Zomato: Q2-25 Earnings Call Highlights
Confident in its growth trajectory. Heightened competition in QC market. Focused on building sustainable, profitable business. Expanding offerings & reach. Capital raise to capitalize on opportunities
zomato.com | NSE: ZOMATO
1. Key Takeaways
1.1 TLDR
Zomato appears confident in its growth trajectory despite heightened competition in the QC market.
The company is focused on building a sustainable, profitable business while strategically expanding its offerings and geographical reach.
The capital raise will provide them with the financial firepower to navigate the evolving landscape and potentially capitalize on new opportunities.
1.2 Operational Highlights:
Revenue Growth: Revenue increased by 2.2% year-over-year and 1.9% quarter-over-quarter, driven by strong performance in Europe and the Rest of the World.
Growth Led by Europe and Rest of World: While the Americas region saw a decline, Europe and the Rest of the World achieved year-over-year growth of 4.1% and 9.7% respectively. This highlights the company's successful geographical diversification strategy.
Mixed Performance Across Verticals: The communications vertical declined due to cost optimization initiatives by key telecom clients. Manufacturing also experienced softness, while BFSI saw positive growth driven by partnerships and new logo acquisition.
Continued Strategic Progress and Margin Expansion: Tech Mahindra continues to execute on its strategic improvement plan amidst a soft IT services industry, focusing on strengthening client relationships, expanding the partner ecosystem, and operational excellence. These efforts have resulted in margin expansion for the third consecutive quarter.
Investment in Long-Term Growth: Tech Mahindra continues to invest in key areas to achieve its FY27 targets, including strengthening service lines, talent acquisition and upskilling, particularly in AI and cloud technologies.
Focus on Large Deals While Prioritizing Margins: The company is actively pursuing large deals to drive growth while maintaining a disciplined approach to ensure profitability. Tech Mahindra is focusing on building a robust pipeline and improving conversion rates, while avoiding "heroic assumptions" on productivity.
Continued Strategic Improvement and Margin Expansion: Tech Mahindra is making progress on its strategic improvement efforts, resulting in margin expansion for the third consecutive quarter, despite a soft IT services industry.
Focus on Key Verticals: Tech Mahindra continues to focus on key verticals such as BFSI and Communications, while acknowledging weaknesses in the US Communications market and the auto sector within Manufacturing.
1.3 Key Themes:
Quick Commerce:
Competition: The QC market is becoming more competitive, but Zomato is focused on its own growth and profitability, not market share ([Quote Akshant Goyal]: "We are less focused on market share at this point because our business is growing more than 120% to 130% year on year."). They are monitoring competition closely but believe discounting is not a sustainable strategy.
Expansion: Blinkit is expanding beyond its core market of Delhi NCR, with share of Delhi NCR revenue dropping from 47% to under 40%. AOVs are similar across the top 7-8 cities.
Store Growth: Zomato aims to reach 1,000 stores by March 2025 and 2,000 by December 2026. Store expansion is a combination of company-owned and franchise models.
Category Expansion: Blinkit continues to expand its product categories, leading to SKU growth and potentially contributing to AOV increases.
Loyalty Programs: Unlike competitors, Zomato has no current plans to introduce a loyalty program for Blinkit.
Private Labels: Zomato is not currently considering private labels for Blinkit, though they remain open to evaluating different options in the future.
Food Delivery:
Impact of Slowdown: Zomato has not yet seen a noticeable impact from the economic slowdown on its food delivery business.
Delivery Time Focus: Zomato is actively working to reduce delivery times to improve customer experience, though they are not pursuing an aggressive 10-minute delivery model at this stage.
District App:
Purpose: To consolidate existing dining-out and entertainment ticketing offerings under one app.
Future Expansion: The focus will initially be on these core categories, but Zomato may expand into other areas in the future.
Capital Raise:
Rationale: Primarily aimed at strengthening the balance sheet and ensuring Zomato has the resources to compete effectively.
Strategic Options: The capital raise provides flexibility and may allow Zomato to pursue strategic acquisitions or investments in the future.
Financials:
Fixed Costs: Rising fixed costs in both food delivery and QC are partly attributed to marketing spend, infrastructure investments, and the growth of new businesses like Hyperpure and Going-out.
Tax Liability: Zomato has exhausted its carry-forward losses for depreciation and will now pay tax on treasury income. Taxes on operating income are expected to resume in a couple of years.
Zomato Limited Q2FY25 Earnings Call FAQ
1. What is Zomato's strategy for expanding its quick commerce business, Blinkit, in the face of increased competition?
Zomato is prioritizing its own business growth and development over market share. While acknowledging the increasingly competitive landscape, the company remains focused on expanding its service area, optimizing delivery times, and enhancing customer experience. Zomato aims to strengthen its position in existing markets, particularly the top eight cities, while also exploring the viability of the quick commerce model in newer cities and towns.
2. How is Zomato addressing concerns about potential discounting wars in the quick commerce market, especially considering the recent capital raise by competitors?
Zomato emphasizes that its recent capital raise is primarily intended to strengthen its balance sheet and is not linked to any plans to engage in aggressive discounting. The company believes that discounting is not a sustainable long-term strategy and remains focused on building a robust business model based on efficiency, customer satisfaction, and operational excellence.
3. With the addition of new categories like electronics and beauty, will Zomato be modifying its dark store strategy, such as increasing store size or specializing stores by category?
Zomato's strategy is to continue opening the largest possible dark stores to accommodate the growing assortment of products. While the company acknowledges that the design and layout of stores have evolved over time to cater to a wider variety of products, the focus remains on maximizing the efficiency and output of each store rather than creating specialized stores for specific categories.
4. How does Zomato see the Average Order Value (AOV) trending in the quick commerce business as new categories and products are introduced?
While Zomato anticipates a gradual increase in AOV due to the addition of new categories, it does not expect a dramatic shift from current levels. This is because the primary use case for quick commerce remains urgent needs, limiting the size of individual purchases even for higher-priced items.
5. Has Zomato observed any impact from the recent economic slowdown and concerns about reduced consumer spending on its food delivery business?
Zomato has not yet observed any significant impact on its food delivery business from the economic slowdown. The company attributes its continued growth to strong demand and operational improvements that enhance customer experience, such as reduced delivery times and increased restaurant availability.
6. What are the planned use cases for the new District app, and will it include services beyond dining-out and entertainment ticketing, such as travel bookings?
The initial focus for the District app is to seamlessly transition the existing dining-out business and the recently acquired entertainment ticketing business from the Zomato and Paytm platforms. The company's immediate priority is to enhance and build upon these categories, and there are no current plans to expand into additional services like travel.
7. How will Zomato's potential capital raise of up to $1 billion impact its expansion strategy for the quick commerce business?
Zomato clarifies that the $1 billion figure represents an enabling resolution, and the final amount raised will depend on market conditions and investor demand. While the capital raise will provide financial flexibility and a competitive edge, the company maintains its existing expansion plans for Blinkit, aiming to reach 1,000 stores by March 2025 and 2,000 stores by December 2026.
8. Given Zomato's growth in quick commerce and the decreasing price points of products, does the company anticipate a significant expansion of its Total Addressable Market (TAM) beyond the initial target audience?
Zomato acknowledges the potential for TAM expansion due to the broader appeal of quick commerce beyond the initial target audience. The company's expansion into newer cities will provide valuable insights into the viability and demand for this service across various demographics. However, it is still too early to definitively determine the extent of TAM expansion.
Source: Link to Earning Call Transcripts
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