Food Delivery Or Bond Trading? Where Did Zomato Profits Come From

While the food delivery business turned profitable, its quick commerce, dine-out, and restaurant servicing businesses remained loss making on an annual basis.

Zomato saw its cash surplus jump by Rs 918 crore, taking its cash balance to Rs 12,241 crore at the end of March 2024.

In fiscal 2024, it continued to infuse equity into key subsidiaries—it had injected Rs 750 crore into Blinkit by subscribing to an additional 6,115 shares. During the year, the company has not taken any impairments on its investments.

It also injected Rs 700 crore into Hyperpure's B2B business, which provides supplies to restaurants.

Both of these businesses are currently loss-making, but they are showing high growth in net revenues.

Zomato’s Hyperpure business had accumulated losses of Rs 643 crore, while Blinkit suffered a loss of Rs 1,399 crore since they became subsidiaries of the company.

Zomato reduced its cash balances in bank deposits in the last fiscal. Bank deposits with a maturity of more than three months stood at Rs 1,944 crore, compared to Rs 5,433 crore in fiscal 2023. While proceeds from the maturity of bank deposits fell from Rs 8,721 crore to Rs 5,938 crore.

It increased its investment in mutual funds, investing Rs 27,010 crore in fiscal 2024 compared to Rs 14,443 crore the previous year. The proceeds from the redemption of mutual fund units increased to Rs 29,509 crore, up from Rs 12,649 crore in the previous year.

It has increased investment in government securities to Rs 2,420 crore, but the bigger move was to invest in debentures and bonds, which rose to Rs 5,772 crore from Rs 50 crore in the previous year.

Zomato's other income was Rs 847 crore, including gains from treasury income. Higher Treasury income in fiscal 2024 was due to an increase in overall yields as it indexed a higher share of investments towards debentures and bonds as compared to bank deposits, the company said in its Annual Report 2024. It earned Rs 320 crore in interest on debentures or bonds. Another Rs 182 crore comes from bank deposits, Rs 110 crore from government securities, and Rs 80 crore from mutual funds.

To be sure, Zomato reported a net profit of Rs 351 crore on a consolidated basis, which was entirely led by treasury operations. It still continues to be loss-making in core operations.

Shares of Zomato hit an all-time high of Rs 278.5 apiece on Aug. 2, buoyed by first quarter earnings improvement and its quick commerce business Blinkit reducing losses.

While Zomato may have reported first-quarter earnings above estimates and consensus, It may take a long time before it earns a profit from core operations. In the meantime, it is pushing to increase restaurant commission take rates, improve ad monetisation, and increase revenue from platform fees.

Next, Zomato will have to focus on increasing its net revenue as a percentage of gross order value to over 25% from 24.2% in fiscal 2024 and its blended contribution margin to close to 8% for the combined B2C business.

The biggest challenge would be to control costs as the quick commerce business expands in Tier-1 cities and hope that the competition doesn't become hyper.

However, the street is buoyed by the profitability and positive adjusted Ebitda of the quick commerce business, which is now valuing Blinkit higher than the food delivery business.

There is a growing consensus globally regarding the convergence of food delivery and quick commerce. The same is likely to occur in India in the coming years.

Until then, the significant growth of the quick commerce business is likely to drive Zomato's valuations. The key would be when Blinkit takes its contribution margin to close to 7%, similar to the current margins of the food delivery business. Blinkit has been able to garner market share at a faster rate, and the only competition close to it would be Zepto, which has the dry power to compete with the company. Swiggy is in the process of getting an IPO approval for its confidential IPO filing and may hit the market by the end of the year.

The financials of Swiggy reveal that Swiggy is also following a similar path as Zomato but is at least 3–5 quarters away from matching Zomato’s current metrics.