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Our channel checks suggest macro pressures continued to weigh on demand for online food delivery in Sep-Q. Competitive intensity also appears to have picked up following Swiggy’s (Unlisted) announcement of a shift in focus back to growth over profitability. During the quarter, we noted a sharp reduction in loyalty membership fees (for a select few users) by both Zomato as well as Swiggy. The latter also launched a co-branded credit card with a leading bank that is likely an attempt to acquire and retain high quality consumers. Our checks also suggest daily order volume for the ONDC network has not increased materially despite continued incentives. Overall, we expect Zomato’s sequential food delivery GOV growth in Sep- Q to be closer to mid-single digit (mid-teens growth on a YoY basis, broadly in-line 1Q). Blinkit, on the other hand, could report very strong high-teens sequential GOV growth led by robust increase in order volume. While we also anticipate sequential expansion in Adj. EBITDA margin (as % of GOV) in food delivery and Blinkit businesses, the quantum could be lower compared to the last 2 quarters due to increase in certain fixed costs.

* Take-rate expansion key to revenue as well as margin improvement in food delivery business: Despite near-term macro challenges, we expect Zomato’s food delivery GOV to grow at a CAGR of c.19% over FY23-26 basis the assumption that online food delivery industry would grow 1.2x-1.5x of the underlying organised food services industry. Here, we do note that reported revenue growth would be relatively higher than GOV growth due to the recent improvement in take-rates (reported revenue as % of GOV). While take-rate stood at 17.2% in FY23 (18.7% in 1QFY24), we expect it to improve to 20%+ in FY25. In our opinion, key drivers of this improvement would be a) restaurant commissions (as % of net sales value), b) ad income from restaurants, and c) platform/membership subscription fees. Further, in the absence of any direct associated cost, take-rate improvement should largely be a direct pass-through to EBITDA. Consequently, we believe take-rate (in addition to operating leverage) would be a key driver of adj. EBITDA margin (as % of GOV) expansion from 2.5% in 1QFY24 to 4-5% (management’s medium-term guidance).

* Blinkit on track to achieve adj. EBITDA break-even by 1QFY25: We expect Blinkit to report very strong GOV growth in the near to medium term on the back of improvement in order volume (that in turn would be driven by MTU increase). This is because we believe quick commerce platforms are steadily disrupting the unorganised retail industry in Tier 1/2 cities. Growth in our opinion would be a function of improvement in capacity utilisation rate of existing stores as well as addition of new stores (management guidance of ~100 net new store additions in FY24). From a profitability perspective, we see takerates (function of product commissions, ad income and customer delivery/handling fees), store level operating leverage and corporate level operating leverage as key contributing factors to Blinkit reporting adj. EBITDA break-even by 1QFY25

* 2QFY24 expectations summary: We forecast 15% YoY (+4% QoQ) growth in Zomato’s food delivery in 2Q, broadly in line with 14% YoY in 1Q. In Blinkit, we expect sequentia

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