Zomato targeting group-level profitability, including Blinkit, in 4 quarters: CEO

Zomato’s co-founder and CEO Deepinder Goyal said the company is aiming to achieve group-level profitability, including the quick commerce arm Blinkit, in four quarters. Increasing profits in the food delivery business and reducing losses in Blinkit will get the company there, he said in his letter to shareholders.

Goyal said the company’s business, excluding quick commerce, turned ‘adjusted Ebitda positive’ in the March quarter meaning its operating earnings, barring certain non-cash expenses and one-time charges, are greater than its operating expenses.

“I would rate our current confidence level (regarding group-level profitability) at 9/10....In food delivery, over the last five quarters, we have improved our margins meaningfully while further strengthening our market position. We will continue with the same mindset as we look to further expand the Adjusted EBITDA margin (from the current 1.2 percent) to our stated goal of +4-5 percent of Gross Order Value (GOV), which would translate to ~Rs 1,000 to Rs 1,300 crores of annual cash operating profit at the current scale of the food delivery business,” he wrote.

For the March quarter, the company’s losses narrowed to Rs 188.20 crore from Rs 346.60 crore in the December quarter and Rs 359.70 crore in the same quarter last year. Revenue for the quarter rose 69.66 per cent to Rs 2,056 crore for the quarter compared with Rs 1,211.80 crore in the corresponding quarter last year.

In the month of March 2023, over 65 per cent of its GOV was from contribution positive stores with some stores crossing 5 per cent of contribution margin.  “The improvement in contribution margin was driven by both revenue and cost levers. On the revenue side, better ad monetisation and higher customer delivery charges partially offset the drop in revenue per order due to lower AOVs. On the cost side, higher throughput per dark store and efficiencies in replenishment (warehousing and middle mile) drove down the cost per order (operating leverage).... We believe we are the most cost efficient and the largest quick commerce business in India today,” his letter said.

During the quarter, Zomato Gold membership base scaled to 1.8 million members and orders from Zomato Gold members (with free delivery benefit) comprised as much as ~30 per cent of its total GOV in March this year. Order frequency of these customers has on an average increased by ~60% post becoming members, the note said.

Goyal acknowledged the company’s delivery costs have not shown significant improvement over the past year, and attributing this to factors such as inflation and its investments on expanding the delivery radius.

As per the letter, its quarterly growth was adversely affected by a slowdown in demand between late October to the end of January. Recovery started in February 2023 and the consequent business growth is expected reflect in higher quarter-on-quarter (QoQ) GOV growth in the first quarter of FY24, which is projected to be in high single digits. The overall industry slowdown and other factors such as a shorter February and temporary shutdowns in certain cities had a negative impact on growth, but after normalizing for these factors, QoQ GOV growth in Q4FY23 would have been 0.8 per cent instead of a decline of 1.7 per cent, he wrote.

Goyal further said the company has gained market share in both the last quarter and the previous financial year (FY23).

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