Zomato - Q1 FY24 - Quarterly Earnings Call

Key Guidance provided by the Management:

• Large part of the growth to come from increase in user growth.

• Targeting adjusted EBITDA breakeven in BlinkIt in the next four quarters

• Targeting 40%+ YoY growth in adjusted Revenue for the next few years

• Blinkit growth rate of 60% on GOV and overall revenue growth of 40%+

• 8% contribution to GOV is what they are aiming to meet their target of 4-5% adjusted EBITDA margin.

Key view points:

• At the end of Q3 FY23, Zomato had exited 225 cities citing “not very encouraging” business from those cities. Now their plan to open around 100 BlinkIt stores in the existing geography implies that they are now focusing more on increasing their portfolio size by selling more type of products to the same customers.

• On the food delivery side, user growth is expected to drive the GOV but not sure what is going to drive the user growth, probably some lucrative offerings.

• Margins are expected to get impacted in Q2 FY24 due to pay hike cycle in July.

• Q2 FY24 is expected to witness certain rain related disruptions in food delivery but at the same time quick commerce may jump due to favourable conditions for short distance deliveries.

• Increasing synergy between HyperPure and BlinkIt(quick commerce) is expected to improve the margins by reducing costs and increasing the revenue.

• Food inflation is impacting restaurants but at the same time restaurants are spending more on ads to increase the business growth.

Question & Answer Session

1. 11% QoQ GOV growth. How much was the IPL impact? - Doesn’t have too much impact on business. Seasonality is more to do with our business as our business is usually high during summers irrespective of IPLs.

2. Is the situation similar to world cup which comes after 4 years? - In general, the matches where viewership is high is where we see some impact. We are expecting some upside with the world cup this year.

3. AOV of BlinkIt is much higher than competitors. How sustainable we should look at it going forward? - Deals with such wide variety of products, AOV tends to move with season. This quarter, we are affected by supply chain constraint as well and that is reflected in AOV. Rest is season, supply chain, consumption pattern in FMCG and grocery space. You will see some variability in the AOV.

4. Medium term sustainable margins in food, which is GOV as % of Adj EBITDA. You said you are looking at 4-5% in next few quarters. Where we could settle in long term? - Hard to comment on this for now.

5. Drop in QoQ employee expenses? - Came down last two quarters. Largely a function of right sizing we did in December quarter.

6. Annual pay hike cycle? - July to July

7. News from Rajasthan government exploring rule in compensation to gig economy workers. How will that impact your business? - We are yet to get full clarity.

8. Any changes you have implemented on Blinkit side, have your delivery order number changes? - The changes we made in April were about bringing all delivery partner to same pay-out structure. Overall cost of delivery did not increase significantly for us. Most of the improvement on contributions side is coming from our operating leverage of our fixed assets and also from improving margin profile and average ticket size.

9. Could you call out some risky bets that worked in your favour? - It was largely on the pause we took in launching Zomato gold.

10. 100 bps improvement in take rates, how much is from ad income, zomato gold, restaurant commission? - We will not be able to share those details.

11. GMV mix on BlinkIt side? - Not given for individual products. We have been increasing the size of portfolio offerings to customers.

12. Did your Blinkit delivery cost increased in this quarter? - Delivery cost changes were not significant in this quarter. We don’t expect that to change in the coming quarter. Our entire delivery fleet was on a more equitable and fair pay-out structure.

13. How much of $320 mm that you were planning to burn in BlinkIt has been spent? - We will share that number once we get to breakeven profitability.

15. Some clarifications - Blinkit growth rate of 60% on GOV and overall revenue growth of 40%+. Fair to assume that 25-30% growth would be from food delivery for next few years? - Can’t comment.

16. You said most of the growth on food delivery will come from user growth. Is that fair assumption? - Yes.

17. You are determined to deliver growth and profitability for BlinkIt in the next few months, does that mean we can expect EBITDA break even in the next few months? - Expected in next one year

18. On the capital allocation side, if you are not considering any M&A in the near to mid-term then would you consider returning the capital to shareholders? - Not at this point.

19. Where should the number for contribution margin settle down to meet your target of 4-5% adjusted EBITDA margin? - Operating leverage will continue to scale in this business. 8% contribution to GOV is what we are aiming for.

20. How much of HyperPure growth came from synergy with Blinkit? - Business growing on both sides - suppliers to sellers on BlinkIt and from restaurants supply business.

21. Is there a case to believe that quick commerce can also get some synergy from leveraging the delivery footprint of food delivery business? - We have explored this and are taking some initiatives using technology to get better synergy.

22. Data on new customer addition on gross basis? – In line with number we have shared in past.

23. Till last quarter we were taking about consumption slowdown, discretionary slowdown, etc. Now we are confidently providing robust guidance on revenue growth. What has driven that change? - Our overall revenue growth guidance has been same for the last few quarters. Moreover, Hyperpure, Diningout and BlinkIt has grown really well. If we are showing robust growth of 15% revenue and 11% GOV sequentially in one quarter then we can continue this trend in the next year as well.

25. When we talk to QSR (Quick Service Restaurant) companies on deliver side, their outlook in not as positive as you are. What is the difference here? - QSR contributes single digit growth on our platform. So, our business is not affected much by that segment.

26. Should we be expecting some stress in demand due to increase in the food prices because of input prices? - On contrary, over the last few months we have been seeing increase in ad spends from small restaurants in order to increase overall growth.

27. Food delivery margin of 2.5% with dramatic improvement, should we expect moderate gains going forward? - Highly competitive market, and seasonality at play, hard to comment.

28. You have indicated addition of 100 BlinkIt stores this year. Are these going to be new geography? - We are targeting existing geography and we are seeing further headroom of growth in the same geographies having high volumes.

29. Your letter talks about dining out, do you need a separate app when you can do this with the existing app? - We are currently experimenting on this.

30. In terms of take rates, how much more scope if increase do you see there? - majorly due to growth in ad sales,

31. Color on advertising pickup in BlinkIt? - We are seeing ads as reasonable driver of BlinkIt revenue.

32. Any impacts due to floods in North India? - Yes, these do have hyperlocal impact on our business. We had some local issue in Gurugram recently. That has impact our business as well.

33. Employee cost as % of revenue declines in last one year, what would be the steady state for this figure in the coming years? - September umber will show the impact of pay hikes in employee cost.

34. 30% of GOV coming from Zomato gold, any color on AOV and behaviour of gold member and non-gold member? - AOVs are slightly higher for Gold members due to clubbing of orders and also from other benefits to the members.

36. How inflation will impact our business? - Food inflation is impacting restaurants but at the same time restaurants are spending more on ads to increase the business growth.

37. On Hyperpure Business, how many restaurant partners are on the platform and what is its growth trend? - One initiative was about increase in the minimum order value for restaurant to order on the platform. That resulted in the churning out of some small restaurants that were not meeting that criteria. There is going to be an increase in wallet share expected gradually.

38. What investment is done on Zomato Gold and where it will normalise? - Hard to say that at this point.

39. Any thoughts on platform fee that is being levied by peers in the market? - We are yet to take a call on this.

40. We have seen uptick in restaurant count, are these new ones? - Largely new ones.

41. In terms of fleet, delivery riders are getting cross utilised within the company. Could you provide color on cost savings here? - At this point can’t comment on this as this is not a part of our strategy.

42. Color on broad levers for BlinkIt to move to profitability over the medium to long? - Aiming to get adjusted EBITDA positive in the next 4 quarters. We are seeing expansion of wallet share of customers.