Zomato Fires On All Cylinders During Q1, 2024

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BUY

August 2, 2024

TARGET PRICE (Rs) : 270

Zomato once again churned out impressive results, with all segments registering healthy growth. Food delivery GOV growth remained robust at 27% YoY, and Blinkit continued tracking its sturdy growth path with GOV up 130% YoY to Rs49.2bn. For Food Delivery, the management sees GOV growth sustaining at >20% in the near term, slightly lower than that in the last couple of quarters. Blinkit’s stellar growth is complemented by continued improvements in profitability, where it sustained adjusted EBITDA breakeven despite investing in new stores. The mgmt now targets a store-count of 2,000 for Blinkit by 2026, as it continues its expansion spree for seizing market opportunities. Zomato has also announced its intention of building a one-stop destination app for ‘going-out’ called District and sees this as its third-largest B2C business. We revise our FY25-27 EPS estimates by -2% to 4%, factoring in the Q1 performance and the aggressive store expansion plans for Blinkit. We maintain BUY on Zomato, raising Jun-26E TP to Rs270/sh on SOTP basis.

Results Summary

Zomato reported revenue growth of 18.1% QoQ to Rs42.1bn, well ahead of our estimate of Rs38.1bn. All segments saw sequential growth, with Food Delivery/Hyperpure/Quick Commerce/Going Out growing 11.7%/27.4%/22.5%/2.2%, respectively. Food Delivery (FD) GOV grew 10% QoQ/27% YoY to Rs92.6bn. Average MTU in FD grew 6.8% QoQ to 20.3mn. Blinkit GOV grew 22.2% QoQ to Rs49.2bn, with adj. EBITDA sustaining the at breakeven levels. Overall adjusted revenue grew 16.7% QoQ to Rs45.2bn. Contribution margin for FD declined by 20bps QoQ to 7.3%. Blinkit’s contribution margin inched up by 10bps QoQ to 4%. Food Delivery adj. EBITDAM as a % of GOV improved to 3.4% (from 3.3% in Q4), while Blinkit’s adjusted EBITDAM improved to -0.1% (from -0.9% in Q4). Overall adjusted EBITDAM (as a % of adjusted revenue) improved, from 5% in Q4FY24 to 6.6% in Q1FY25. What we liked: Broad-based healthy growth across segments. What we did not like: Softness in FD contribution margin.

Earnings Call KTAs

i) During FY20-24, FD GOV CAGR was 30%. Given the expected structural demand growth and robust supply-side dynamics, the management expects a similar CAGR over the next 5 years, given that it executes well on all three marketplace fronts—customer base, restaurant partners and delivery partners. ii) FD contribution margin (as a % of GOV) declined by 20bps QoQ to 7.3%, and the company expects the volatility to continue, driven by seasonality. However, the mgmt. remains on track to achieve 4-5% adj. EBITDAM. iii) Competitive intensity in the QC business has been high, with some players spending more on marketing and subsidies. But this does not seem to affect Blinkit's performance, given the >20% GOV growth without the need to match the spends and subsidies. iv) It sees a line of sight towards logging a ~2k store-count by 2026-end at least (1k stores by FY25-end), while remaining profitable. Most of these stores would be in the top-10 cities. v) Average GOV throughput per store has grown, from ~Rs0.6mn/day in Q1FY24 to ~Rs1mn/day in Q1FY25. For the top-50 stores, avg GOV throughput is ~Rs1.8mn/day, which is still growing. The mgmt. believes that most stores are underutilized from a capacity standpoint, and hence GOV/day/store should continue increasing even after aggressive store additions. vi) Capex grew ~73% QoQ to Rs1.4bn, primarily due to addition of dark stores and a few Hyperpure warehouses. vii) The mgmt. reiterated that despite the expected increase in both, the ESOP charge and the cash employee expense, it expects total employee cost (as a % of adj. revenue) to continue trending downward in FY25 and beyond.