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The RHP of Zomato, which is preparing to go public, shows an improvement in operational indicators in the March quarter.
Photo courtesy of Zomato
Pallavi Pengonda contributed to this article.
9th of July, 2021
The RHP (red herring prospectus) for IPO-bound Zomato Ltd provides valuable insight into the meal delivery company’s performance. According to analysts, the corporation showed good recovery in March 2021 across key operating indicators.
“The substantial gain in signed up restaurants on delivery/discovery platforms (approximately 16000/40000) is the most interesting update – given it comes amidst negative news flow regarding ‘perceived’ discontent of ‘some’ restaurants with Zomato,” ICICI Securities Ltd analysts wrote in a research on July 8. “The restaurant count on the delivery platform was roughly 5000 more than even the pre-covid peak,” the trader continued.
Furthermore, Zomato’s average order value, or AOV, for the March quarter was roughly Rs395 compared to Rs287 in the previous quarter. However, as compared to the December quarter, when AOV was approximately Rs408 crore, the figure remained relatively steady. AOV is determined by the number of individuals for whom food is being ordered as well as the cost of meals in restaurants.
In the March 2021 quarter, Zomato’s GOV was Rs3,310 crore. GOV is for gross order value and refers to the overall monetary worth of orders, which includes taxes, customer delivery charges, and any discounts, but excludes tips. “As the Indian lockdowns eased near the end of May 2020, our food delivery business began to recover, and in the fourth quarter of fiscal 2021, we reached the highest GOV achieved by us in a quarter in India until March 2021,” the RHP notes.
“GOV retention in older cohorts (FY17 & FY18) was pretty solid notwithstanding covid impact in FY21,” according to ICICI Securities analysts. “Expectedly, retention in newer cohorts (FY19 & FY20) witnessed a larger drop,” they noted. These cohorts, in our opinion, are mostly outside of the city core, where food services experienced more substantial logistical difficulties (compared to the Top-20) due to lockdowns.”
Zomato’s unit economics were hurt in the March quarter by increasing delivery charges, to be sure. It’s worth noting that gross contribution per order was Rs16 in the March quarter, down from Rs23 in the nine-month period ending December 2020. For FY20, this indicator is negative Rs31.
“While we estimate unit economics to deteriorate in FY22, habit-forming delivery convenience will outweigh and drive scale and value,” Edelweiss Securities Ltd analysts wrote in a research on July 8. “The IPO of Zomato is the first in the much-discussed consumer tech space. The sector is still in its infancy and has a long way to go. While price power is restricted, small network effects enable larger companies in gaining significant size, according to the Edelweiss analysis.
This article initially appeared on livemint.com.
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