Zomato, the leading online food delivery and restaurant aggregator platform in India, announced on September 30 that it has decided to liquidate its wholly owned subsidiary, Zomato Chile SpA (“ZM Chile”). The company said that this move will not have any material impact on its revenue or operations. Zomato share has gained 75% since the start of the year. Will the rally continue ? Let’s find out.
About Zomato
Zomato was founded in 2008 by Deepinder Goyal and Pankaj Chaddah as a website that provided restaurant listings and recommendations. Over the years, it expanded its services to include food delivery, table reservation, point of sale, and cloud kitchen solutions. Zomato operates in more than 1,000 Indian cities and towns, as well as in several international markets such as the United Arab Emirates, Sri Lanka, Qatar, the United Kingdom, the Philippines, and South Africa.
Why did Zomato liquidate ZM Chile?
Zomato entered the Chilean market in 2014, along with Brazil and Indonesia. According to Zomato Limited, Zomato Chile SPA (ZM Chile) was in the process of being liquidated and had no ongoing commercial operations.
The parent firm added that because Zomato Chile SPA makes a little contribution to the company’s turnover, its shutdown won’t have any effect on Zomato’s income or turnover. The liquidation of ZM Chile is part of Zomato’s strategy to achieve profitability and streamline its business.
How has Zomato performed in the stock market?
Zomato made a stellar debut on the stock market in July 2021, becoming the first Indian unicorn to go public. The company raised Rs 9,375 crore through its initial public offering (IPO), which was oversubscribed by more than 38 times. The stock listed at Rs 115 per share, a premium of 51% over its issue price of Rs 76.
Since then, Zomato’s share price has been on a roller coaster ride, hitting a low of Rs 40.7 in July 2022 and a high of Rs 107.70 on October 5. The stock has gained 75% year-to-date and is trading just 8% below its listing price.
What are the factors driving Zomato’s growth?
Zomato has been introducing various new features and initiatives to boost its revenue and customer loyalty. Some of these are:
- Charging a platform fee of Rs 2 to Rs 3 per food delivery order, which could enhance its customer take rate and contribution margin.
- Launching Zomato Pro Plus, a subscription-based service that offers unlimited free deliveries and no surge fees for its members.
- Acquiring Fitso, a fitness app that offers online and offline classes for yoga, swimming, running, and other activities.
- Acquiring Grofers, an online grocery delivery platform, to offer express delivery of groceries within 15 minutes.
Analysts are also bullish on Zomato’s prospects due to the ongoing cricket world cup, which could increase the demand for food delivery among home-viewing parties. Jefferies expects overall restaurant consumption to rise with a likely benefit to Zomato. Way2Wealth has also identified Zomato as one of its playing 11 stocks that could potentially perform well during the world cup.
What are the challenges facing Zomato?
Zomato faces several challenges in its quest to dominate the online food delivery and restaurant aggregator space. Some of these are:
- Competition from rivals such as Swiggy, Amazon Food, Dunzo, and Ola Foods, which are also expanding their services and offerings.
- Regulatory uncertainties and legal disputes over issues such as data privacy, taxation, antitrust probes, and gig worker rights.
- Customer retention and loyalty amid rising acquisition costs and discounting pressures.
- Sustainability and scalability of its business model amid high operational expenses and cash burn.
Conclusion
Zomato is one of the most popular and innovative online food delivery and restaurant aggregator platforms in India. The company has been growing rapidly and diversifying its services to cater to the changing needs and preferences of its customers. The liquidation of its subsidiary in Chile is part of its strategy to focus on its core markets and achieve profitability.
However, Zomato also faces stiff competition and regulatory hurdles that could hamper its growth and valuation. The company will have to overcome these challenges and maintain its edge over its rivals to sustain its momentum and create value for its shareholders.
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