Motilal Oswal's Exclusive Interview with Zomato Management

Motilal Oswal's Exclusive Interview with Zomato Management

Table of Contents:

1. Introduction
2. The Journey of CNBC TV18: 25 Years of Excellence
3. Ram Agarwal: The Warren Buffett of India
4. The Indian Equity Market: A Consistent Journey
5. The Impact of State Elections on the Market
6. The Future of the Indian Stock Market
7. The Pros and Cons of Indian PSU Stocks
8. The Resurgence of Zomato: From Rise to Fall and Back
9. The Potential of Zomato's Food Delivery Business
10. Blinket: The Fast-Growing Quick Commerce Business
11. The Path to Profitability for Zomato
12. The Market Leadership of Zomato in the Quick Commerce Space
13. The Future Growth and Opportunities for Zomato
14. Conclusion

The Resurgence of Zomato: From Rise to Fall and Back

Zomato, one of the leading players in the Indian food delivery market, has had a roller coaster journey since its listing in July of 2021. After hitting highs of 169 rupees post listing, the stock saw significant fluctuations and lows of about 40 rupees. However, Zomato has shown incredible resilience and has emerged fundamentally stronger than ever before. This article will Delve into the rise, fall, and resurgence of Zomato, exploring the factors that have contributed to its growth and potential for profitability in the future.

Zomato's listing was nothing short of a blockbuster. Initially offered at 76 rupees, the stock listed at 120 rupees and quickly reached an all-time high of 169 rupees, captivating the market with its promise and potential. However, challenges arose in 2022, including the impact of US interest rate hikes, a post-COVID lull in demand, low visibility of profits, senior-level management exits, and high valuations. These challenges led to a decline in Zomato's share price, with the stock hitting a low of 40.5 rupees in July 2022.

Despite these setbacks, Zomato embarked on a remarkable turnaround journey, which we now refer to as its resurgence. The company implemented strategic moves to improve its operational metrics and focus on its Core growth engines, primarily food delivery. Zomato also divested non-core businesses to enhance its market share. Additionally, the company's Blinket business, which focuses on quick commerce, experienced robust growth and showcased positive unit economics and contribution margin.

The numbers speak for themselves. Zomato's food delivery revenue has remained consistent, and its average order value for Blinket has crossed the 600 rupee mark. Blinket's contribution margin has turned positive, and it is only a matter of time before the business becomes operationally positive as well. These positive indicators have attracted the Attention and confidence of the street, with nearly 86% of brokers giving Zomato a buy or positive rating and target prices ranging from 130 to 170 rupees.

Zomato's resurgence is not limited to its financial performance. The company has also demonstrated strong growth in transactions, transacting customers, order frequency, loyalty, and stickiness, particularly among Zomato Gold members. Zomato's market share has surpassed that of its competitor Swiggy, further solidifying its position as a market leader in the food delivery space.

However, profitability remains a key concern for Zomato. Despite its undeniable success and growth, the company has yet to achieve overall profitability. The low margin nature of the food delivery business has been a contributing factor to this challenge. With a 5% take rate, food delivery companies face significant competition, especially from offline retailers such as Avenue Supermarts, who operate with slim net margin margins of around 4-5%. Additionally, providing free or low-cost delivery further impacts profitability.

Zomato acknowledges these challenges and is actively working towards achieving profitability. The company has already reported profitability at a group level, with a net profit of 2 crore rupees in the June quarter and 40 crore rupees in the September quarter. As the business continues to mature and Scale, profitability is expected to increase.

Looking ahead, Zomato's prospects in the quick commerce space, particularly with its Blinket business, are promising. With sustained growth and increasing market share, Zomato is on track to become larger than its food delivery business in the next few years. The company's focus on solving consumer problems and creating use cases for transactions sets it up for success in a market that offers multiple choices for consumers.

In conclusion, Zomato's journey from rise to fall and back is a testament to the company's resilience and determination to succeed in a competitive market. While profitability remains a challenge, Zomato's strategic moves, operational improvements, and focus on growth engines position it well for future success. As the quick commerce space continues to evolve, Zomato is poised to capitalize on opportunities and become a significant player in the industry.

Highlights:

• Zomato's listing was a blockbuster, but it faced challenges in 2022.
• The company experienced a resurgence through strategic moves and improved operational metrics.
• Zomato's food delivery revenue and Blinket's average order value have shown positive growth.
• The company has surpassed Swiggy in market share and is a market leader in the food delivery space.
• Profitability remains a challenge for Zomato, but it is actively working towards achieving it.
• The quick commerce space presents promising opportunities for Zomato, particularly with its Blinket business.

FAQs:

Q: What challenges did Zomato face after its listing? A: Zomato faced challenges such as US interest rate hikes, a post-COVID demand lull, low profit visibility, management exits, and high valuations.

Q: Has Zomato achieved overall profitability? A: Zomato has achieved profitability at a group level, reporting a net profit of 2 crore rupees in the June quarter and 40 crore rupees in the September quarter.

Q: What is Zomato's market share compared to Swiggy? A: Zomato has surpassed Swiggy in market share, solidifying its position as a market leader in the food delivery space.

Q: What is Zomato's focus for future growth? A: Zomato is focusing on the quick commerce space, particularly with its Blinket business, which is showing robust growth and positive unit economics.

Q: What are the prospects for Zomato's profitability? A: While profitability remains a challenge, Zomato is actively working towards achieving it as the business continues to mature and scale.

Q: What sets Zomato apart in the quick commerce space? A: Zomato's focus on solving consumer problems and creating use cases for transactions gives it a competitive edge in the quick commerce space.