MOSL: INFO EDGE INDIA (BUY)-Significant improvement in Zomato’s performance in FY17-80% revenue growth

​Info Edge India: Significant improvement in Zomato’s performance in FY17; 80% revenue growth; 81% reduction in cash burn

(INFOE IN, Mkt Cap USD1.5b, CMP INR837, TP INR1000, 19% Upside, Buy)

Zomato detailed some key financials for FY17 on its blog, indicating continued traction in the business and also detailing certain unit economics in food delivery. 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.

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).