Event update: Info Edge (India) (Neutral) - New competition for Zomato and logout campaign

Recent newsflow is sentimentally negative for INFOE on 1) in food ordering and 2) , wherein they are exiting from discounting schemes across online aggregators (incl. Zomato where  INFOE owns 26.4%). While financial impact of logout campaign might not be material, given subscription businesses like Zomato gold could be sub 10% of revenues , but increase in competitive intensity in a largely two player market (Swiggy and Zomato), where a deep pocketed Amazon could enter can have impacts on subsequent valuation rounds at Zomato/Swiggy. Zomato stake contributes to ~15% of our valuation for INFOE at Rs318 per share (based on last known valuation of USD2.1bn.) While we fundamentally like INFOE, we find the stock fairly valued. Retain Neutral and await better entry points in the stock.

Possible new competition in food ordering space: According to newsreports, Amazon is looking to enter the food ordering space and is in talks with Ola, which owns foodpanda and UberEats. It is also in discussions to collaborate with cloud kitchens, fast food chains and regional food chains. Amazon is looking to combine its grocery delivery  (Prime Now) with food delivery to deliver better operational efficiencies. Restaurants which are paying 15-17% to food aggregators are being given an introductory offer of 6-7% with promise of high volumes. This service could launched as Amazon Restaurants from Bangalore around Diwali (Oct). Amazon globally has not been successful in the online food ordering space, having exited in US and taken stake in Deliveroo to drive this business in UK. But any rise in competition would be a negative for incumbents (Swiggy and Zomato) and this development is key to watch.

Restaurants protest against discounting by aggregators: On Aug 14, restaurants across major cities started a logout campaign in protest against deep discounting by online aggregators, with close to 2,000 restaurants opting out of apps such as Zomato, Easydiner, Dineout, Nearbuy, and Magicpin. The National Restaurant Association of India (NRAI), which represents 500,000 restaurants held discussions with five online food platforms across last 2 days and has indicated aggregators are working on tweaking their offerings. We do not see this to be a major financial impact for Zomato, given that subscription revenues are unlikely to be more than 10% of revenues and it is an opt in service for restaurants (~10,000+ globally), which will have takers as long as aggregators guarantee footfalls to restaurants, with a reasonable ROI and concerns of restaurants are handled through minor tweaking of the program.