Zomato’s INR 8,500 Cr Refuel

Swiggy just netted $1.35 Bn through its IPO, Zepto armed itself with over $1 Bn in VC funding this year, and now Zomato has fueled up with its INR 8,500 Cr ($1 Bn+) QIP.

It would seem that $1 Bn is table stakes in the delivery game — whether it’s food delivery or quick commerce. Zomato, which already had healthy cash reserves of close to INR 10,800 Cr at the end of Q2 FY25, will now look to capitalise on the momentum it has gained in the past year over its biggest rival.

It’s not just about delivery — the fundraise also positions Zomato to invest heavily in its District product, something which is a big goal for Deepinder Goyal in the year to come.

Now the question is, will Zomato continue to extend the lead or will rivals leverage their own capital to pull closer? Before we answer that, here’s a look at the top stories from our newsroom this week:

• boAt in Choppy Waters: The audio and wearables brand seems to have strayed away from its success mantra. Having slipped into losses last year, the Aman Gupta-led company needs to fight off competition from homegrown and international brands
• Apple’s Make-In-India Stack: High-end iPhones are manufactured in India today, but critical components are still being sourced from China. How far is a 100% made-in-India Apple iPhone?
• Edtech’s Big Reset: India’s edtech startups have been stuck in an existential crisis; can they bounce back after years of misplaced optimism? And where are the startups that are catering to this new reality?

Where’s Zomato’s Focus?

There’s little doubt that quick commerce has the biggest upside for Zomato in the short term. However, growth here has come at a cost. Even though Zomato-owned Blinkit has taken strides towards profitability, expanding dark stores and adding new categories will set Blinkit back temporarily.

In November, Zepto raised another $350 Mn from domestic investors. The company has secured a funding of over $1.3 Bn in the last five months alone.

One report pointed out that Blinkit rival Zepto is spending more than $35 Mn every month as it looks to double its store count and venture into the cafe category. The revenue growth is equally high though, with FY24 GMV crossing $1 Bn as per reports.

It’s no wonder then that Zepto raised three mega rounds this year — quick commerce is a major attraction for investors. Zomato has also become the first new-age tech startup to feature in BSE Sensex, which further underlines the growth seen by the company and the faith of public markets investors.

Zomato will use the QIP proceeds to expand Blinkit, with INR 2,137 Cr allocation towards setting up and running operations of dark stores and warehouses. Another INR 2,492 Cr has been earmarked for advertising, marketing and branding, while INR 1,769 Cr will be used to strengthen its tech stack, including cloud infrastructure and software.

The additional capital will likely also help Zomato scale its going-out or District vertical — we’ll look into this in detail later.

Food Delivery Stakes

Zomato’s first major fundraise since its 2021 IPO is particularly noteworthy because it comes just a couple of weeks after its rival Swiggy’s public debut.

The company’s $1.4 Bn IPO was heavily oversubscribed, and now, Swiggy is ready to launch multiple new services in the coming year to bolster its food delivery and quick commerce plays.

Previously, Zomato CEO Goyal had claimed that QIP was a key move for Zomato as the company needed additional capital because of “the competition landscape and much larger scale of our business today.”

While competition has intensified and sales have surged in the quick commerce segment in recent months, food delivery still remains a cash cow for the likes of Zomato and Swiggy.  Zomato would want to continue its profitability momentum built on the back of platform fees and lower costs across operations.

In fact, Zomato today enjoys a 58% market share in the food delivery segment as of June 2024, according to a Motilal Oswal report. Given that it’s a near duopoly, Swiggy had about 42% share.

According to the brokerage, Zomato has grabbed market share at the expense of Swiggy, driven by “stronger execution”. Zomato’s share is said to have increased from 54% to 58% in terms of reported gross order value (GOV) between the end of 2022 and June 2024.

Zomato clocked a GOV of INR 9,264 Cr from its core food delivery business in Q1 FY25, while Swiggy’s food delivery business reported a GOV of INR 6,808.3 Cr in the same quarter. Zomato’s higher scale is an advantage that the company will press forward on.

Zomato’s food delivery CEO Rakesh Ranjan expects the business to grow at an annual rate of 30% over the next five years. “The food delivery sector is still in its nascent stages in the country and … more competition will only foster innovation and growth which will benefit the sector overall,” Ranjan said in late November.

A key piece of the food delivery value chain is Hyperpure, Zomato’s B2B supply arm. The company launched an express delivery service (30 minutes to 4 hours) for its restaurant partners, looking to drive up revenue generation through this quicker fulfilment.

Hyperpure is the only B2B vertical of Zomato and the company has been ultra bullish about it. In 2022, Zomato said that Hyperpure had the potential to be as big as its food delivery vertical, and earlier this year, Zomato announced a plant for processing value-added food supplies for Hyperpure.

Notably, Hyperpure’s revenue doubled to INR 1,473 Cr in Q2 FY25 from INR 745 Cr in Q2 FY24. In fact, it raked in higher revenue than even Blinkit, and combined with food delivery, this could be the biggest trump card for Zomato in the battle against Swiggy.

District Rolls Out

The third piece in Zomato’s puzzle is District and the going-out business. Brokerage firm Jefferies is among the analysts expecting District to deliver the results and has increased the price target for Zomato to INR 335 for the near future, nearly 20% higher than today.

The ‘District’ app, which rolled out on both iOS and Android earlier this quarter, will combine dining and live entertainment ticketing verticals. But Jefferies for one is expecting more. “Starting with dining-out & ticketing, new use cases will emerge. The industry is in its infancy as the current TAM may be limited, but that is how food delivery and quick commerce (QC) were until a while back,” the brokerage added.

Zomato’s District will go head on against Swiggy’s ‘SteppinOut’ business, which includes Dineout and Swiggy Events. Sources claimed the dining out business has seen 100% YoY growth as of September 2024 for Swiggy.

While it’s not exactly clear whether the Rare Life concierge service will be part of ‘SteppinOut’, that’s another piece that Swiggy is pushing forward in this high stakes chess game against Zomato.

Sunday Roundup: Tech Stocks, Startup Funding & More 

• Funding Plunges: Investor interest remains fixed on public markets, while private Indian startups only raised $144.8 Mn across 14 deals in the past week, a big 75% drop from the previous week
• Paytm Rallies: Paytm share price rose by over 3% earlier today to hit a fresh 52-week high after brokerage UBS raised its target price for the fintech major to INR 1,000
• MapmyIndia Shake-Up: MapmyIndia CEO and executive director Rohan Verma will be stepping down from his role in March next year to launch a new B2C business

• Stellaris Closes Fund: Stellaris Venture Partners, investor in Honasa, Whatfix and others, has marked the final close of its third fund at $300 Mn (INR 2,534 Cr)
• New Mutual Fund Player: Zerodha and Groww rival Angel One’s AMC arm has received SEBI approval ahead of the launch of the Angel One Mutual Fund
• Masa’s Advice To Founders: Masayoshi Son urged Indian startup founders working on AI to build with a 10-year horizon during a meeting with some of SoftBank’s portfolio founders

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