August 17, 2024
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Stock Market

How Zomato Transformed Losses into Profits: A Business Success Story

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Stock Market

How Zomato Transformed Losses into Profits: A Business Success Story

Zomato is a popular food delivery and restaurant discovery platform. The company has experienced a significant financial turnaround. It has previously struggled with losses and has successfully transformed its net loss into a net profit. This development marks a crucial milestone in the company’s financial journey and has caught the attention of investors and industry analysts. In this article, we are highlighting Zomato Limited’s successful transition from a net loss to profitability.

Industry Overview

The online meal delivery business is expected to generate $43.78 billion by the end of 2024. It will potentially reach $91.88 billion by 2029, which is increasing at a compound annual growth rate of 15.98% over the next five years. The grocery delivery sector in India is estimated to be worth $30.65 billion in 2024, having grown at a CAGR of 19.24% to $73.89 billion in 2024–2029.

In 2024, India’s food and grocery delivery sector is predicted to generate an average income per customer of $183.4. The Indian meal delivery business is anticipated to have 351.2 million customers by 2029, with user penetration reaching 18.3% in 2024. In the food delivery sector, Zomato is the leading player in the market.

Company Overview Of Zomato

Zomato is an Indian multinational restaurant aggregator and food delivery service business founded in 2008 by Deepinder Goyal and Pankaj Chaddah. Deepinder Goyal has witnessed difficulty ordering food from restaurants with his colleagues, and at that moment, he understood the need for a food delivery platform. Initially launched as FoodieBay.com in 2010, the company rebrands to Zomato.

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The Zomato platform provides information about restaurants, including tools for online presence management, targeted advertising, and customer engagement. The company runs a platform that facilitates food delivery by connecting customers with restaurants through their online service. It also facilitates food delivery from partner restaurants across more than 1,000 cities in India and serves more than 90 million users.

The company is allowing users to order meals for delivery to their location. Info Edge, Sequoia Capital, Ant Financial, and other investors funded Zomato in many rounds, which pushed the company’s explosive development and global expansion.

Segment Analysis and Revenue Growth Across Food Delivery to B2B

Zomato Limited has diversified its operations into food delivery and going out (Zomato App), quick commerce (Blinkit), and B2B supplies (Hyperpure). The chart below shows the share of GOV owned by each segment of Zomato Limited.

Food Delivery (Zomato)

The food delivery segment launched in 2015. It operates to connect customers with local restaurants, allowing for quick and reliable food ordering and delivery. The food delivery business has a footprint in more than 800 cities across India.

Food delivery has increased gross order value (GOV) from ₹26,305 crore in FY23 to ₹32,224 crore in FY24, which has grown by 23% YOY. The adjusted revenue has grown by 27% YOY, which is from ₹6147 crore to ₹7792 crore in FY24. The interesting thing is that the adjusted EBITDA of this segment went from zero to 2.8% in FY24.

Quick Commerce (Blinkit)

Quick Commerce (Blinkit) was acquired in August 2022. It offers on-demand delivery of thousands of products across multiple categories in less than 15 minutes. Customers can place an order in the Blinkit app, which is fulfilled by a network of stores located within a 2-3 km radius and delivered through partners. It has operated over 526 stores in 26 cities across India.

The Quick Commerce GOV has increased by 93% YOY, from ₹6,449 crore to ₹12,469 crore in FY24. The revenue also increased from ₹1,063 crore to ₹2,301 crore, which has grown by 116% YOY. In March 2024, Quick Commerce’s adjusted EBITDA margin will be break-even.

Going-out (Zomato)

The going-out segment was started in 2022 by Zomato Limited. This segment has been enabling discovery and transactions for dining out and event ticketing. The dining-out business expanded into over 41 cities, adding numerous restaurant partners and introducing features like map view and group booking options.

Going-out segment GOV has increased by 136% YOY, from ₹1366 crore to ₹3225 crore in FY24. The revenue of this segment has increased from ₹171 crore in FY23 to ₹258 crore in FY24, which has grown by 51% YOY. In FY24, the adjusted EBITDA margin improved from -1% to -0.2% of GOV.

B2B supplies (Hyperpure)

The B2B supply segment was established in 2019. B2B businesses supply quality food ingredients & other products to restaurants and other B2B buyers. It has expanded to 8 cities in India. The Hyperpure gross order value has increased by 111%, from 1506 crore in FY23 to 3172 crore in FY24. The adjusted EBITDA margin has improved from -13% in FY23 to -4% in FY24.

Zomato’s Financial Journey

In the financial year 2021–22

The Zomato company’s revenue increased from ₹1,994 crore to ₹4192 crore in FY22. After COVID, the food delivery segment increased the growth in order volume, improved the average monthly transaction of customers, and added more than 1000 cities. In Hyperpure, the company increased the cities and the customer base as well.

In the year, the net loss of Zomato Limited has grown from ₹816 crore to ₹1222 crore. It is the reason for increasing the delivery partners It has impacted double the expense of employees. On the other hand, the expenses of the company also grew by 154.24% as compared to the previous year, 2021.

In the financial year 2022–23

Zomato Limited’s revenue increased by 68.87% to ₹7,079 crore in FY23. The adjusted revenue grew by 57% YOY to ₹8690 crores. Adjusted revenue growth was driven by the food delivery and Hyperpure businesses, as well as the consolidation of the quick commerce business.

Zomato Limited’s net loss has improved from ₹1222 crore to ₹971 crore in FY23. Because of a reduced adjusted EBITDA margin, a reduction in cost-per-order, and revenue growth. The reason for the net loss is the increase in cost of goods sold, depreciation, and other expenses. On the other hand, consolidation of losses for Zomato and Blinkit.

In the financial year 2023–24

the company’s revenue surged by 71.13%, from ₹7079 crore to ₹12114 crore in FY24. Zomato Limited’s gross order value increased by 48% to ₹47918 crore. The company has increased the number of restaurant partners, delivery partners, annual monthly transactions, and the number of stores as well. On the other hand, the company has increased platform fees.

Zomato Limited has turned the operation from a net loss to a net profit. It is from a net loss of ₹971 crore to ₹351 crore of net profit. The reason behind that the company has achieved a positive adjusted EBITDA margin for the first time. The improvement in adjusted EBITDA was driven by a higher average order value, an improvement in take rate and advertisement monetization, the introduction of platform fees, and cost efficiencies. Although growth in GOV and adjusted revenue.

In the financial year 2024–25 of Q1

Zomato Limited increased its revenue by 74.09%, from ₹2416 crore in Q1 FY24 to ₹4206 crore in Q1 FY25. The net profit also increased by 44.57% to ₹253 crore in Q1 FY25 as compared to the previous quarter. The company reported a net profit of ₹2 crore in Q1 FY24. Zomato’s B2C operations had a 53% year-on-year increase in gross order value (GOV), reaching ₹15,455 crore. Food delivery GOV increased by 27%, quick commerce by 130%, and going-out business increased by 106% over the same quarter of the previous year.

Zomato Limited’s operating profit margin has improved from -13.64% in FY23 to 2.99% in FY24. The net profit margin also turned from negative to positive, from -13.71% to 2.89% in FY24. The company’s ROE and ROCE were 1.71% and 1.70% in FY24, respectively. Zomato is an almost debt-free company but has lease liabilities of ₹749 crore in the balance sheet of FY24. The company has a debt-to-equity ratio of 0.04x.