BSE SENSEX
29,927
S&P CNX
9,262
Info Edge India
CMP: INR837
TP: INR1,000 (+19%)
Significant improvement in Zomato’s performance in FY17
80% revenue growth; 81% reduction in cash burn
7 April 2017
Update
| Sector:
Technology
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
1,012/710
-2/-17/-12
97.3
1.5
67.0
79.0
Zomato detailed some key financials for FY17 on its blog, indicating continued
INFOE IN
traction in the business and also detailing certain unit economics in food delivery.
121.7
Key highlights:
Food ordering drives growth
Zomato reported revenue growth of 80% YoY to USD49m in FY17, contributed by
ad sales (USD38m; 78% of total) and the newly launched food ordering service
(USD9m; +8x YoY). 44% of incremental revenue was driven by food ordering. Exit
revenue in March 2017 was USD5m, implying annualized revenue rate of USD60m.
Financials Snapshot (INR b)
2017E 2018E 2019E
Y/E Mar
7.9
8.9
10.1
Sales
2.2
2.4
2.8
EBITDA
2.2
2.2
2.6
PAT
16.9
17.9
21.0
EPS (INR)
30.1
6.2
17.1
EPS Gr. (%)
159.4 169.6 182.3
BV/Sh. (INR)
11.1
10.9
11.9
RoE (%)
11.1
10.9
11.9
RoCE (%)
38.6
42.8
39.4
Payout (%)
Valuation
47.4
44.6
38.1
P/E (x)
36.7
32.7
27.2
EV/EBITDA (x)
10.1
8.9
7.7
EV/Sales (x)
Shareholding pattern (%)
Dec-16 Sep-16 Dec-15
As On
Promoter
42.6
42.9
43.2
DII
13.1
12.1
10.4
FII
33.3
33.9
35.1
Others
11.0
11.1
11.3
FII Includes depository receipts
Stock Performance (1-year)
Info Edg.(India)
Sensex - Rebased
Unit economics explained
Monthly order volumes in March stood at 2.1m (up four-fold YoY), 80% of
which were fulfilled by restaurants and 20% by Zomato.
Zomato has refrained from discounting, and applies it to <2% of the orders.
27% of the orders are discounted by the restaurants themselves.
Despite not discounting, on average, Zomato makes INR21 per order fulfilled
by the restaurant and loses ~INR9 per order it processes by itself. This is
primarily because of higher delivery and processing costs incurred by Zomato
when directly fulfilling.
On average, INR50 per order is paid to delivery partners. It costs its partners
INR62 to fulfill an order received from Zomato. Were Zomato to deliver on its
own, the delivery costs would work out to INR105 per day (lower volume
versus delivery partners).
Model allows less marketing spend
Zomato’s classified business (has 8.5m monthly unique customers in India) makes it
seamless for customers to move and transact (food ordering/table booking). This is
unlike other e-commerce players which pay large amounts to first acquire
customers and then to re-engage them. There is massive room to continue growing
transactions without spending much, as so far <3% of Zomato’s unique visitors are
currently ordering as well.
Valuation and view
1,000
940
880
820
760
700
The sharp reduction in Zomato’s burn is a significant positive, and if revenue
growth momentum continues on this base, the concerns on USD1b valuation
will be abated, particularly considering multiple valuation write-downs and
business shutdowns over past 12 months in the sector.
With the standalone business’ real estate segment struggling amid underlying
market slowdown, the blip in recruitment growth last quarter for INFOE was a
new worry. This will be the first full quarter of demonetization, and thus, the
recruitment business may remain soft for a while.
Amid growth pressure on standalone operations, robust execution in Zomato
will help provide a base for the stock, and continued scale may make a case for
capital raise at higher valuation. We have a
Buy
rating on the stock with a
target price of ~INR1,000 (~20% upside).
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.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 6129 1531