IPO-bound Zomato’s RHP reveals recovery in operational metrics in March quarter

Photo: Zomato

IPO-bound Zomato Ltd’s RHP (red herring prospectus) offers a good insight into the food delivery firm’s performance. Analysts said the company has shown good recovery across important operational parameters in March 2021.

ICICI Securities Ltd’s analysts said in a report on 8 July, “The robust increase in signed up restaurants on delivery/discovery platforms (about 16000/40000) is the most interesting update – given it comes amidst negative news flow about ‘perceived’ dissatisfaction of ‘some’ restaurants with Zomato.” The broker added, “End–March 2021, restaurant count on the delivery platform was about 5000 more than even the pre-covid peak.”

Further, Zomato’s average order value, or AOV, for the March quarter stood at around Rs395 versus Rs287 seen in the same period last year. The measure was pretty much stable though compared to the December quarter when AOV was almost Rs408 crore. AOV is a function of the number of people the food is being ordered for and the price of food at restaurants.

Zomato’s GOV in the March 2021 quarter stood at Rs3,310 crore. GOV is short for gross order value and represents total monetary value of orders including taxes, customer delivery charges, gross of all discounts, excluding tips. “As lockdowns eased in India towards the end of May 2020, our food delivery business started recovering and in the fourth quarter of fiscal 2021, we recorded the highest GOV achieved by us in a quarter in India till March 2021,” highlights the RHP.

ICICI Securities’ analysts said, “GOV retention in older cohorts (FY17 & FY18) was reasonably strong despite covid impact in FY21.” They added, “Expectedly, retention in newer cohorts (FY19 & FY20) saw a bigger drop. In our view, these cohorts are largely outside the urban core where food services faced more serious logistical constraints (versus Top-20) due to lockdowns.”

To be sure, Zomato’s unit economics were impacted in the March quarter due to higher delivery charges. Note that gross contribution per order in the March quarter stood at Rs16, lower than Rs23 seen in the nine-month period ended December 2020. This measure for FY20 stands at a negative Rs31.

“While we expect unit economics to weaken in FY22, habit-forming delivery convenience would override and drive scale and value,” said analysts from Edelweiss Securities Ltd in a report on 8 July. “Zomato’s IPO is the first in the much-talked-about consumer tech space. The industry is still nascent and provides a long growth runway. While pricing power is limited, modest network effects do help larger players gain considerable scale,” said the Edelweiss report.

This article was first published on livemint.

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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