Zoho and Zerodha are rare gems in India’s elite club of startups, standing out not just for their unicorn title but also for the sheer fact that they are pure-play bootstrapped ventures who continue to scale with sizable growth in profits.
While Zerodha’s profit jumped 26% in FY20, Zoho has managed to record over 55% jump in profit in FY20. Fintrackr earlier wrote about Zerodha’s FY20 financial performance and now we take a deep dive into how Zoho continues to improve margins while maintaining its decent income growth.
Zoho’s revenue from operations surged by around 29% to Rs 4,274.7 crore during FY20 from Rs 3,308 crore earned in FY19, regulatory filings show.
Notably, only 4.5% of these revenues – Rs 192.8 crore – were booked in India and the rest Rs 4,082 crore were collected from services provided outside the country. Revenue from its India operations has grown by 59.2% while revenue from the other geographies it operates in have surged by 28.1% during FY20.
Zoho operates with 12 subsidiaries which handle its operations across the globe.
At Rs 1,108.32 crore, Zoho Corp (US) had the biggest share in the consolidated comprehensive income followed by Zoho Europe which operates out of the Netherlands and has contributed Rs 509.06 crore. Importantly, the entities which handle the information technology park business and its China-based subsidiary have reported losses this year.
The Sridhar Vembu-led company collected another Rs 111.3 crore as non-operating revenues during the fiscal ended in March 2020.
The expense sheet of the SaaS unicorn shows expenses incurred on advertisement and promotion standing out as the largest cost factor accounting for around 35.8% of the total expenses incurred by the company. These costs remained fairly stable growing by only 7.4% to Rs 1,205 crore in FY20 from Rs 1,122.2 crore in FY19.
Following closely, employee benefits is the second largest cost centre accounting for 32.3% of the total costs incurred. These expenses grew by 17% to around Rs 1,089 crore in FY20 from Rs 931.09 crore in FY19.
Expenditure on legal and professional fees was the expense that grew the most during the previous fiscal. These payments surged by 82% to Rs 129.2 crore in FY20 from Rs 71 crore paid for during FY19.
Miscellaneous expenditure amounted to Rs 226 crore while rental and fuel payments grew by 21.6% to Rs 45 crore in FY20. Zoho’s tax expenditure jumped 120% to Rs 221.3 crore during FY20 and it spent another Rs 25.06 crore on corporate social responsibility initiatives.
Travelling conveyance expenses of Rs 95.42 crore pushed the total expenditure to increase by 16.8% from Rs 2,885.04 crore spent in FY19 to nearly Rs 3,370 crore during FY20.
On a unit level, Zoho spent Rs 0.79 to earn a rupee of operating revenue in FY20.
Zoho has managed to improve its annual profits by a whopping 55.24% to Rs 801 crore during FY20 from Rs 516 crore profit in FY19. Its EBITDA margin has improved by 836 BPS to 33.57% in FY20 from 25.21% in FY19.
Zoho has improved its operational efficiency and this reflects in its income statement. Although income has grown less than 30%, the company’s profits have surpassed 55% in FY20.
Zoho is likely to post improved performance in the ongoing fiscal as it is one of the few companies which thrived during the pandemic. With its offerings, Zoho enabled remote working for companies and services around the world at a time when many had to work during lockdowns or restrictions imposed to curb the spread of the coronavirus.
In an interview last year, Vembu had estimated that the company will add 60K to 70K clients by the end of FY21 with a double-digit contribution to its revenue coming from India. Currently, Zoho has over 400K customers across 180 countries.