Zomato
Equity Research and Fundamental Analysis
Overview
Zomato Ltd., a prominent player in India's online food delivery and restaurant discovery market,
has rapidly grown in popularity since its inception, leveraging technology to address changing
consumer dining preferences. With a market capitalization of nearly INR 2.1 trillion, Zomato’s
diverse business segments, including food delivery, B2B supplies (Hyperpure), and dining-out
subscriptions (Zomato Gold), position it as a leading entity within its sector. This report
evaluates Zomato’s financials, focusing on business fundamentals and valuation. The analysis
spans industry structure, competitive positioning, financial health, management competence,
and regulatory environment.
Industry Structure and Attractiveness
1. Market Size and Growth India's online food delivery market has expanded significantly,
driven by rapid urbanization, increasing smartphone usage, and a growing preference for
convenience among consumers. With more disposable income, urban demographics
have shown a clear shift towards online food ordering, especially in metro cities. The
Indian food delivery market is estimated to grow at a compound annual growth rate
(CAGR) of 15.8%, providing substantial headroom for Zomato's future growth.
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2. Trends and Opportunities: Rising demand for 10–15-minute deliveries, integration of
sustainable packaging, and increasing partnerships between food tech platforms and
cloud kitchens are reshaping the industry
Competitive Landscape
Zomato faces intense competition from Swiggy, its primary competitor, which offers similar
services in both food delivery and grocery delivery. While Zomato’s extensive restaurant network,
coupled with Hyperpure’s B2B reach, provides it with a notable competitive edge, both firms
continually innovate and adjust pricing strategies to capture market share.
Zomato's strong brand recognition, large user base, and technological infrastructure form its
primary competitive moats. Additionally, its Hyperpure B2B supplies business provides an added
revenue stream, differentiating it from Swiggy and catering directly to partner restaurants.
Zomato had MTUs(Monthly Transaction Users) 20 million, which is nearly 30% more than
Swiggy’s MTU at 14 million in the last quarter, however, the AOV(Average order value) lagged
slightly behind, at Rs. 428 vs Swiggy’s Rs. 436 per order. Consequently, Zomato’s Gross Order
Value stood at $ 1100 Million in the last quarter compared to $ 820 Million for Swiggy.
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Barriers to Entry
The food delivery industry poses significant entry barriers for new players due to high
capital requirements for logistics, stringent regulatory compliance, and the complexity of
last-mile delivery. Zomato’s established brand and extensive market reach in India act as
further deterrents to new entrants.
Business Model
1. Original BM
Zomato’s business model is multi-faceted, generating revenue from various streams,
including:
● Commissions from Restaurants: Zomato charges restaurants a commission for
orders placed through its platform.
● Delivery Fees: Customers pay delivery fees based on distance and order size.
● Subscription Revenue: Zomato Gold, a premium subscription service, provides
members with benefits on dining and food delivery.
● Advertising Revenue: Restaurants can advertise on Zomato’s platform to
enhance visibility.
This diversified revenue model helps Zomato hedge against risks associated with
reliance on any single income stream
2. Acquiring Grofers and Hyperpure
Zomato's acquisition of Grofers (now Blinkit) was a strategic move to tap into the
burgeoning quick commerce market. This acquisition has significantly expanded
Zomato's customer base, increased order frequency, and boosted average order value.
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By leveraging its existing delivery network and customer loyalty, Zomato has accelerated
Blinkit's growth and established itself as a major player in the quick commerce space.
Financial Analysis
Income Statement Highlights In FY23-24 reveal that Zomato’s operating income grew by an
impressive 71.1% year-on-year (YoY), reflecting strong demand recovery post-pandemic and
Zomato’s expanded offerings. However, operating profit margins declined to 0.1% from 17.7% in
FY23, indicating high operational costs and competitive pricing pressures.
Fixed assets grew by 66% YoY, indicating Zomato’s investment in technology and infrastructure.
Current Liabilities: Increased by 44.6% YoY, highlighting a need for liquidity management. The
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significant growth in fixed assets reflects Zomato’s focus on enhancing delivery infrastructure,
while the rise in current liabilities underlines a potential short-term solvency risk if revenue
growth doesn’t match the pace of debt obligations.
Zomato’s cash flow from operations improved, showing a positive balance of INR 6 billion in
FY24 compared to INR -8.4 billion in FY23, indicating better operational efficiency. However,
increased cash outflow from investing activities suggests aggressive expansion.
Solvency Ratios: The current ratio decreased from 7.5x in FY23 to 2.6x in FY24, indicating
reduced short-term liquidity but still above critical levels.
Profitability Ratios: Return on Equity (ROE) improved from -5.3% in FY23 to 1.8% in FY24,
marking a shift toward profitability.
Valuation Ratios: With a Price-to-Earnings (P/E) ratio of 388.8x and a Price-to-Book (P/B) ratio of
11.9x, Zomato’s valuation remains high, reflecting growth potential but also implying a high
market expectation for continued growth.
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Management & Board Analysis
Leadership Competence: Zomato’s CEO and board members bring substantial experience in
technology, logistics, and food service industries. Management’s strategic pivot towards
profitability reflects strong financial stewardship, particularly through optimizing delivery
logistics and focusing on core revenue-generating activities.
Governance and Stability: The stability of Zomato’s board and its alignment with investor
interests are evident through the company’s commitment to transparency, as seen in quarterly
updates and earnings calls. However, there have been recent changes in key executive roles,
which investors should monitor for any potential impact on strategic continuity.
Ethics & Integrity: Zomato has been proactive in addressing regulatory issues, including food
safety and data privacy, which has enhanced its reputation and supports a long-term
brand-building approach. The management’s clear communication of growth objectives and
adherence to compliance protocols add credibility to Zomato’s business practices.
Conclusion
Business Analysis
Strengths: Zomato’s strong market position, diversified revenue streams, and commitment to
long-term growth through B2B (Hyperpure) and subscription services (Zomato Gold) signify a
solid business foundation. The company’s pivot towards profitability is a positive indicator for
sustainable growth.
Weaknesses: High operational costs and competitive pricing pressures strain Zomato’s profit
margins, as evidenced by the sharp decline in operating profit margin from 17.7% in FY23 to
0.1% in FY24. Additionally, industry volatility and macroeconomic sensitivity pose risks to
revenue consistency.
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Valuation Analysis
High Valuation Multiples: Zomato’s valuation ratios, including a P/E ratio of 388.8x and a P/B
ratio of 11.9x, indicate high market expectations for continued growth. While this signals
investor confidence, these ratios are above industry averages, suggesting that Zomato may be
overvalued relative to its current profitability levels.
Potential for Long-Term Growth: Zomato’s revenue growth of 71.1% in FY24 underscores its
capacity to scale, but the path to sustained profitability remains challenging. Valuation at current
levels may be justified if Zomato can maintain its growth momentum and improve operating
efficiencies.
Recommendation: Based on WhiteOak Capital’s dual focus on business strength and
valuation, Zomato presents a promising growth story but comes with valuation risks. Investors
aligned with WhiteOak’s philosophy may prefer a cautious approach or wait for valuation metrics
to align more closely with profitability improvements.
References:
https://www.screener.in/company/ZOMATO/consolidated/#top
https://in.investing.com/equities/zomato-ratios
https://www.moneycontrol.com/annual-report/zomato/directors-report/z#z
