Zepto’s cash burn zooms to Rs 250 crore a month on rising capex, closes Rs 2,500 crore funding round

The rise in cash burn comes against the backdrop of Zepto closing a Rs 2,500 crore ($300 million) funding round from high net worth individuals (HNIs) in India, as it looks to build a war chest to fend off rivals and gain market share.

Zepto’s cash burn has zoomed to over Rs 250 crore ($30 million) per month in the last two months, amid rising competition in the quick commerce space.

The rise in burn comes against the backdrop of Zepto closing a Rs 2,500 crore ($300 million) funding round from high networth individuals (HNIs) in India, as it looks to build a war chest to fend off rivals and gain market share.

At least four people familiar with the development told Moneycontrol that while Zepto’s monthly burn was trending in the Rs 35-40 crore range in May this year, this has risen over six times in the last three months as it has amped up investments in operations, digital marketing and hiring.

Zepto’s burn zooms

While the company burnt Rs 250 crore (around $30 million) in September, the monthly cash burn went as high as Rs 300 crore (about $35 million) in October, two of the persons cited above said while adding that it is likely to stay in the Rs 300 crore range for November as well. To be sure, this also coincides with the annual festive season in India, the busiest quarter for e-commerce, and now quick commerce companies.

Zepto CEO and co-founder Aadit Palicha confirmed the developments to Moneycontrol and said, “(Over) 70 percent of our existing stores have hit full EBITDA profitability. The capital we are burning is primarily for the capex, working capital, and ops set up to launch 100s of new stores per quarter.”

“Although the investment is upfront, these stores have a better EBITDA trajectory than the older stores - giving us the conviction to invest in launching new stores, which is delivering 200%+ y-o-y growth on a base of 10s of thousands of crores of scale," he added.

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The people citied above say Zepto has been aggressively spending on digital marketing, performance marketing, spending to buy keywords on Google and Meta, giving out discounts to acquire customers and more.

Keywords, talent costs spike

“The rates to buy keywords have increased over the past month or so because of how high Zepto’s bids are. Some other companies have stopped spending because it makes no sense to acquire customers at that rate,” one of the persons cited above told Moneycontrol.

“Zepto is spending close to Rs 120 crore a month in digital marketing and is now the leading app in the category. Just look at their downloads on Playstore”, a second person said.

“It has become crazy and they are now giving hikes of up to 50-60 percent to poach talent”, a third person told Moneycontrol, underscoring the intense competition in the sector.

The company is also giving higher discounting on products listed on its platform, especially the wholesale unit Super Saver, to pull customers away from other apps and push up its base of transacting users. Discounts on iPhones too are attractive, with the company giving at least Rs 4500 off on the latest models.

“Zepto has realised it’s not the time to go slow, this is when it needs to accelerate which explains the aggression,” a person aware of the company’s workings said.

Zepto competes with Zomato-owned Blinkit, Swiggy Instamart, Tata’s BigBasket and Flipkart Minutes in the quick commerce space.

Fresh funding

Zepto’s rapid growth and aggressive expansion continues to be a huge draw for investors. It has already raised over a billion dollars this year and has just closed a fresh primary round of $300 million (Rs 2,500 crore) from a bunch of family offices, who are looking to diversify their bets.

Moneycontrol had earlier reported about the round being smaller, at around $150 million, but since then it has increased the round size.

"Investors are confident with the mature store profitability proven and the forward indicators of EBITDA for new stores, which is why we have successfully raised the largest ever 100 percent domestic financing for a private startup in Indian history. We are raising this Indian capital as a first step to quickly becoming a fully Indian-owned company within the coming fiscal," CEO Palicha told Moneycontrol.

Moneycontrol has learnt that Zepto has raised the latest tranche from family offices such as Motilal Oswal’s Raamdeo Agrawal, Manipal’s Ranjan Pai, the family offices of Mankind Pharma, Cello and Bisleri, among others, will also participate.

With this, Zepto now has a cash balance of $1.4 billion. At the same time, Swiggy listed on the bourses this week and Zomato is planning a QIP next month, to raise $800 million-$1 billion, Moneycontrol had reported earlier, which will further intensify the quick commerce battles.