Zomato Q2FY22 - Higher revenue, Higher burn!

Zomato reported 21% QoQ rise in revenue to Rs. 1,024 cr in Q2FY22, but on a 33% sequential rise in cash burn. Infact, to generate revenue of Re.1, company spent Rs. 1.45 in Q1FY22. But in Q2, it had to spend Rs. 1.51 to generate the same revenue of Re.1, as customer acquisition and delivery costs soared. Thus, incremental revenue came at a higher cost, implying losses to continue longer than expected.

Zomato aims for USD 10 billion in revenues i.e. Rs. 75,000 cr in few years. While this is achievable, the cost of achieving this is not elaborated. It may be doubling revenue YoY in FY22, but losses doubling defeats benefits of scale/operating leverage.

Contribution margin, averaging 5.6% in FY21, reduced to 1.2% in Q2FY22 (halving from Q1FY22’s 2.8%) meaning temporary benefit of mandatory restaurant shut-down, due to lockdown is fizzling out. Surprisingly, active delivery partners of 3,10,000 in July 2021 reduced to 3,01,000 in Q2FY22.

Company’s loss before tax widened to Rs. 435 cr from Rs. 359 cr loss QoQ. And this loss is after parking Rs. 8,200 cr in bank deposits, raised via fresh issue of Rs. 9,000 cr from IPO in July. Thus, even after accounting for higher other income of Rs. 137 cr in Q2FY22 over Rs. 72 cr in Q1FY22, mainly comprising interest on surplus liquidity, company’s operating loss has widened.

Soon, company’s first mover listing advantage will wade away, as more new-age technologies companies seek listing in India, which is bound to shift investors' preference towards financially more disciplined companies.

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