Investors sceptical about Zomato's quick commerce foray at US roadshow: Jefferies

Zomato CEO Deepinder Goyal

Investors were sceptical about the quick commerce (QC) foray of Zomato at a recent roadshow in the US as the business model of speedy deliveries has not proven in any large market yet, according to a report published by brokerage firm Jefferies.

“Is QC for real? A lot of investors expressed a fundamental question on Blinkit’s existence, with comments like ‘why someone wants grocery delivery in 10-min?’. In the event of success, there is concern on competition from Amazon, Flipkart and Reliance Retail,” wrote the Jeffereies analysts.

Last month, Zomato completed the acquisition of Blinkit (erstwhile Grofers) in a $570 million deal. Since then, the food delivery app has also created a grocery delivery feature on its own consumer app.

The brokerage firm recently hosted Zomato founder Deepinder Goyal and chief financial officer Akshant Goyal for investor meetings in the US. Investors were generally convinced on the food delivery moat and the discussion was mainly around the unit economics.

Investors have been positively surprised with the accelerated path to profitability recently. Earlier, Zomato said its food delivery segment hit breakeven in the June quarter with an adjusted Ebitda (earnings before interest, taxes, depreciation, and amortisation) of zero. It had registered an adjusted Ebitda loss of Rs 80 crore in the March quarter and a loss of Rs 30 crore in the year-ago period in this segment.

However, the company’s net loss in the June quarter narrowed 48 percent year-on-year to Rs 186 crore whereas revenue grew 67.5 percent to Rs 1,414 crore.

“We get a sense that investors still are not fully convinced on the breakeven guidance by March-September 2023. In this context, the meeting of target itself could be a positive surprise,” said Jefferies analysts.

“Also, contribution margin should steadily rise from 2.8 percent in the first quarter of FY23 led by higher restaurant take-rates (readjusting older contracts), ad revenues, higher customer take rate, delivery efficiency, etc,” they added.

In a move that can reduce delivery costs by up to 40 percent over time, Zomato has started testing the integration of food and grocery delivery fleets in parts of Delhi-NCR, Lucknow, Jaipur, Chennai and a few other cities, Moneycontrol reported earlier today.

While the delivery partner apps of Zomato and its quick commerce subsidiary Blinkit still remain separate, a third rider app has been created where delivery executives can sign up to service both food and grocery orders.