Zomato posted another robust quarter with Q2 revenue of Rs 4799 crore led by growth in Blinkit, Hyperpure and Going Out segments, even as the Food Delivery segment continued on its steady path. Zomato’s food delivery GOV grew at a steady pace of 21 per cent, Blinkit grew at a healthy pace of 122 per cent YoY on the back of accelerated store expansion done over the last three quarters. Going Out and Hyperpure segments too saw very strong sequential expansion during the quarter. “Reported EBITDA beat was driven by Going-out and lower than expected ESOP costs, which helped off-set a miss in food delivery profits,” stated an analysis report by JM Financial while adding that Zomato remains one of the fastest growing consumption names with significant room for margin expansion across all its business segments.
Fundraise announcement: Zomato building war-chest for expansion
Zomato board also approved Rs 8,500-crore fundraising via the issue of a qualified institutional placement (QIP), amidst its rival Swiggy’s upcoming $1.2 billion IPO, which could potentially go up to about $1.4 billion. The fundraise despite having a strong balance sheet, per Deepinder Goyal, CEO of Zomato, is needed to enhance cash balance “given the competitive landscape and the much larger scale of our business today”.
“With rising competition in the quick-commerce space, Zomato aims to shore up its defenses through a strategic capital raise, with an upper cap of $1 billion. This capital raise will ensure Zomato maintains financial flexibility, allowing it to continue scaling Blinkit while countering competitive pressures effectively. It also allows Zomato to change its ownership structure in favor of Indian investors – this should allow the company to hold inventory in its quick commerce business,” stated a report by Motilal Oswal Financial Services (MOFSL)
“Zomato’s board approved Rs 85 billion worth of fundraise through the QIP route, which in our opinion could be used as a war chest to deter competitors from aggressive discounting/incentives,” said JM Financial.
While the management acknowledged the increasing competition in the space, ICICI Securities said, the company stated that they would continue to monitor the situation and adapt accordingly. “They emphasised that the raised funds would not be used for discounting, but rather to strengthen the business and provide for any contingencies. The focus remains on building their business as it evolves in this nascent stage,” the report stated.
Elara Securities said, “The Board has passed an enabling resolution to raise a QIP of Rs 85 billion (3.8% dilution), to enable a war chest in order to compete in the quick commerce segment, which could intensify competition. This is largely in line with our view and Zomato being the market leader in the Food Delivery and Quick Commerce segments should have a higher cash balance versus peers. The management will not push for discounts despite increased competitive intensity for now despite higher cash balance and in turn focus on own execution and user experience capabilities.”
Performance across businesses
Food delivery: In Q2, food delivery GOV stood at Rs 96.9 billion, up 21.4 per cent YoY. Food delivery contribution margin (as a % of GOV) was 7.6 per cent in Q2FY25. Elara Securities said, “GOV growth in Food Delivery was slowest in the past three quarters at 21.4 per cent YoY, but was as guided at >20 per cent YoY. Expect steady-state improvement in take rates, helped by levers such as platform fee and higher ad revenue. Growth in the Food Delivery business may be led by user addition and frequency, as AOV may grow in low single-digit annually, The Food Delivery space continues to show resilient growth, despite muted demand environment in the QSR segment.”
Blinkit: Blinkit’s GOV grew 122.2 per cent YoY to Rs 61.3 billion aided by store expansion. Zomato is focusing on aggressively expanding Blinkit by entering new cities and deepening its presence in existing markets and this includes broadening product categories like beauty, electronics, and toys, and opening larger dark stores. It recently added 152 new stores along with seven additional warehouses, bringing the total count closer to the target of 1,000 stores by FY25. JM Financial said, “Management noted that while most of its stores are profitable with expanding margins, on aggregate level margins remain flat due to new store additions which are margin dilutive in the short term. Management reiterated their guidance of reaching ~2,000 by the end of CY26 (though store additions won’t be linear every quarter), most of which would be in top 10 cities. Management highlighted that they are focusing on building markets beyond Delhi-NCR, as a result, share of Delhi-NCR in overall business continues to fall and is now less than 40 per cent of Blinkit business. We expect Blinkit’s GOV to more than double in FY25, but meaningful profitability is unlikely in the next few quarters due to growth investments and likely increase in competitive intensity. However, from a long term perspective, we continue to expect steady state margins to reach 4-5 per cent as a percentage of GOV.”
Hyperpure: Hyperpure grew by 97.7 per cent YoY in Q2FY25 to Rs 14.7 billion. EBITDA loss was flattish at Rs 210 million vs loss of Rs 220 million in Q1FY25. The company saw its working capital increase by Rs 1.48 billion during the quarter because of high growth in this segment, said JM Financial.
Going-out: Going-out GOV stood at Rs 18.5 billion in Q2FY25. The company completed the acquisition of Paytm’s entertainment ticketing business on 27th Aug’24. Hence, the JM Financial report said, Going-out numbers do not include full quarter effect of acquisition. “Excluding one-month impact of acquired business, GOV expansion was strong at +139 per cent YoY. The new app ‘District’ is expected to be live in the next four weeks. The recent traction for Going-out segment augurs well for the company,” it said.
To conclude, JM Financial said, “Unless there is an irrational rise in competitive intensity in Quick Commerce, we expect the company to deliver very strong earnings growth. Therefore, Zomato remains one of our preferred picks in our Internet coverage.”
From: financialexpress
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