3
36.4
Others
9.5
9.4
10.3
FII Includes depository receipts
Stock Performance (1-year)
Info Edg.(India)
Sensex - Rebased
Amazon’s entry into the public Food Delivery market is currently limited to
Bengaluru, with coverage in 62 pin codes (out of over 250). It had internally
conducted trials in four pin codes a year ago.
The initial rollout has primarily been with restaurant chains in Bengaluru and is
yet to expand aggressively to small independent restaurants. It has 2.5k
restaurants v/s ~15K restaurants for Zomato (within Bengaluru).
Food delivery is through a tab built-in the flagship Amazon app, visible only to
customers who are located in the delivery regions.
Our initial channel checks of restaurants in Bengaluru suggest Amazon is
charging a take rate of ~10% on order value from restaurant partners.
This is less than half of what the duo (Zomato and Swiggy) charge from
restaurants (22-25%), which has increased over the years.
The increase in take rate has enabled incumbents to curtail their losses, a high
priority for both players. Zomato’s 1HFY21 commentary suggests positive
contribution margin (INR27/order) on continuous cost optimization, rising
scale, and consistent take rate (with an increase in the average order size).
Apart from early deliveries (Online Shopping), exclusive deals, and video/audio
content, Food Delivery is another angle for entry into the Prime ecosystem.
Amazon’s key focus in India remains its Prime membership, which should allow
it to sustain losses in the Food Delivery business. It is not charging any delivery
fee to its Prime members (ranges from INR20-100 for Zomato/Swiggy), and is
charging a marginal INR19 for non-Prime members.
Amazon will consistently keep take rates below the industry average as it gains
an additional benefit for increasing Prime membership at the expense of losses
in the Food Delivery vertical.
Unlike Amazon, Zomato and Swiggy do not have a vested interest in lower
commission rates. Increasing competition (in case of an Amazon expansion)
can lead to another prolonged period of cash burn in the industry.
Amazon’s expansion can pose a risk to Zomato’s road to profitability and lead
to higher ‘losses from investee companies’ on INFOE’s consolidated P&L.
We foresee a risk to the duopoly structure and consistent take rates in the
industry. INFOE holds 18.4% stake in Zomato.
Maintain Neutral.
Commission rate much lesser than the ‘duo’
Another hook to ‘Prime’ membership
7,000
5,000
A risk to Zomato?
3,000
1,000
Anmol Garg– Research analyst
(Anmol.Garg@MotilalOswal.com)
Research Analyst: Mukul Garg
(Mukul.Garg@motilaloswal.com)
/ Heenal Gada
(Heenal.Gada@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.