Fundamental AnalysisIndia

Zomato Fundamental Analysis

Overall Rating: Not Enough Data

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall the Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • Online Food Delivery
  • What are the growth prospects? [High 🟢] 
    • The growth of the internet poses a strong growth prospect for the industry. In recent times the industry has seen multi-digit consistent growth driven by strong online adoption fueled by COVID restrictions.
    • In future, the industry is expected to continue growth with potential expansion into regions correlated to internet adoption.
    • Looking forward, the market is further expected to reach US$ 164.5 Billion by 2024, exhibiting a CAGR of 11.4% during 2019-2024.
  • What is the competitor landscape? [Medium🟠]
    • The market is concentrated with Swiggy being the key competitor to Zomato. Though Swiggy plans to go public sometime soon, market capture has been fierce by the company. But, even in the most competitive environment, Zomato continues to generate the most orders per restaurant globally.
    • But, with both companies targeting the online grocery delivery business, Swiggy currently has a better grip in the market.
  • What is the company profile?
  • Business Overview
    • Zomato is one of the leading online food service platforms. Zomato B2C offerings involve food delivery, dining-out services where customers find restaurants, book a table, order food delivery and Zomato Pro(Customer loyalty program). Whereas, in the B2B segment, it gets revenue from Hyperpure(Kitchen products to restaurants& supply of high-quality ingredients) .
Zomato Revenue
  • Financials
    • How are company financials changing?
      • The company gross order value in Q1FY22 grew 37% QoQ to Rs 45.4 Bn. The increase is driven by both the industry and market share growth.
      • EBITDA loss came in at Rs -376.50 Cr. up 145% QoQ, though most of it was due to non-cash ESOP expense. 
      • Adjusted revenue grew 26% to Rs 1160 Cr (Revenue from operations + customer delivery charges). 
  • What are the stand-alone future financial prospects and future pipelines?
    • On June 30, 2021, Justin Doshi, Thusith Desilva and Robert Tyree acquired NexTable, Inc. from Zomato Limited (BSE:543320).
Zomato FA
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • Is Zomato really making money?
        • Well, this is tricky to answer. Though revenue numbers look promising, the profits haven’t been up to mark to make earning based investments (EPS of -222).
        • Additionally, the company has continued negative returns on equity for three consecutive years.
        • Is the company strategically evolving?
          • Well, money does give you power. After closing their own grocery delivery business, Zomato has invested 100Mn in the Indian grocery platform – grofers.
          • Though they have failed once, the move to invest in complementary service lines of already running businesses reduced the business risk at the same time gives the diversification advantage.
        • Zomato has a great brand value with a widespread and efficient on-demand hyperlocal network. Although Zomato has incurred losses it manages to report the highest ever gross order value(GOV). On the other hand, Swiggy who is its major rival has shown good results too. 
        • The online food industry has its main focus in building customer relationships after giving discounts, cashback and expenses on advertisements and the valuation should be done on the basis of its overall sales volume. Though this narrative looks lucrative, it would be interesting to see how soon these sales can turn up to real earnings.
Zomato FA

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