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Zomato reported a very strong quarter in 3Q, as most headline numbers were either in line or ahead of JMFe, amidst tough macros. Guidance was also robust, with the management suggesting 50%+ YoY growth in Consol. Adj. Revenue in the near term (vs. 40%+ guided in the medium term earlier), while also retaining its Adj. EBITDA break-even guidance for Blinkit by 1QFY25. Food delivery GOV grew a decent 6.3% QoQ (+27% YoY, broadly in-line JMFe), a marginal miss on guidance. Blinkit, on the other hand, reported strong sequential GOV growth of 28% (+103% YoY) ahead of JMFe of 26% QoQ. Profitability across all key businesses was better than expected, driving a strong beat on reported EBITDA (INR 510mn vs. JMFe INR 298mn) as well as PAT (INR 1.38bn vs.JMFe INR 0.65bn). While sequential food delivery GOV could moderate a bit in 4Q (owing to a high 3Q base, albeit YoY is likely to remain robust at 20%+ YoY), Blinkit trends should remain strong due to significant underpenetration and new store expansion (net 40 stores added in 3Q). Continued strong operating performance in both these businesses should keep the stock buoyant in the near term, in our opinion. Maintain high conviction ‘BUY’.

 Decent GOV growth in food delivery:

Food Delivery GOV grew 6.3% QoQ (27% YoY vs. 20% in 2Q) to INR 84.9bn, broadly in line with JMFe. While the trends were marginally below the management’s guidance of high-single digit sequential growth, we believe the market will overlook it, amidst tough macros and significant outperfermance vs. the listed QSRs. Growth was aided by strong 20%+ YoY expansion in monthly active resturants. While expanding supply remains a crucial near-term growth driver, management suggested that demand drivers (MTUs and ordering frequency) will remain long-term growth drivers for the business. During the quarter, MTUs expanded to 18.8mn from 18.4mn/17.4mn in 2QFY24/3QFY23. Food Delivery revenue grew 10% QoQ (+48% YoY) aided by strong GOV expansion as well as take-rate improvement to 20.1% vs. 19.4%/17.2% in 2QFY24/3QFY23, respectively. Sequential take-rate expansion was aided by improvement in platforms fees and advertisment income. While GOV is likely to expand 20%+ YoY in the near term, market share gains and rebound in macro consumer demand will be key to incremental growth.

Solid expansion in food delivery margins:

Contribution margin (as % of GoV) expanded 50bps QoQ to 7.1% (c.30bps ahead of JMFe) despite strong negative impact of Gold on delivery charges collected from customers. Fixed expenses grew 9% QoQ (4.1% as a % of GOV vs. 4.0% in 2Q), primarily due to 1) marketing spends for the festive season and World Cup and 2) increased server and tech cost. Overall, contribution margin aided Adj. EBITDA margin, which rose 40bps QoQ to 3.0% (c.20bps beat on JMFe). Consequently, Adj. EBITDA of INR 2.52bn expanded to INR 2.04bn/INR 0.23bn in 2QFY24/3QFY23, respectively, ahead of JMFe of INR 2.43bn. We marginally increase our adj. EBITDA margin over FY24-26E to factor in the beat in 3Q.

Blinkit reports robust GOV growth of 28% QoQ, on track for break-even by 1QFY25:

Blinkit’s GOV in 3Q stood at INR 35.4bn (+28% QoQ, +103% YoY), marginally ahead of JMFe. During the quarter, MTUs expanded to 5.4mn from 4.7mn/3.1mn in 2QFY24/3QFY23. AOV continued to expand sequentially, from INR 607 in 2Q to INR 635 in 3Q. The management attributed the AOV increase to assortment and GOV mix moving in favour of high average selling price categories (such as electronics, home décor, festive needs, among others). Having mentioned that, we expect AOVs to remain volatile in the near to medium term due to seasonal factors. The company added 40 net stores in 3Q, leading to a total active store count to 451 at the quarter-end. Blinkit’s take-rate during the quarter moderated a bit sequentially to 18.2% vs. 18.3% in 2QFY24 primarily due to higher contribution from low commission categories. Despite that, the company continued to report strong expansion in contribution margin to 2.4% (+110bps QoQ, +700bps YoY) mainly due to sharp ramp-up in per store throughput (+17% QoQ). Adj. EBITDA margin loss narrowed to 2.5% vs. a loss of 4.5% last quarter, benefitting from contribution margin expansion as well as corporate level operating leverage. We continue to believe take-rate expansion, store operating leverage and corporate level operating leverage are key levers for near-term margin expansion to break-even levels in Blinkit.

Hyperpure continues to see strong growth momentum:

Revenue grew 15.3% QoQ (+104% YoY) to INR 8.59bn, roughly in line with JMFe. Growth was driven by increase in supplies to restaurants as well as higher supplies to Blinkit. Adj. EBITDA margin for this business stood at -4.0% (-4.6% in 2QFY24) due to strong operating leverage that offset lower gross margin (9.0% in Dec-Q versus 9.5% in Sep-Q). Adj. EBITDA losses were sequentially flat at INR 340mn (loss of INR 530mn in 3QFY23). The company noted that it will be setting up a processing plant for value-added supplies such as sauces, spreads, pre-cut and semi-finished perishable products, among others.

Going-out and others:

Going-out GOV stood at INR 8.58bn in 3Q vs. INR 6.82bn in 2Q. Revenue grew c.56% sequentially (7.4% YoY) QoQ to INR 810mn. Adj. EBITDA loss was sequentially flat at INR 40mn; however, margin improved to -4.9% from -7.7% in 2QFY24. The company launched an events ticketing platform in 9 cities in India, a ‘Events’ tab for which is provided on the Zomato app itself. The company’s focus remains on growing this business and building scale, rather than chasing profitability. As a result, we can expect cost to grow at a higher rate than revenue, on account of investments.

Maintain ‘BUY’ with an unchanged SOTP driven TP of INR 200:

: We value food delivery at ~50x Mar'26 pre-IND AS EV/EBITDA, a significant premium to leading listed QSRs as it a) is a diversified play on the organised food services industry, dependent neither on growth of a few players nor on changing consumer appetite for any cuisine and b) operates on a lean business model, with limited need for capex or working capital investments. While Blinkit, once profitable, can command premium profit multiples to the food delivery business, as it is relatively more sticky and a play on retail commerce (bigger TAM and longer growth runway), for the time being we value it at 2x Mar'26 GOV. As Dining-out and Hyperpure businesses are loss-making, we value them at 3x/1x Sales, respectively, basis their long-term steady-state EBITDA margin potential. Our SOTP gives us a Mar’25 FV of INR 200 (refer exhibit . Zomato continues to be one of our preferred picks in the listed Internet space as we believe it is well positioned to benefit from robust industry tailwinds for the hyperlocal delivery businesses. Its balance sheet also remains strong with net cash of INR 120bn as of Dec’23 (INR 118bn in Sep’23). We maintain ‘BUY’.

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