Food delivery behemoth Zomato posted an astounding 389% year-over-year increase in net profit for the second quarter of FY25, demonstrating an exceptional financial performance. Zomato is shown its tenacity in the very competitive food delivery industry with rising revenues and consistent profits. Despite the impressive outcomes, Zomato is aiming to strengthen its position by raising ₹8,500 crore through a Qualified Institutional Placement (QIP) in order to prepare for upcoming challenges.
Credits: Money Control
Here’s a breakdown of Zomato’s Q2FY25 performance and its broader strategic moves.
Profit Surge: Zomato’s Strong Q2FY25 Results
In Q2FY25, Zomato reported a net profit of ₹176 crore, which was a substantial increase over the ₹36 crore profit in the same quarter the previous year. This is a huge 389% year-over-year gain, which is mostly due to the rise in consumer demand as more people placed online food orders. Additionally, Zomato’s revenue increased by an astounding 69%, from ₹2,848 crore in Q2FY24 to ₹4,799 crore in Q2FY25.
As a result of steady demand growth, Zomato’s operational revenues increased from ₹4,206 crore in Q1FY25 on a quarter-over-quarter basis. “The business remains steady and continues to grow well,” said the company’s CFO, Akshant Goyal, indicating optimism about the company’s future course.
Stock Market Reaction: Mixed Signals Despite Growth
Despite the strong financial performance, Zomato’s shares closed 3.5% lower on October 22, 2024, at ₹256.55 apiece. This dip came as a surprise to some, considering the year-to-date growth of 107% in Zomato’s stock price on the NSE. The drop might reflect broader market sentiment or investor concerns about the company’s next strategic steps amid rising competitive pressure.
Nonetheless, the positive financial growth keeps Zomato in a strong position. Over the past year, Zomato has built an impressive profit profile, reinforcing investor confidence in its long-term prospects.
Preparing for the Future: ₹8,500 Crore Fundraising
Along with the increase in profits, Zomato’s board authorized plans to use a QIP to raise up to ₹8,500 crore. Despite the company’s strong financial sheet and steady profitability, this action is viewed as a proactive attempt to raise more money. Zomato needs new funding because its cash reserves have dropped from ₹14,400 crore in July 2021 to ₹10,800 crore now.
Zomato’s Group CEO and co-founder, Deepinder Goyal, stressed that although the company is currently making money as opposed to losing money during its initial public offering (IPO), the competitive environment in the food delivery industry demands a sizable war chest. “We think that the primary factor influencing success is service quality, and that money alone does not grant someone the right to succeed. However, Goyal clarified, “We want to make sure we are on an even playing field with our rivals who keep raising money.”
Zomato’s decision to increase its liquidity may give it a competitive edge in growing its business and enhancing its service offerings as both new and established businesses fight for market dominance.
Strategic Investment in Byondnxt
In a surprising development, Zomato made a small but notable investment of ₹6,000 into Byondnxt, a business that designs and manufactures innovative kitchen appliances for consumers. Byondnxt is led by Eshwar Vikas, the founder of Mukunda Foods Pvt Ltd, a B2B company that Zomato had invested in three years ago in January 2022.
Mukunda Foods specializes in smart kitchen equipment for restaurants and food businesses, making it a key partner in Zomato’s ecosystem. Zomato clarified that this investment in Byondnxt does not dilute its stake or interests in Mukunda Foods, where it holds a 16% stake. Furthermore, the company reiterated that it has no intention of making additional investments in either Mukunda or Byondnxt.
This investment signals Zomato’s continued interest in the broader food-tech ecosystem, ensuring that it maintains a foothold in both B2B and B2C segments related to food delivery and preparation.
