Analyst Concall
Zomato sees no sign of slowdown despite weak consumption
This story was originally published at 23:18 IST on 22 October 2024
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--Zomato: Less focus on market share as business is growing
--Zomato: Average order value in top 7 cities largely at similar levels
--Zomato: Major focus remains on top 8 cities that are still under served
--Zomato: Margin a drag due to fixed cost of opening new stores
--Zomato: No visible sign of slowdown in business due to weather conditions
--Zomato: Blinkit avg order value won't change dramatically from current level
--Zomato: Not planning any loyalty programs at this point
--Zomato: No change in strategy related to opening stores despite QIP
--Zomato: Will launch new 'District' app in a few weeks
--Zomato: Not in a hurry to transfer Zomato, Paytm customers to new app
MUMBAI – Food delivery company Zomato Ltd. sees no signs of slowdown in business despite weak consumption, similar to what it saw in Apr-Jun, the company's management said during a post-earnings press conference call. The company reported a fivefold increase in its consolidated net profit but still missed analysts' expectations by a wide margin. It is widely expected that consumption-related companies will likely report weak quarterly earnings for Jul-Sept as consumption has slowed down.
The management said gaining market share is not a focus for the company. Zomato said its primary focus is to grow its business, which has been growing over 120-130% on an annual basis. It also managed to report robust growth last quarter, despite the heightened competition, the management said.
Talking about its quick commerce segment, the company's management said it does not expect a dramatic change in the average order value of Blinkit. Customers using quick commerce platforms are using it for 'urgent use cases' and are not making high involvement purchases and this caps the average order value, the management said. The average order value may rise on the back of the proliferation of new categories and more customers buying in new categories, but it will not be a dramatic increase. The management also said it does not have any plans to introduce a loyalty program, unlike its peers.
The board Tuesday approved raising funds by issuance of equity shares through qualified institution placement. However, the fund raise does not change the company's guidance of taking the total store count to 2,000 by the end of 2025-26 (Apr-Mar), the management said. The company also said it is on track to achieve its goal of reaching 1,000 stores by the end of 2024-25.
The earnings before interest, taxes, depreciation, and amortisation margin did not expand this quarter on account of store expansion, the company said. The fixed cost incurred when a new store opens, till the store is operational, was a drag on the margin, the management said.
In terms of gross order value, Zomato is the largest restaurant aggregator in all major cities barring Chennai and Hyderabad. Gross order value includes the value of goods, taxes, and delivery charges. Further, the average order value in all major cities is largely at the same level. The company is no longer only focusing on growing its business in Delhi-NCR, they said. Zomato aims to build infrastructure in the top eight cities that the management believes are underserved. "It's sort of lower hanging fruit in terms of the opportunity ... before we really start building deeply into the smaller cities," the management said.
The company is set to launch its 'District' app, which will provide various going-out services, such as dining, movies, sports ticketing, live performances, shopping, and staycations. While the app is scheduled to be launched in four weeks, the company is not in a hurry to transition customers to the app from the existing Zomato and Paytm platforms. The management said it will get into details about the app in the next quarter. Tuesday, before the company announced its Jul-Sept earnings, shares of Zomato closed 3.5% lower at INR 256.35 on the National Stock Exchange. End
Reported by Anjali Singh
Edited by Deepshikha Bhardwaj
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