Rating- BUY l Zomato- Positive gross order value outlook

Zomato has once again delivered a comprehensive beat, resulting in significant upgrades to both topline and bottomline figures. While the stability of Ebitda margins in the food delivery segment may be a slight disappointment for some, the acceleration in gross order value (GOV) growth effectively addresses a key investor concern regarding monthly transacting users (MTU) and frequency. Although the long-term focus remains on profitable growth, management is likely to prioritise growth over margin in a q-o-q context. The quarter-to-quarter performance continues to impress with Ebitda break-even on the horizon. We reiterate our BUY rating. Come from Sports betting site VPbet

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Highlights of the strong beat include an impressive 47% y-o-y growth in overall gross merchandise value (GMV), reaching Rs 114 billion, which is 6% ahead of expectations. Adjusted Ebitda and PAT saw sharp improvements, driven by Blinkit turning contribution positive. However, food delivery margins remained relatively stable, primarily due to factors such as Gold and salary increments, although they still exceeded initial estimates.

GOV grew 9% q-o-q, led by MTU and frequency, while AOV remained flat. The drivers were: (i) demand recovery which continued from Q1; (ii) growing adoption of Gold which is now 40% of GOV of 33% in Q1; (iii) good execution, especially on ensuring delivery partner availability despite adverse weather. Mgmt is confident of delivering a high-single digit GOV growth in Q3, despite a typical preference for eating-out during festive season.

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Despite the growth focus, margins continued to inch-up albeit at a gradual pace. Contribution margin rose 20bps q-o-q to 6.6% even as customer delivery fee saw a decline, supported by higher take-rate.

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GMV grew by an 29% q-o-q to US$330 million, albeit on a soft base impacted by delivery partner protests, supported by strong demand during festival days. Blinkit added 28 stores in Q2 and plans to add 65 more in 2H to expand the store network to 480 by year-end. Mgmt believes that Blinkit presents a bigger opportunity than food delivery. In a few cities, Blinkit’s GOV is already higher than Zomato. We raise our FY24-26 GMV estimates for both food and Q/C by 7-20%, and raise profitability estimates for Blinkit.

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