Key takeaway: Zomato reported a powerful beat on revenues led by +37% QoQ in GOV. Adj. EBITDA loss at Rs 1.7billion is also on anticipated lines — reported EBITDA loss is greater due to ESOP charge, which is non-money and is constructed into share dilution.
Management release has exciting insights but lacks specifics on MTU, AOV & unit economics (offered in RHP), which could disappoint investors as could the selection of an annual earning get in touch with. We raise FY22-24E income by 10-20% purchase.
Overall revenues: Reported revenues grew strongly QoQ with revenues such as delivery costs increasing >25% QoQ, considerably ahead of our estimates. While delivery organization was powerful, dining-out was impacted by the second Covid wave. YoY numbers are incredibly powerful offered the influence of initial Covid wave in the base.
Record GOV: Delivery GOV rose 37% QoQ to Rs45.4billion ($600million) — this was led by highest-ever GOV, quantity of orders, MTU and so on. We are disappointed with lack of disclosure on these crucial matrices and estimate quantity of orders at c.115m throughout 1Q.
Unit economics: Again, no specifics have been offered on the trend in discounts, delivery expense and so on. We note that the IPO document captured all of these specifics to permit investors to track the functionality & profitability more than time. Management has just indicated that contribution margin lowered slightly, QoQ, due to greater discounts & delivery charges, in our view.
Ebitda loss: Adjusted for non-money ESOP charge, EBITDA loss came-in at Rs 1.7billion cf. Rs 1.2billion in 4Q, which was broadly on anticipated lines. However, there has been a surge in reported loss at Rs 3.6billion as there is about Rs 2billion of ESOP charge.
ESOP = share dilution: While greater reported EBITDA loss may perhaps trigger some concern, we highlight that this is non-money charge and therefore has no influence on money flows.
Of course, there would be an influence on share dilution, which is what we have constructed-in our calculations, such as in deriving our fair worth for Zomato. We estimate c.8% dilution due to stock choices in coming years — we have explained this in detail, ahead.
Delivery ecosystem: Following the lowest ranking in a gig economy worker survey, