Zomato Ltd

With an increasing number of transacting users and forays into allied platforms, Zomato has been beefing up its operations to expand its reach while the revenues have been reaching impressive levels 

Zomato is the largest food service platform in India. Incorporated in 2010, Zomato went public in July 2021, listing its shares on the Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE). It operates in four segments: food delivery, quick commerce, dine-out, and B2B supplies. The company serves around 2 crore average transacting users under the food delivery business, which contributes a majority of the revenue for the company. Zomato has partnerships with over 2.4 lakh restaurants and is associated with 4 lakh delivery partners.

Fully Owned Subsidiaries

1. Zomato Hyperpure Private Limited: Launched in 2019, this B2B service supplies fresh ingredients and kitchen essentials to restaurant partners, improving food quality across the board.

2. Tonguestun Food Networks Private Limited: This subsidiary supports Zomato’s food delivery and restaurant operations, bolstering its overall ecosystem.

3. Zomato Entertainment Private Limited: Zomato Entertainment manages events like food festivals, enhancing user engagement and promoting the Zomato brand.

4. Blinkit Commerce Private Limited (formerly Grofers): Acquired in 2022, Blinkit Commerce delivers groceries and essentials, expanding Zomato’s reach in quick commerce by integrating grocery delivery with its existing services.

5. Zomato Payment Private Limited: This subsidiary handles payment solutions within Zomato, ensuring smooth financial transactions across its platforms.

6. Zomato Financial Services Limited: Originally set up to explore lending, this subsidiary recently shifted focus, withdrawing its application for an NBFC license.

Financials Performance
FY24 -
Total Revenue: The company reported a total revenue of ₹12,995 crore, representing a remarkable 66.5 per cent increase compared to ₹7,803 crore in FY23.

Gross Order Value (GOV): Zomato’s GOV for its business-to-consumer (B2C) operations reached ₹47,918 crore, marking a 48 per cent increase year-onyear. This growth was driven by strong performance in various segments:

Food Delivery: The core food delivery business generated revenue of ₹6,361 crore. Quick Commerce (Blinkit): Blinkit saw its revenue double to ₹3,205 crore, and notably, it turned adjusted EBITDA positive in March 2024.

Going-Out Services: This segment, which includes dining-out and event ticketing, recorded a GOV of ₹3,225 crore, reflecting a 136 per cent increase from the previous year.

Hyperpure: Zomato’s B2B supplies business generated ₹3,172 crore, serving over 75,000 unique outlets.

Profitability: Zomato turned adjusted EBITDA positive with a profit of ₹372 crore, a significant improvement from a loss of ₹783 crore in FY23. The profit after tax (PAT) for FY24 was ₹351 crore compared to a loss of ₹971 crore in the previous year.

Q1FY25
Revenue Growth: Zomato reported a consolidated revenue of ₹4,206 crore in Q1FY25, marking a substantial 74.09 per cent increase year-on-year

Expansion Plans: The company is set to open 100 additional Blinkit stores in Q1FY25 to reach 1,000 stores by the end of FY25. This expansion underscores Zomato’s commitment to enhancing its quick commerce capabilities.

Operational Efficiency: Zomato maintained an average delivery time of 12.5 minutes for Blinkit orders, with 75 per cent of deliveries completed within this timeframe. This efficiency highlights the company’s focus on customer satisfaction.

Business Segments

Food Delivery : In Q1FY25, Zomato’s food delivery gross order value (GOV) reached ₹92.6 billion, up 9.8 per cent QoQ and 26.6 per cent YoY. Adjusted revenue for the segment was ₹22.6 billion, reflecting a 10 per cent QoQ and 29.5 per cent YoY increase. We observed a 50 bps QoQ improvement in the take-rate (excluding delivery fees). The food delivery contribution margin was 7.3 per cent in Q1FY25, with a 20bps QoQ decline, likely due to increased cross-subsidisation of delivery costs. Adjusted EBITDA as a percentage of GOV improved by 10 bps QoQ to 3.4 per cent, reaching ₹3.1 billion—a 13.8 per cent QoQ increase.

Hyperpure : Hyperpure grew 27.4 per cent QoQ and 96.4 per cent YoY, reaching ₹12.12 billion in Q1FY25, exceeding our estimate of ₹11 billion. The segment recorded an adjusted EBITDA loss of ₹220 million, with a margin of -1.8 per cent, improving from -2.4 per cent in Q4FY24. We expect Hyperpure to achieve profitability on an adjusted EBITDA basis by FY26E.

Quick Commerce (Blinkit): Blinkit, acquired in FY23, completed its first full year as a wholly-owned subsidiary in FY24. It continues to deliver strong growth, with a 20 per cent QoQ increase in Q1FY25 despite rising competition.

Management Insights
Food Delivery : The management has noted that food delivery GOV has grown at a 30 per cent CAGR from FY20 to FY24, expecting this trend to continue for the next five years. They are confident of exceeding their 20 per cent YoY growth guidance, supported by Q1FY25’s 27 per cent GOV growth driven by higher order volumes. Gold subscribers account for 50–55 per cent of GOV, and the company aims for a 4–5 per cent adjusted EBITDA margin (as a percentage of GOV) in the coming quarters.

Blinkit : The management plans to operate 2,000 dark stores by FY26E, mainly in top cities. GOV throughput per store has increased to ₹1 million per day, with the top 50 stores achieving ₹1.8 million. They believe existing stores’ GOV will continue to grow despite expansion. Blinkit has also expanded its offerings to 25,000 SKUs, moving beyond grocery into categories like electronics, beauty, and pet care. Blinkit competes in the mid-premium retail segment, not directly with local grocery stores or value-focused retailers like D-Mart

Competitive Landscape
Zomato operates in a highly competitive environment, particularly in the food delivery and quick commerce sectors. In the food delivery segment, Zomato faces strong competition from Swiggy, a key player with a significant market presence. Additionally, Zomato contends with restaurant-owned delivery channels, which offer an alternative for consumers seeking direct service from their favourite eateries.

In the quick commerce space, Zomato’s Blinkit competes with several prominent players, including Dunzo, Zepto and Swiggy Instamart. Each of these competitors brings unique strengths, from rapid delivery times to broad product offerings, intensifying the competitive dynamics in this segment.

Valuation
Zomato’s stock is currently trading at an extraordinarily high price-to-earnings (PE) ratio of 394x. Additionally, the company’s price-to-earnings growth (PEG) ratio is 24.4x, far exceeding the ideal value of 1. The company’s EV/EBITDA multiple is also high at 199x. These metrics suggest that Zomato appears expensive, even when considering its potential for future growth. Moreover, Zomato is also facing significant competitive pressure in its business landscape. As a result, we recommend a HOLD and advise avoiding new entries at the current levels.