Zomato Q1 Highlights: Deferred Tax Helps Report First-Ever Profitable Quarter

Foodtech major Zomato reported its financial results for the quarter ended June 2023 on Thursday (August 3), reporting a consolidated profit after tax for the first time.

Here are the major takeaways from the startup’s largely favourable quarter: 

Zomato’s Maiden Profitable Quarter: A deferred tax of INR 17 Cr helped Zomato report a profit after tax (PAT) in Q1 FY24. The company’s loss before tax stood at INR 15 Cr, however, the deferred tax led to it reporting a positive bottom line.

However, Zomato reported a sharp improvement in loss before tax in Q1. Its loss before tax stood at INR 186 Cr in the year-ago quarter and INR 204 Cr in the preceding March 2023 quarter. 

Overall, Zomato’s consolidated PAT stood at INR 2 Cr in Q1 FY24 as against INR 186 Cr in Q1 FY23 and INR 188 Cr in Q4 FY23.

The Gurugram-based company’s revenue from operations jumped more than 70% to INR 2,416 Cr in Q1 FY24 from INR 1,413.9 Cr in Q1 FY23. Sequentially, operating revenue jumped 17.5% from INR 2,056 Cr in the quarter ended March 2023.

Confident About Sustaining Profitability: The foodtech major appeared bullish on its future prospects as a profitable company. In a letter to shareholders, chief financial officer (CFO) Akshant Goyal said he expects the company to remain profitable and sustain adjusted revenue growth in excess of 40% year-on-year (YoY) for ‘at least the next couple of years’.

A Tasty Quarter For Food Business: The company’s food delivery business was firing on all cylinders in Q1 on the back of demand recovery and growing adoption of its Gold programme. The food delivery business’ adjusted revenue stood at INR 1,742 Cr in Q1 FY24, up 18.5% YoY and 14% QoQ. 

While gross order value (GOV) grew to INR 7,318 Cr, the food delivery business’ contribution margin, as a percentage of GOV, stood at 6.4%. 

During the quarter, average monthly transacting customers jumped to 17.5 Mn, while average monthly active restaurant partners rose to 2.26 Lakh. 

Hyperpure’s Hyper Growth: Continuing its growth trajectory, the B2B supply arm saw its adjusted revenue jump to INR 617 Cr in the quarter ended June 2023, registering a growth of 29% QoQ and 126% YoY.

Zomato attributed this growth to its core restaurant supplies business and the Blinkit business. The move to increase the minimum order value threshold during the quarter led to a spurt in average order value on the B2B platform and churned out smaller and unprofitable restaurants, as per the company. 

Blinkit’s Growth Slows: Even as Zomato largely rejoiced on all fronts, its quick-commerce arm Blinkit yet again proved to be its achilles heel. The vertical saw muted growth in revenue as the number of orders declined.

Blinkit’s revenue rose only 6% to INR 384 Cr in Q1 FY24 from INR 363 Cr in Q4 FY23. This was a considerable slowdown from a revenue growth in excess of 20% in the previous three quarters. 

Number of orders fell to 36.8 Mn in Q1 FY24, while gross order value (GOV) grew marginally to INR 2,140 Cr during the quarter under review. CEO Albinder Dhindsa blamed the slow growth on strikes carried out by delivery executives in April and incessant rains. 

Average order value (AOV) rose 11.5% to INR 582 per order in Q1 FY23 as against INR 522 per order in Q4 FY 23. Average monthly transacting users were stagnant QoQ at 3.9 Mn, while average GOV per day per dark store declined to INR 6.2 Lakh in  Q1 FY24. 

Value Creation With Blinkit: The only silver lining for Blinkit was that it reported a positive contribution month in the month of June, even as contribution loss during the overall quarter stood at INR 14 Cr.

Zomato executives told shareholders that the quick-commerce vertical could turn adjusted EBITDA positive in the next four quarters. The Albinder Dhindsa-led vertical plans to open 100 new dark stores in FY24, of which it opened a mere six in the June quarter. 

Putting its weight behind Blinkit, Zomato CEO Deepinder Goyal said that the quick-commerce vertical would drive more value for shareholders than Zomato in a decade from now.

Zomato Dining-Out Sees Growth: The surprise growth engine for Zomato this quarter came in the form of its dining-out vertical. As per the company, its Gold membership initiative saw rapid adoption, driving higher frequency of ordering and contributing more than 30% of the food delivery business GOV. 

Noting that the dining-out business was finally ‘starting to shape up well’, Deepinder Goyal said that the vertical accounted for a GOV of over INR 515 Cr in Q1 FY24. The dining-out arm of the foodtech major was profitable with an adjusted EBITDA margin, as a percentage of GOV, of nearly 1% for India business during the quarter. 

“At scale, we think that the dining-out business has the potential to generate 5%+ adjusted EBITDA margins (as a % of GOV),” added Deepinder Goyal. 

The company is mulling spinning off the ‘Going Out’ category into a separate app. For the uninitiated, ‘Going Out’ will include Zomato’s dining out and live events businesses. 

The company expects the ‘Going Out combo’ to be its fourth ‘large business’ and is a part of its strategy of building super brands. From Q2 FY24 onwards, this category will be reported as a separate business segment in Zomato’s financials. 

Careful About New Forays?: In the letter to shareholders, the Zomato CEO said that he does not want to operate with a ‘rigid mindset’ of which spaces the company should enter or the ones it should not. However, he also noted that the company’s ‘hands are full’ at the moment and that it has no plans for any new ventures as of now. 

Deepinder Goyal said the company is thoughtful about capital allocation and would continue to build new businesses over the long term to retain existing high-quality talent. 

Meanwhile, in a post-earnings call, the company also spoke about the impact of recent communal clashes in Gurugram but said it is well-placed to navigate that.

“There are events that do have a hyperlocal impact on our business. For example, in Gurugram, we have had some local issues in the past few days, and that has impacted our ability to service some of our customers in a few neighbourhoods. But, the impact was also there in the last couple of months because of untimely heavy rain, but we navigated all of that,” it said.

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