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Blinkit continues to drive outperformance

Zomato posted steady operational results, with revenue ahead of our estimates whereas the margin miss was on account of higher than expected ESOP costs (for the Blinkit leadership team). Food delivery GOV grew 28.5% YoY to Rs84.4bn (-0.6% QoQ), with Blinkit GOV up 13.7% QoQ/96.8% YoY to Rs40.3bn. Blinkit achieved operational EBITDA break-even in Mar-2024. Management guided to Blinkit remaining closer to break-even levels at adjusted EBITDA for the next few quarters, considering the aggressive store expansion plan (~2x in 12M). Most of the store expansion should happen in the top-8 cities, where Management sees significant scope for growth as Company is still largely underpenetrated. We have mostly retained FY26E EPS, but lowered FY25E EPS by ~20%, factoring in the slower profitability for Blinkit on the aggressive store addition plan and higher ESOP costs. We maintain BUY and TP of Rs230/sh on SOTP basis, valuing food delivery at Rs121/sh (DCF basis), Blinkit at Rs93/sh (DCF basis), and cash & other investments at Rs17/sh (BV).

Results Summary

Zomato reported revenue growth of 8.3% QoQ to Rs35.6bn, slightly ahead of our estimate of Rs34.8bn. All segments reported sequential growth, with food delivery/ Hyperpure/ Quick Commerce/Going Out growing 2%/11%/19%/27%. Food delivery GOV declined 0.6% QoQ/grew 28.5% YoY. Average MTU grew 1.1% QoQ to 19mn. Blinkit GOV grew 13.7% QoQ to Rs40.3bn, and saw breakeven on adj. EBITDA basis for the first time, in Mar-24. Overall adjusted revenue grew 6.2% QoQ to Rs38.7bn. Contribution margin for food delivery improved further to 7.5% from 7.1% in Q3. Blinkit’s contribution margin improved to 3.9% in Q4 from 2.4% in Q3. Adjusted EBITDAM as a % of GOV improved to 3.3% (from 3% in Q3), whereas Blinkit’s adjusted EBITDAM improved to -0.9% (from -2.5% in Q3). Overall adjusted EBITDAM improved to 5% from 3.4% in Q3. What we liked: Strong growth, coupled with adjusted breakeven for Mar-24 for Blinkit. What we did not like: Slower expansion in Blinkit margin, higher ESOP costs.

Earnings Call KTAs

i) Total ESOP charge for Q4 was Rs1.61bn vs Rs1.22bn QoQ. Management expects ESOP charge to increase further in FY25 due to grant of ESOPs to the Blinkit leadership team and senior employees. ii) Company proposed to create an additional ESOP pool of 2% of outstanding share capital on a fully diluted basis which Management expects would suffice for the next 5-6 years. iii) Revenue growth in Q4 was driven by robust growth in both, food delivery and quick commerce. iv) Adj EBITDAM (food delivery) improved by 210bps YoY, driven by: a) higher AOV, b) improvement in take rate and ad monetization, c) introduction of platform fee, and d) cost efficiencies, which were more than compensated for the lower customer delivery fee on account of free delivery benefit on Gold orders. v) In FY24, Food delivery ATU grew 10% YoY. vi) Company added 75 net new dark stores for Blinkit in Q4 (80% of new stores are in the top-8 cities). Company expects adding another 100 stores in Q1FY25 and reaching a store-count of ~1,000 by Mar-25. vii) With the planned store addition in FY25, Management expects adj. EBITDA (QC) to hover at around zero for the next few quarters. In steady state, it expects 4-5% adj. EBITDAM (as a % of GOV). viii) Though Blinkit is present in 26 cities, it focuses on expanding in the top-8 cities in India. Other cities are catching-up, but Delhi NCR (the largest market) is growing at 7% QoQ, driven by addition of new stores and growth in demand from existing stores. Bengaluru is the second-largest market with less than 30% of Delhi NCR’s GOV. Avg. GOV of the next 6 cities is ~Rs1.93bn, with 32 stores. It plans to grow its presence in Bengaluru and other large cities which will lead to ~4x increase in GOV. ix) Blinkit take rate increased 1% QoQ on the back of increase in commission, advertisement, assortment mix, and delivery charges.

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