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Zomato delivered yet another impressive performance, with strong growth across segments. Food Delivery growth was solid for the second consecutive quarter, aided by demand uptick, strong execution, and growing adoption of the Gold program, which led to higher order volumes. Contribution margin for food delivery also saw an uptick to 6.6% from 6.4% in Q1. Blinkit GOV bounced back sharply by 29% QoQ, after temporary disruptions in Q1. Blinkit also managed to turn contribution-positive for the first time, delivering contribution margin (as a % of GOV) of 1.3%, and is on track to break even by Q1FY25. The company remains profitable, in line with its guidance in the last quarter. The management reiterated its adjusted revenue CAGR expectations of over 40% for the next couple of years. Consistent delivery in the last few quarters has reaffirmed our faith in the company’s execution capabilities. We raise FY24-26E EPS by 12-31%, factoring-in the Q2 performance. We retain BUY on the stock, with revised DCF-based TP of Rs140/share (earlier Rs120).

Zomato: Financial Snapshot (Consolidated)

Results Summary

Zomato delivered revenue growth of 17.9% QoQ to Rs28.5bn, well ahead of our estimate of Rs26.7bn. Growth was strong across segments, with food delivery/Hyperpure/Quick Commerce growth of 12.7%/20.7%/ 31.5% QoQ. Strong food Delivery GOV growth of 9% QoQ sustained for the second consecutive quarter, aided by uptick in demand, solid execution and growing adoption of the Gold program. The program now has 3.8mn members (~21% of MTU) and contributes to 40% of the GOV. Average monthly transacting users grew 5% QoQ to 18.4mn. Blinkit GOV surged 29% QoQ to Rs27.6bn, as the prior quarter had seen temporary business disruption in April. Overall adjusted revenue grew 16% QoQ to Rs32.2bn. The contribution margin for the food delivery further improved to 6.6%, from 6.4% in Q1. Also, adjusted EBITDA improved to Rs410mn, from Rs120mn in Q1. What we liked: Strong operating performance, GOV growth across segments, margin improvement across segments, healthy OCF in H1. What we did not like: Weaker-than-estimated EBITM due to higher ESOP costs.

Earnings Call KTAs

i) Company remains on track to deliver over 40% growth rate on adjusted revenue in the next couple of years. ii) Food delivery order volume growth is typically negatively impacted in Q2 due to lower delivery partner availability during the rains which was offset by better execution. iii) The Gold program continues to drive higher order frequency among members. iv) The management expects sequential food delivery GOV growth to be in a high single-digit, translating into 25-30% YoY. v) Management highlighted that majority of the growth is expected to come from growth in MTC, as more low-frequency customers start ordering more frequently. vi) Gold order is less profitable than a nonGold order due to impact of program benefits. However, expects gap to narrow, driven by efficiencies across both—pricing and cost of the program. vii) Food delivery take rate increased due to introduction of platform fee and ad monetization. viii) Company added 28 new Blinkit stores in Q2, taking the total store-count to 411. It plans adding at least 100 net new stores in FY24. With major festivals like Navratri, Dussehra, Diwali, etc. lined up in Q3, the management expects another high-growth quarter from Blinkit. New store addition will be a short-term drag on margins. Over 60% of the stores are contribution-positive, with some already noting over 5% contribution margin (as a % of GOV). ix) Consolidated cash balance as on 30-Sep-2023 stands at Rs118bn (vs Rs116bn at Q1-end). x) Company maintained target of Rs4.5bn ESOP costs in FY24.

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