Zomato Rating: Hold | Profitability at the cost of growth Zomato’s food delivery gross order value (GOV) grew 3.1% q-o-q and 22.6% y-o-y in Q2FY23. This is meaningfully lower than the GOV trajectory over the last four quarters (Q1FY23 GOV grew 9.9% q-o-q and 41.6% y-o-y). We believe this was a result of focus on profitability. Food delivery business contribution to GOV improved to 4.5% in Q2FY23. Adjusted revenue (food delivery) grew 7.6% q-o-q and 26.5% y-o-y. Food delivery business reported breakeven (post restatements) in Q2FY23 after adjusting for what was previously classified as unallocated expenses. Management clarified that the target for adjusted Ebitda is 4-5% of GOV which roughly translates to a segmental Ebitda margin in the range of 15-20% according to ICICI sec. This, we think, is lower than consensus estimates. The management has also guided for slower improvement in contribution going ahead as most ‘low hanging fruits’ have been pocketed. Take rate improvement (food delivery) could be mutedWe estimate take rate from restaurants increased ~70bps q-o-q in Q2FY23. For the first time the company has reported a decline in the number of average monthly active restaurants. Therefore, we think that take rate improvement could be limited over the next two, three quarters. Management has guided for Ebitda breakeven for ex- Blinkit business of Zomato in the next 2-4 quarters (by Q2FY24). Hyperpure continues on steady growth path.Zomato’s B2B unit ‘Hyperpure’ business grew 23% q-o-q and ~200% y-o-y in Q2FY23. This is in line with our thesis around strong growth in B2B e-commerce over the next 2-3 years. Adjusted Ebitda losses increased to `53bn in Q2FY23 with a q-o-q Ebitda margin of -16%. Blinkit businessBlinkit business performance surprised positively with 17.6% q-o-q improvement in the number of orders and 7.6% q-o-q improvement in average order value (AOV). We think the management’s guidance towards attaining Ebitda-breakeven for Zomato business by Q1FY24 would require careful calibration of employee expenses and marketing spends. We estimate Ebitda margin of -1.3% for FY24E. Hyperpure business (B2B e-commerce vertical of Zomato) is likely to benefit from growth in the overall segment. However, scale-up of Hyperpure will be contingent on significant investments in building refrigerated supply chains and technology for tagging and batching of fresh farm produce. We maintain HOLD rating on the stock with DCF-based TP of Rs 65.
The launched works involve rehabilitating the Galgamuwa Railway Station and upgrading the railway line from Maho to Anuradhapura, including additional tasks. Another project is the second phase of track rehabilitation from Maho to Omanthai (128 kms), funded by a $318 million Indian Line of Credit.
Transport Minister Gunawardena praised the efforts of Indian company IRCON in Sri Lanka and called for more cooperation in the railway sector. State Minister Shantha Bandara and officials from the Sri Lankan Ministry of Transport attended the event.
Railways is a priority for Indian assistance in Sri Lanka, with over $1 billion invested under five Indian Lines of Credit. IRCON has been involved in Sri Lanks since 2009. It has contributed to the modernisation of Sri Lanka Railways by reconstructing the entire railway line network in the Northern Province (253 Km) and upgradation of the Southern line (115 km), as well as improving safety through advanced signalling and telecommunication systems.
Despite Sri Lanka’s debt standstill in April 2022, India’s support under various Lines of Credit has continued.
(With PTI inputs)