Moneycontrol Pro Panorama | E-commerce firms crack growth code, earnings should follow suit 

E-commerce companies reported healthy growth despite subdued consumer sentiments, delayed festive season and seasonal factors.

Dear Reader,

Three companies that deliver goods and services through online platforms reported strong growth in their core businesses in the September quarter.

Zomato’s food delivery business grew by 20 percent, faster than in earlier two quarters. FSN E-Commerce, which sells consumer products on Nykaa platforms, reported a 23 percent rise in gross merchandise value at the beauty and personal care division. PB Fintech, the operator of an insurance marketplace, saw a 46 percent growth in the core online business.

These companies reported healthy growth despite subdued consumer sentiments, delayed festive season and seasonal factors. The delay in onset of the festive season led to a postponement of some consumer buying in the case of Nykaa.

The delivery partner availability is generally low during monsoon months posing fulfilment challenges. Despite this, Zomato reported a healthy growth in business. Read our research team’s analysis of the results here.

The companies’ strategies to induce higher customer activity on their online platforms seem to be working. Higher discounts have helped Nykaa clock a 19 percent expansion in orders at the beauty and personal care division.

Zomato’s relaunched membership scheme that offers additional benefits saw good adoption by users and drove business on the food delivery platform as our Chart of the Day explains.

The onset of the festival season can aid consumer product sales in the December quarter. Despite the dampening effect of the holiday season, Zomato expects the food delivery business to grow by 25-30 percent in gross order value terms. For PB Fintech, the second half of the fiscal year is generally a busy period, given the cyclical demand for insurance policies.

Yet the companies have much left to deliver. PB Fintech continues to see losses. Nykaa and Zomato reported paltry profits at the consolidated level.

While these companies are keeping up the positive momentum in their core businesses, low contribution margins and spending on new ventures are weighing on their net earnings. The companies plan to improve earnings by deriving better scale efficiencies. PB Fintech aims to achieve profit after tax break even in the current fiscal. The trend in consolidated earnings will determine the returns these stocks generate for investors.

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