Platform fee of Rs 2 to boost Zomato contribution margin significantly: Kotak

In the case of Blinkit, Zomato has reduced the number of dark stores over the past 4-5 quarters. Additionally, there was a 149% year-on-year increase in revenue per store in 1QFY24, and the company is determined to achieve a positive contribution margin (CM) within the next 1-2 quarters.

Brokerage firm Kotak Institutional Equities has estimated a Rs 40.50-crore contribution to Zomato's profit or EBITDA from the introduction of a platform fee of Rs 2 per order.

This would also result in an increase in the contribution margin (CM) of approximately 16 basis points. Achieving this could be a strategic step toward Zomato's medium-term goal of reaching an 8 percent contribution margin as a percentage of GMV (Gross Merchandise Value), compared to the reported 6.4 percent margin in the first quarter of FY24, the brokerage said.

Kotak said that expanding the business and cost management efforts are expected to lead these segments towards profitability in the coming quarters. In the case of Blinkit, Zomato has reduced the number of dark stores over the past 4-5 quarters. Additionally, there was a 149% year-on-year increase in revenue per store in 1QFY24, and the company is determined to achieve a positive contribution margin within the next 1-2 quarters.

"Focus on efficiencies in both Blinkit and Hyperpure can drive a faster-than-expected increase in profitability for the company. We upgrade our FY2024-26 EBITDA estimates by 21-52 percent and FY2025-26 EPS estimates by 97-177 percent," Kotak report said.

In 2022, Zomato disclosed having 2.7 million high-frequency customers, defined as those who placed more than 50 orders per year. The estimates are based on the assumption that these customers have an average of 75 transactions annually.

Zomato introduced its platform fee in August, following a similar move by rival Swiggy in April for specific users. Zomato aims to apply this fee universally, regardless of the Gold status, to enhance its customer take-rate. According to Zomato, the fee is intended to support the platform's operational costs, keeping the service running.

"We note that over the past few quarters, bulk of the take-rate improvement has been driven by a restaurant take-rate increase and delivery take-rate has lagged," Kotak said. The brokerage house has maintained the 'buy' rating and revised its target price to Rs 110 from Rs 105 a share.