Zomato Boosts Platform Fee Amidst Financial Updates
Zomato has made waves by announcing a substantial 25% increase in its platform fee, now set at ₹5 per order. This decision comes as the company gears up to unveil its financial performance for the March quarter. Here’s a closer look at the recent developments:
Raising the Platform Fee and Halting Intercity Legends
In a bid to fortify its margins and overall profitability, Zomato has taken the bold step of hiking its platform fee. From its humble beginnings at ₹2 back in August 2023, this increase marks a significant leap. Notably, the heightened fee is currently enforced only in specific cities.
This move echoes a similar adjustment made in January, which was met with enthusiasm from the market, evidenced by Zomato’s buoyant share prices. Analysts speculate that this hike could serve as a counterbalance to the impact of GST on delivery charges.
Concurrently, Zomato has opted to press pause on its Intercity Legends service, a cherished feature allowing patrons to savor culinary delights from renowned eateries across different cities. Visitors to the ‘Legends’ tab on the Zomato app are met with a reassuring message hinting at enhancements underway and a promising return to service.
Financial Performance and Future Outlook
Zomato’s financial performance for the December quarter showcased robust growth in its core food delivery business. With a substantial 30% year-on-year rise in adjusted revenue, totaling ₹2,025 crore on a consolidated basis, the company demonstrated its resilience. Simultaneously, its Blinkit division, specializing in quick commerce, witnessed a remarkable doubling of earnings to ₹644 crore during the same period.
A notable turnaround unfolded in Zomato’s consolidated net profit, reaching ₹138 crore, marking a stark contrast to the ₹347 crore net loss reported in the corresponding period the previous year. The overall revenue surged to ₹3,288 crore from ₹1,948 crore year-on-year, painting a picture of growth and stability.
Market Sentiment and Expert Insights
Despite trading at 115 times forward earnings, considerably higher than its global counterparts such as Uber, Deliveroo, and Meituan, Zomato’s stock price continues its upward trajectory. Bolstered by increased profitability in its core business and the rapid expansion of its Blinkit division, market sentiment remains optimistic.
Analysts from Goldman Sachs anticipate upward revisions in profit forecasts for Zomato’s quick commerce business, Blinkit. They attribute this positivity to the company’s robust revenue and profit projections. Echoing this sentiment, ICICI Securities Ltd. analyst Abhishek Banerjee affirms that Zomato’s elevated valuations are justified by its projected revenue and profit growth.
Navigating Regulatory Challenges and Recent Events
Despite its financial achievements, Zomato has not been immune to regulatory hurdles. A recent Goods and Services Tax (GST) demand and penalty order amounting to ₹11.81 crore have posed challenges. This order, comprising ₹5.9 crore in GST demand and an equal amount in penalties, spans the period from July 2017 to March 2021.
In essence, Zomato’s strategic maneuvers, including the platform fee hike and temporary suspension of Intercity Legends, alongside its commendable financial performance, underscore the company’s proactive stance in confronting challenges and fostering sustained growth in the competitive food delivery landscape.
