While horizontal e-commerce platforms have been severely criticised for high cash-burn, vertical e-commerce firms have been known to manage costs better and make money due to the specialisation. One such company is eyewear retailer Lenskart.
The firm recorded a 63.2% surge in revenue while it controlled losses by a whopping 73.2% during FY19. During FY19, its total operating revenue was Rs 474.31 crore, a significant jump from Rs 292.35 crore in FY18, according to the firm’s regulatory filings with the Ministry of Corporate Affairs (MCA).
The biggest contributor to increasing revenues was the sales of goods, which rose by 71% to Rs 443 crore in the previous fiscal. Rest Rs 31.3 crore was generated through trademark licensing, sale of software licence and membership fees.
The turnaround for the company was not just the increased sales through the growing network of offline stores the company has set up across the country, it’s the way Lenskart is sourcing products to sell on its platform.
While the sale of goods has surged, financials reflect that the company’s purchases of stock-in-trade have shrunk by 22.5% to Rs 150.2 crore in FY19 from Rs 193.7 crore in FY18. In contrast, the purchase of raw materials has drastically shot up by 27.2X to Rs 168.4 crore in FY19 from Rs 6.2 crore.
This reflects that the company is implementing vertical integration in its operations and has ramped up production of goods in India under various brand names, including John Jacobs, Vincent Chase et al.
Previously, Lenskart used to have a strategic partnership with manufacturers in China for sourcing most of its stock in trade. This shift towards domestic production has helped the company to improve its margins significantly in the past few years.
While increasing its sales, the company also improved its unit economics as spending per rupee of operating revenue has dropped by 25.3% from Rs 1.46 in FY18 to Rs 1.09 in FY19.
The company has invested nearly Rs 70 crore in plant and machinery in the last couple of years. It has taken advantage of the Export Promotion Capital Goods Scheme to import machinery without the burden of custom duty.
On the expenses front, the biggest cost factor is the purchase of stock and the cost of goods consumed which stood at around Rs 263 crore, collectively amounted for 51% of the total expenditure incurred by the company during FY19. Employee benefit expenses also increased by 26.3% to Rs 84 crore in FY19 from Rs 66.5 crore in FY18.
Spending on business promotion also rose 2.33X to Rs 121 crore in FY19 from Rs 52 crore in FY18. This surge was mainly due to additional expenditure of Rs 56.4 crores on commission to selling agents.
Although the total expenses were increased by 21% to Rs 517.2 crore in FY19 from Rs 427 crore in FY18, Lenskart managed to reduce its losses by 73.2% to Rs 31.6 crore in FY19 from Rs 118 crore in FY18. Outstanding losses stood around Rs 1,128 crore at the end of March 2019.
Lenskart’s financial performance during FY19 is in better health if we compare to any other venture capital-backed consumer internet firm. Such improvement has come at a time when Lenskart has been talking about a public listing — which holds a strong chance of doing so if one observes its financial performance in the last fiscal.
This is unlike several other pure-play consumer internet companies that have been founded in the ongoing decade. While many claims to have been contemplating an IPO, very few firms seem to be ready for a public listing in the next two years, at least.