Zomato - Should you order?

This might be a little overblown:-

GoV per store per day (avg. Q4) = 9.2 lacs (mature stores would have upwards of 10 lacs)
Total GoV in a year = 33.58 crores
3% commission = 100 lacs
Salary + Rental (Annual) = 25 lacs + 25 lacs = 50 lacs ( i have assumed 6-7 employees… 20 seems too high)

Overheads = 15 lacs
Net income to franchise owner = 35 lacs

Some points to note:-

  1. average GoV per store per day likely to be significantly higher for mature markets of Delhi. At 15 lac per day (assumption) for mature stores, net income bumps upto 60 / 70 lacs
  2. GoV per store per day itself is trending up for the company

  1. At current net income levels, payback period for franchise owners is under 2 years (even if I include deposit which is refundable)
  2. As categories get added and Blinkit take rates go higher, some of it will percolate down to franchise owners, strengthening the model

Key Monitorable

  1. For q-com to succeed, GoV for MT / GT have to reduce in key urban markets - NCR, BLR & Mum - so keep an eye out for SSSG for Dmart, Reliance Retail, etc… the SSSG has to show stagnation or decline - same for Amazon GoV
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A similar story from The Arc

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Sir, I implore you to read their financial statements.

Zomato posted a standalone PAT of around 1400 crores and Q4 standalone PAT was ~400 crs. Even if you exclude other income (treasury), Zomato is PBT +ve with growing profit pools. See screenshot below:-

On the point of cash flow, attaching their cash flow statement:-

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Did an analysis of the Q4 results of Zomato here. The major talking point in the earnings call + Q4 PPT was Blinkit (Quick Commerce) where Zomato has been expanding quite rapidly.

Here’s a brief summary:

Pros

Food Delivery

  • Food Delivery as a segment has matured with reasonable growth rates - however contributes close to 60% of topline and is the only segment which is profitable at the EBITDA level.
  • Revenue / EBITDA growth was flat however there was further expansion in margins
  • Average MTC was UP, ATC of around 66 million (up 10% YoY)
  • Launch of new service called ‘Large Order Fleet’ – to cater to large orders for parties, gatherings, events.
  • Scaling up Zomato Everyday - a service to provide home cooked food at reasonable rates. This service is live in Gurugram + a few location in Bengaluru.

Quick Commerce

  • All key metrics were UP. Blinkit achieved Adjusted EBITDA positivity in the month of March’24 and is gradually inching towards profitability.
  • Management wants to double store count to reach 1000 stores by March’25. Expect addition of 100 stores in Q1FY25. Presence in 26 cities with Delhi NCR having the highest store count + GOV.
  • Management wants to 4X GOV in non-NCR metro cities (top 8 cities) with a long term plan of having 400 / 500 stores in each metro.
  • Margins in quick commerce have increased (which is a function of product margin + delivery fees + ad income)
  • Average delivery fee per order was INR 20 – which the management will not reduce despite lower delivery fee offered by competition.
  • At some point, Blinkit’s MTU > Zomato’s MTU

Others

  • Strategy with HyperPure is to grow and not focus primarily on profitability because there is more room to grow as per the management.
  • Going Out Segment has been growing well, would be interesting to see how it contributes to the bottomline in the future.

Cons

  • Zomato is probably losing money on Gold program. There was no update on Gold pricing to better monetize the Gold program.
  • With growth in Quick commerce, there could be some cannibalization of food delivery – since people can order vegetables and make food at home instead of ordering online.
  • Increase in ESOP pool, would lead to increase in ESOP Costs affecting profitability.

At a P/E of >450 times (had to double check this) – at this valuation unless Zomato can double it’s profits every year, it doesn’t warrant a good entry point.

Disclosure: Not invested, tracking to see how long the frothy valuations can last.

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This isn’t correct. They’re going to open bulk of the stores in BLR & Mum and hence much of the GoV increase will come from these metro cities.

Also, how is TTM PE relevant? FY25E PAT is likely to be ~1500 crs or around 100x PE for a business growing its topline 40%+

Also, mind you, given the below par mandate, consumption is going to be back in focus… if Zomato can grow at ~25% (standalone) in a subdued consumption environment, the growth numbers in a conducive macro environment are anyone’s guess

Personally speaking, I don’t find Zomato expensive. It is just that market has better opportunities… but Zomato looks poised to deliver 100% return in next 2 years (40% CAGR)

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  1. Yes, it was a typo error I think - thanks for pointing it out. Growth in GOV will come from non-NCR metro cities.

  1. The FY24 PAT is INR 351 Cr. FY25E PAT of INR 1,500 looks highly unlikely given they’re rapidly expanding Quick Commerce + Food Delivery margins have stabilized. Most of the growth looks baked into the stock price.

  2. I doubt that, I think the valuations look very frothy. And competition is quite intense. It would be very difficult for Zomato to deliver a 100% return from here. Just my opinion.

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Not really.

