Zomato's superior execution should hold it in good stead; stock up slightly

A recent release by Swiggy investor Prosus has set off an inevitable comparison with Zomato. The two are direct rivals in terms of business models and footprints. Zomato is listed, whereas Swiggy is not.

Prosus’s release indicates Swiggy narrowed somewhat the market share gap with Zomato’s food delivery business in H1FY24 but Zomato continued to be the dominant player with a 54 per cent market share. Swiggy gained around 30 bps in H1FY24 compared to H2FY23 (Half-on-Half or HoH).

Zomato’s share loss could be attributable to decisions like the temporary suspension of its loyalty membership programme and the shutdown of operations in 225 cities. Prosus’s commentary indicates that the Swiggy Food Delivery business remained loss-making in H1FY24, although the company has claimed that (excluding ESOPs) this vertical had turned profitable in March ’23. This could indicate that market share gains have come at the cost of margins.

The comparison between Instamart (Swiggy’s convenience grocery arm) and Blinkit which is Zomato’s version of fast grocery delivery shows Blinkit is widening the lead in market-share in this space though Instamart grew commendably.

The Instamart’s gross merchandise value (GMV) grew 24 per cent HoH and 63 per cent year-on-year or Y-o-Y (comparing H1FY24 to H1FY23) to Rs 3,300 crore in H1CY23, which was less than Blinkit’s 30 per cent HoH growth (100 per cent YoY) GMV growth to Rs 4,200 crore, though the Blinkit dark store count dropped by 6 per cent. Instamart’s relative market share vs Blinkit was 44:56, down by 100 bps HoH.

Swiggy’s consolidated adjusted Ebit (earnings before interest and tax) loss shrank to Rs 1,700 crore in H1CY23 from Rs 2,500 crore in H1CY22 (and Rs 1,800 crore in H2CY22). This was led by a sharp 89 per cent decline in the food-delivery business’s Ebitda losses.

However, Swiggy’s food delivery vertical remained loss-making in H1CY23 despite breakeven in March. Instamart’s contribution losses shrank 75 per cent. Overall, Swiggy’s Consolidated loss of Rs 1,700 crore in H1CY23 was more than 4x of the Rs 400 crore loss reported by Zomato.

The results and commentary indicate that Zomato’s execution has been superior. Despite exiting 225 cities, Zomato has a wider footprint with around 750 towns coverage, versus Swiggy’s 600 towns. The small loss in food delivery market share may be temporary and is not significant enough to cause concerns, given that it’s a growth business. It’s likely that relative market share will not shift much in the medium term.

At a consolidated level, Zomato’s finances in Q2FY24 include Rs 11,442 crore in Gross Order Value (GOV) up 47 per cent Y-o-Y. Adjusted revenues would be around Rs 3,227 crore (up 57 per cent Y-o-Y), with Adjusted Ebitda at Rs 41 crore, an improvement from a loss of Rs 192 crore Y-o-Y.

The revenue adjustment represents revenues from operations including charges paid in food delivery net of discounts. Adjusted Ebitda is Ebitda plus share-based payment expense, minus rentals as per IND AS 116 leases.

The Blinkit financials are aggregated from August 10, 2022 when the acquisition closed. Blinkit turned positive in terms of contribution margin (as percentage of GOV) in Q2FY24. Average monthly customers are at 18.4 million versus 17.5 million in Q1FY24.

Monthly order frequency is up 3 per cent quarter-on-quarter (QoQ) mainly due to the uptake of the Zomato Gold programme. In Blinkit, the company opened 28 stores and guided that it was aiming for at least 100 new (net) stores within FY24 aggregating to 480 stores by end-fiscal.

The stock is up slightly as investors see it as the relatively better player in this duopoly.