The management of Zomato is expecting to achieve a break-even (ex-Blinkit) by the fourth quarter of the current fiscal (outer limit: 2QFY24), with the rise in take-rate and cost efficiency being the drivers. Blinkit loss is likely to be lower than earlier guidance. We maintain ‘buy’ with the price target of Rs 100.
Ebitda break-even: Management is targeting Ebitda break-even (ex-Blinkit) by March 2023 or the latest by September 2023, this would be led by better profits in food delivery. The company was already cashflow-positive in Q1FY23 (including treasury income).
Lower burn in Blinkit: The earlier guidance of $400-milion cash burn in Blinkit over CY22-23 has been revised down to $320 million, as operating performance surpassed expectations of the management. Zomato has already provided a $150-million loan to Blinkit and will be looking to limit additional cash investments in the business to $170 million. The management is confident of turning Blinkit adjusted-Ebitda positive in two years.
Also read| Zomato targets Ebitda break-even by 2023
Upside in take rates: Driving parity of take rates at under-indexed restaurants (which were on-boarded earlier, in our view), along with higher customer delivery charges and ad sales drove the expansion in take rates in the first quarter. Zomato sees further upside in both of these components in coming quarters.
ATU to MTU: The growth in monthly transacting users (MTUs) is driven by increased conversions of ATUs into MTUs and this stays as a focus. However, the management cautioned that the growth is lumpy and not necessarily linear (implying there would be periods of high growth followed by moderate trend). However, the Y-o-Y growth trends in MTU have remained healthy.
Cost trends: Employee expenses should continue to grow at 15-20% YoY. ESOP expenses are expected to decline as these were front-loaded. Unit delivery costs for Blinkit and Zomato are at similar levels, which should decline post acquisition, driven by synergies.