Myntra's 79% dip in revenue in FY18 affects unit economics

Several events that have been taking place in Myntra’s offices become even more understandable when we look at the fashion e-commerce portal’s latest RoC filings with MCA.

As per the financial reports revealed by the company for the fiscal year 2017-18, the sales took a 79 per cent dip from Rs 2,038.1 crore in FY17 to Rs 427.74 crore in FY18.

This loss of revenue is attributed to two reasons by a Mint report. The first reason being the fact that a large part of Myntra’s revenue was transferred to the new enterprise that was formed after the company acquired one of its largest competitors, Jabong.

Another factor for the reduced revenue figures was the law whereby a DIPP diktat disallowed e-commerce marketplaces from letting any of their vendors contribute more than 25 per cent of the volume processed by the company. This meant that Myntra couldn’t rely on just a few merchants that hogged the sales, for its own growth.

Case in point, the revenue collected by Myntra’s largest vendor till 2017, Vector E-commerce itself saw a 93.3 per cent reduction in revenue in FY18.

Moving on to the expenses, the company saw a 65.3 per cent fall in the figure from Rs 2,667 crore in FY17 to Rs 926 crore in FY18. This was again largely attributed the steps taken by Myntra like reduction in inventory and a cut down in stock purchases.

Consequently, the losses also took a 75.9 per cent dip to Rs 151.2 crore from Rs 627.7 crore in FY17. This dip while significant in itself is still a less efficient control on the financial performance as it is lower in magnitude than the reduction in revenue and hence worsening the unit economics.

In FY17, to earn a rupee the company had to spend Rs 1.31, but that increased to Rs 2.17 in FY18.

Further, during Q3 FY18, Myntra had made claims about the Gross Merchandise Value (GMV) in FY18 reaching $2.7 billion from $2 billion in FY17 and that the company will be achieving breakeven in Q4 FY18.

While nothing can be said particularly about the latter claim, it is rather evident that the $700 million expected increase in GMV might not be a reality looking at the humungous dip in revenue.

The company went from tripling the revenue and controlling losses by a quarter in FY17 to bringing the revenue down to 1/5th (a larger drop than the losses) along with losing on its profitability metrics.

Both Myntra and Jabong have seen a slump in their respective revenue figures. For the former, the development has been accorded to a shift in the revenue to the new entity post-acquisition. These facts combined further explain the decision by Walmart to merge both entities.

The financial performance at large, also becomes an interdependent factor for Myntra’s management problems that have been going on since Walmart acquired Flipkart. Both the Bansals have left the company, and top level at Myntra including CEO Ananth Narayanan followed suit.

It remains to be seen how the company is able to improve upon these reports, if at all when this highly eventful FY19 ends.