Indian E-Tailers Hit High Growth In Revenues, But Cash Burn Accelerates

The e-commerce market in India has witnessed tremendous growth over the last decade or so. The revenues of top India e-tailers have grown 4x times in the last Four years, but their cash-burn is on the rise.

An analysis of FY17 and FY18 performance of ecommerce companies by Kotak Institutional Equities Research indicated that well-funded companies are investing aggressively into growing the market, and profitability is still some time away. But, the revenue growth for ecommerce companies is slowing, though losses are holding steady.

According to the report, 5 top ecommerce players in India — Flipkart, Amazon, Paytm Mall, Shopclues and Snapdeal   together recorded a revenues of Rs 51,988 crore and posted an aggregate loss (before tax) of Rs 12,863 crore during 2017-18.

Flipkart Group, which included fashion ecommerce player Myntra, its logistics arm Ekart and payment arm PhonePe, have recorded an average loss before tax of Rs 4200 crore annually in last three fiscals. While Amazon and its subsidiaries (Amazon Pay, Cloudtail, Amazon Transport etc. incurred losses (before tax) of Rs 5150 crore on an average annually during the same period.

Shopclues and Snapdeal are the only ecommerce players in India to see a reduction in the losses incurred. Shopclues’ losses before tax reduced to Rs 208 crore in 2017-18 as compared to Rs 383 crore in 2015-16.

Similarly, losses of Snapdeal reduced substantially to just Rs 147 crore from massive Rs 2960 crore in 2015 to 2016. However, Snapdeal was the outlier, which saw a significant dip in its revenue as well. Its revenue decreased from Rs 1159 crore during 2015-16 to Rs 436 crore during 2017-18.

Paytm Mall, the ecommerce arm of Paytm Group, which was spun off during 2016-17, posted a hefty loss of Rs 1806 crore against revenue worth Rs 744 crore.

Flipkart incurred a loss (before tax) of Re 0.2 per for each rupee it earned during 2017-18 as compared to a loss of Re 0.25 and Re 0.3 per one rupee of revenue for Amazon and Snapdeal respectively.

However, Paytm Mall and Shopclues lost more than what they earned. Paytm Mall incurred a loss (before tax) of Rs 2.4 for every rupee it earned. Similarly, Shopclues posted a loss of Rs 1.3 for every one rupee of revenue earned during the same period.

The report indicated that the funds rising by ecommerce companies have been fairly robust in the year to date. The last couple of years have witnessed a change in the nature of fund providers from a private equity/venture capital-led funding environment.

India has seen enhanced funding from global companies, which are investing in the country with a long-term strategic intent like Amazon, Walmart, Alibaba, and Softbank, which is deploying its vision fund into promising companies.

“We believe both these will keep the funding tap open for at least some time to come, though overfunded business segments may see eventual consolidation (ecommerce, food delivery, etc.),” the report said.

The companies in consideration have raised relatively large-sized rounds of funding in the recent past. For instance, Flipkart has risen around USD 6.6 billion, while Amazon raised approximately more than $5 billion, according to the report. This excludes recent funds infusion by Walmart if any. Hence, these firms are well capitalized for some time. But the trend in cash burn and losses are not coming down and it makes e-tailers to access more funds in the coming years.

Sample this, Flipkart posted aggregate losses of around USD 2.35 billion during 2014-15 and 2017-18, which translates into 0.35x of total funds raised by them so far. Similarly, Amazon recorded an aggregate loss of USD 2.64 billion during the same period, more than half of the total capital raised by the company till date. Shopclues fared very low in terms of this statistics by posting aggregate loss equal to 0.71x of total funds raised by the company till date.

“Reliance on funding providers thus remains large, and any pullback in funding may lead to some sort of consolidation in the space. Current funding environment remains benign, though funding is limited to larger companies within each vertical,” the report said.― CNBC

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