Zomato Hikes Platform Fee Ahead of Festive Season; Share Price Reflects Positive Sentiment

Zomato Increases Platform Fee to Rs 10

Ahead of the upcoming festive season, Zomato has announced a hike in its platform fee, increasing it from Rs 7 to Rs 10 per order. This fee is applied on top of goods and services tax (GST), restaurant charges, and delivery fees. According to a notification in the app, the company stated, “This fee helps us pay our bills to keep Zomato running.”

The company previously introduced a Rs 2 platform fee in August 2023 to improve its margins and steer the company towards profitability. Since then, the fee has gradually increased over the months, reaching Rs 4 by January 2024, and temporarily spiking to Rs 9 on December 31, 2023. The recent Rs 1 hike could add approximately Rs 65 crore to its topline annually, based on the order volume of 64.7 crore in FY23.

Zomato’s Financial Performance and Share Price Movements

Zomato’s financial performance has been promising. For Q2FY24, the company’s consolidated net profit rose nearly five-fold to Rs 176 crore, despite margins being impacted by investments in its Blinkit quick commerce platform. At 12:15 am on October 23, Zomato’s share price on NSE was up by 0.78%, as the stock found support at the 100-day exponential moving average (EMA). This reflects growing investor confidence in the company’s long-term strategy.

Increased Competition in the Online Food Delivery Sector

Zomato’s growth story, however, is met with rising competition in India’s online food and grocery delivery market. Rival companies such as Swiggy and Zepto are ramping up their operations and raising funds. Swiggy has already offered shares worth $448 million in its initial public offering (IPO), while Zepto secured $340 million in August and is gearing up for its IPO next year.

To stay competitive, Zomato has aggressively expanded its Blinkit quick commerce division, adding 152 new “dark stores” — or distribution centers — during the last quarter, marking its highest-ever quarterly addition. This brings the total number of Blinkit dark stores to 791.

Profit Margins and Future Outlook

Despite the growth in dark stores, the contribution margin from Blinkit orders saw a slight decline, falling from 4% in the previous quarter to 3.8%. Zomato’s CFO, Akshant Goyal, acknowledged that new stores typically take a few months to ramp up and may hurt short-term margins. However, Zomato’s revenue rose nearly 69% year-over-year, reaching around Rs 4,800 crore.

Zomato has also approved a fundraise of up to Rs 8,500 crore through a qualified institutional placement (QIP). This will bolster its cash reserves after acquiring movie and event ticketing businesses from a digital payments firm.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.