FY26 consol PAT is likely to be around 3400 crs - 2400 crs (food delivery) + 1000 crs (blinkit)
On that basis, the stock is what 50x FY26? not expensive for a duopoly business in a high growth industry

Hell Dmart trades at 100x despite 12% growth… same with all fmcg cos

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What’s the backup working for these numbers? I don’t think management has guided these numbers - do you have a hypothesis on how PAT will be INR 1,500 and INR 3,400 crore in FY25 and FY26 respectively?

FY25 I’m not sure because of Blinkit, otherwise Food Delivery PAT is already at 1800 crs odd run rate (Q4 PAT was 396crs)… losses from other verticals may take the console number to around 1000crs

FY26 onwards, Blinkit should start reporting profits (post expansion phase of FY25), assuming 2% PAT margin on GoV, we get around 800 crs profit (assuming 40k cr GoV by FY26). Food delivery PAT (assuming 25% growth) should be around 2250 crs. Total consol PAT of around ~3100 crs.

Note - above is conservative, because they have guided for 4-5% stable state EBITDA margins on GoV. The actual PAT margin may not too low from that guided number… but still I’ve assumed 2% on GoV. Further, while a 4x GoV growth has been guided, I’ve taken a conservative 40k cr as GoV when it can be higher since macro easing is likely in the following few months.

Also you can read any of the analyst report and these are the rough assumptions… infact most numbers are higher since we’re in a subdued macro environment and in all likelihood, Zomato should go back to 30%+ Rev growth & 31/32% PAT growth on FY25 base, which itself is likely to be atleast 25%

EDIT - Income on treasury may reduce since global rates are likely to come down… Zomato consol has a huge other income component as of now… in either case, Cash is a huge optionality in the business since they’re now generating upwards of 250 cr every quarter

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  1. Q4 PAT for the whole business is INR 175 Cr (including a deferred tax credit of INR 14 Cr) and not INR 396 Cr. Q4 Adjusted EBITDA for Food Delivery biz was INR 275 crore, but this is not PAT. - where is the PAT of INR 396 crore being taken from?

  1. Let’s forget about all the adjusted EBITDA terminology and look at the hard numbers. For FY24, Zomato’s PAT % is 2.71%. For Q4FY24, Zomato’s PAT is 4.61%. For our experiment, let’s say that Zomato is able to maintain this PAT % for FY25 and able to achieve 5% PAT for FY26. Here’s a table of how the PAT would look like even if Zomato’s doubles it’s revenue YoY. I am not even taking 30-35% growth. I am taking 100% growth.

image

  1. With expansion in Blinkit, HyperPure, Going Out – Capex is going to be high which would result in higher depreciation. FY26 PAT of INR 3,100 is extremely difficult to achieve.
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  1. Sir, what is the point if you don’t look up basic numbers? My previous posts have said standalone PAT was 396crs. I’m not going to post screenshot, you can check the standlaone FS for yourself. Standalone business refers to Food Delivery, which I used synonmyously in my previous post. Q4 PAT was 396 crs and the business is already at roughly 1700 crs ARR. Much of it is due to high other income, but the gap is expected to narrow as business grows sustainbly.

  2. Adjusted EBITDA to PAT bridge is given in every shareholder letter and you can check how broadly the numbers are same since other income cancels out ESOP expense and rental expense etc… Given how they’re generating cash, I only expect it to inch up.

If you don’t see the fallacy in using the same PAT estimate for the next year, then its disappointing. Blinkit itself has broken even in March. So, Q1FY25 margins even on a console level will be higher due to normal trend up in Zomato and near 0-0.5% margin in Blinkit

  1. Sir again, how much capex? Blinkit itself is asset light due to FOCO model. Going out is built asset light. Hyperpure - granted is an asset heavy business. But how much capex? Total capex is not likely to be more than 600 crs in my view. That’s not a huge number in any way.

In any case, here is Kotak estimates for you

In any case, the beauty of markets is differing opinions. If its frothy, don’t buy or sell / I find immense value in these valuations right now given its a large cap.

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Ravi - your analysis is on point. I didn’t consider the Standalone PAT, was looking at the consolidated business.

I am being a little conservative with my estimates, since it is anyone’s guess where the PAT % would land up and I still feel a PAT of INR 3,000+ crore would be difficult to achieve in FY26. Analysts are generally quite aggressive in their estimates, so I always take that with a pinch of salt, however would love to be proven wrong.

Guess we will analyze the quarterly #s to see how things go.

But, I appreciate the analysis and this back and forth that we had. I enjoyed it!

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Zomato to pump Rs.300 crore more into blinkit. Now total Investment touches Rs.2300 crore.

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Zomato has started Everyday offering in my area (Rohini, Delhi). I ordered just to try and it told me 2.7 lac orders today (mind you I ordered breakfast). So taking an avg of 7 lac orders per day, AOV of 100 bucks, this is c7r per day or 210cr per month.

Not sure how revenue works, since this is not with restaurant partners, but directly with home owners. Assuming a higher take rate (say 30%), we get to around 70crs per month of added revenue.

Plus there is cross sell assuming a lot of these orders would be to new customers (need to watchout for MTU growth).

Overall looks positive if they can scale up the offering. I’ve taken conservative numbers.

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