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Zomato’s key operational metrics improved by March end

Zomato’s average order value, or AOV, for the March quarter stood at around Rs395 versus Rs287 seen in the same period last year. (Photo: Mint)Premium
Zomato’s average order value, or AOV, for the March quarter stood at around Rs395 versus Rs287 seen in the same period last year. (Photo: Mint)

  • Zomato’s unit economics were hit in the March quarter due to higher discounts and delivery charges. Note that gross contribution per order in the March quarter stood at Rs16, lower than Rs23 for the nine-month period ended December

IPO-bound Zomato Ltd’s RHP (red herring prospectus) offers a good insight into the food delivery firm’s performance. Analysts said the company has shown good recovery across important operational parameters in March 2021.

ICICI Securities Ltd’s analysts said in a report on 8 July, “The robust increase in signed up restaurants on delivery / discovery platforms (about 16000/40000) is the most interesting update – given it comes amidst negative news flow about ‘perceived’ dissatisfaction of ‘some’ restaurants with Zomato." The broker added, “End–March 2021, restaurant count on delivery platform was about 5000 more than even the pre-covid peak."

Further, Zomato’s average order value, or AOV, for the March quarter stood at around Rs395 versus Rs287 seen in the same period last year. The measure was pretty much stable though compared to the December quarter, when AOV was almost Rs408 crore. AOV is a function of the number of people the food is being ordered for and the price of food at restaurants.

Zomato’s GOV in the March 2021 quarter stood at Rs3,310 crore. GOV is short for gross order value and represents total monetary value of orders including taxes, customer delivery charges, gross of all discounts, excluding tips. “As lockdowns eased in India towards the end of May 2020, our food delivery business started recovering and in the fourth quarter of fiscal 2021, we recorded the highest GOV achieved by us in a quarter in India till March 2021," highlights the RHP.

ICICI Securities’ analysts said, “GOV retention in older cohorts (FY17 & FY18) was reasonably strong despite covid impact in FY21." They added, “Expectedly, retention in newer cohorts (FY19 & FY20) saw a bigger drop. In our view, these cohorts are largely outside the urban core where food services faced more serious logistical constraints (versus Top-20) due to lockdowns."

To be sure, Zomato’s unit economics were impacted in the March quarter due to higher discounts and delivery charges. Note that gross contribution per order in the March quarter stood at Rs16, lower than Rs23 seen in the nine-month period ended December 2020. This measure for FY20 stands at a negative Rs31.

“While we expect unit economics to weaken in FY22, habit-forming delivery convenience would override and drive scale and value," said analysts from Edelweiss Securities Ltd in a report on 8 July. “Zomato’s IPO is the first in the much-talked about consumer tech space. The industry is still nascent and provides a long growth runway. While pricing power is limited, modest network effects do help larger players gain considerable scale," said the Edelweiss report.

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