[What The Financials] Jabong’s Cost-Cutting Backed By Revenue Growth

SUMMARY

Myntra and Jabong fully merged operations In November 2018,

Jabong had multiple rounds of layoffs after Walmart acquired Flipkart

On a consolidated level, the expenses of Jabong have decreased by 6.4%

In the overall journey of Flipkart over the last decade, the company has made several strategic acquisitions and scaled them up successfully with healthy revenue growth. The growth of investments such as Myntra and PhonePe also impressed Walmart, which acquired Flipkart in August 2018. However, unlike Myntra, which has turned into one of India’s leading fashion ecommerce platforms, Flipkart’s other fashion ecommerce investment Jabong hasn’t seen the same success.

Jabong was acquired by Flipkart-owned Myntra in 2016 for $70 Mn and in November 2018, the companies merged their functions including technology, marketing, category, revenue, finance, and creative teams. Flipkart had said at the time, “Myntra’s independence as a business will be preserved and Jabong brand will also be retained.”

And in the first year of operations as a merged entity, Jabong has seen some interesting developments, if not a turnaround in the business. The filings of Jade Eservices Private Limited, the parent company of Jabong, showed that on a consolidated level the expenses have decreased 6.4% while income grew 30% leading to 2.8% lower losses.

At the same time on a standalone level, Jabong reported a revenue of INR 41.87 Cr, a 104% Y-o-Y growth, mostly led by increase in other income. Further, the expenses also increased by 2% reaching INR 64.28 Cr in FY19.

The loss on the standalone basis was INR 22.41 Cr, which appears to be a huge fall compared to the profit of INR 35.9 Cr in FY18. However, in FY18 the company’s operational loss was INR 42.5 Cr, which turned into profit considering the sale of Jabong’s wholesale (B2B) business bringing exceptional items of INR 74.75 Cr for the year.

The company filings note, “During the previous year the company has sold its wholesale (B2B) business. Excess of consideration over value of net-assets transferred due to transfer of business has been recognised as an exceptional item in Standalone Statement of Profit and Loss.”

Hence, taking this into consideration, Jabong’s standalone losses have also improved, dropping by 15.5%.

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Understanding Jabong’s Sources Of Revenue

In the filings, Jade Eservices Private Limited has defined its business saying that it owns marketplace platform Jabong.com and provides the same to another marketplace entity on license fees basis.

So on the consolidated level, the company’s sources of revenue includes commission charges, shipping charges and advertisement income. Of this, commission income contributes the highest to company’s total income with INR 17.72 Cr in FY19, as against INR 14.56 Cr in FY18.

Further, on a standalone basis, the company’s income is through licensing services for the right to use other intellectual property products. Hence, the operational revenue stands constant for FY18 and FY19 with INR 6 Cr of operational revenue. However, the increase in yearly income has come in from interest earned from various sources as other income.

Jabong: Narrowing Down Brand Promotion, Advertisement And More

Examining the company’s filings we noticed that in an attempt to cut down on costs, Jabong has been narrowing down its expenses on advertising, branding etc and spending mostly on employees and customers.

To begin with employees, the company’s consolidated employee benefit expense grew 21.8% from INR 52.69 Cr in FY18 to INR 64.22 Cr in FY19. Also, on a standalone basis, the jump was 2.7X reaching INR 12.93 Cr in FY19.

This could be attributed to the rounds of layoffs and the shifting of employees to Myntra, as the company may have paid severance package and additional salaries for the next few months.

Interestingly, the company’s other major expenses included fulfilment including logistics, customer care, etc, photoshoot expenses, branding and promotional expenses among others.

As fashion ecommerce picks up pace in India with the entry of Nykaa and Shoppers Stop and Future Group brands joining Amazon, Myntra continues to be the crown jewel for Walmart. But Jabong also has to contend with Shein, Club Factory and the Chinese ecommerce brigade.

It remains to be seen whether Jabong enters a different vertical to sustain its business even as it continues to streamline its operations. If it does manage to find a new niche, the once-formidable company could once again find room to manoeuvre in the Indian online fashion market.