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Zomato Q2 Net Loss Widens To Rs 434.9 Cr; Announces 3 Key Investments

Consolidated revenue from operations of the company stood at Rs 1,024.2 crore for the quarter under consideration. It was Rs 426 crore for the same period a year ago

Online food delivery platform Zomato on Wednesday reported widening of its consolidated net loss to Rs 434.9 crore for the quarter ended September 30, 2021, mainly on account of investments in the growth of its food delivery business.

The company had posted a net loss of Rs 229.8 crore for the corresponding period of the previous fiscal, Zomato Ltd said in a regulatory filing.

Consolidated revenue from operations of the company stood at Rs 1,024.2 crore for the quarter under consideration. It was Rs 426 crore for the same period a year ago, it added.

“Why did our losses go up? This was due to investments in the growth of our food delivery business,” Zomato Founder & CEO Deepinder Goyal and CFO Akshant Goyal said in a letter.

The losses went up specifically due to three reasons — increased spending on branding and marketing for customer acquisition, increased investments and growing share of smaller/emerging geographies in the company’s business and increased delivery costs due to unpredictable weather and increase in fuel prices, they added.

On the long term view of Zomato’s business, the letter said the three main parts of it are brutal prioritisation, that is divesting or shutting down any businesses which aren’t likely to drive exponential value for its shareholders in the long term.

Investing in the company’s core food businesses and the ecosystem around it to make it a robust long term value drive, and building the hyperlocal e-commerce ecosystem by leveraging its key strengths to invest and partner with other companies to tap into growth opportunities beyond, it added.

“Our core food related businesses food ordering and delivery, dining-out, and hyperpure (B2B supplies for restaurants) will remain the key value drivers for Zomato for the next few years. These are all complex businesses and we want our entire team to stay focused on these most important value drivers for our business,” the letter said.

Keeping this in mind, Zomato is in the process of divesting or shutting down its non-core businesses which were not going to significantly move the needle for shareholders in the long term, it added.

Zomato is in the process of selling Fitso to Curefit for USD 50 million. In order to cultivate a great long term partnership with Curefit, “we are also investing cash in Curefit. Net USD 50 million cash investment plus value of the Fitso business (worth USD 50 million) will give us a cumulative shareholding worth USD 100 million in Curefit (6.4 per cent shareholding in Curefit),” the letter said.

The company has also signed definitive documents for investing around USD 75 million in Bigfoot Retail Solutions Pvt Ltd (Shiprocket) for around 8 per cent stake as part of a larger USD 185 million round, it added.

“We have also signed definitive documents for investing around USD 50 million in Samast Technologies Pvt Ltd (magicpin) for around 16 per cent stake as part of a total round size of USD 60 million,”the letter said.

Including USD 100 million investment in Grofers earlier in August 2021, “we have now committed USD 275 million across four companies over the past six months. We plan to deploy another USD 1 billion over the next 1-2 years, with a large chunk of it likely to go into the quick-commerce space,” it added.

The company has shut down our direct-to-consumer experiment in Nutraceuticals. Instead, it is choosing to back a platform play for all D2C brands by investing in Shiprocket, it added.

“We are also shutting down our operations in Lebanon, which is the only international business we were left with other than dining-out business in the UAE after shutting down the rest of our international operations last year,” the letter said.

Zomato believes that the food delivery market in India is still nascent, and there is an opportunity to grow the market at least 10x over the next few years, it added.

“In order to make this happen, we are going to continue investing heavily in market creation, in addition to investing in ecosystem companies around our food delivery business so that the cost of running a better food delivery business goes down with time,” the letter said.

The company is currently in talks with various restaurant point-of-sale players, e-vehicle fleet operators, among others, to evaluate investments in these companies keeping the long term in mind, it added.

Dining-out is still recovering from the shockwaves of COVID-19, and it will take a few months for the dining-out sector to get back on the growth path it was on pre-COVID. Zomato is continuing investing in product development and working with its restaurant partners to get the industry back in shape easier and faster, the letter said.

“Hyperpure is growing well, and we are excited about what it can become. We are building this business with first principles discipline, and are planning to invest upwards of USD 50 million in this business over the next 18-24 months,” it added.

Shares of Zomato Ltd closed at Rs 135.75 on BSE, down 1.31 per cent from its previous close.


Source: Business World

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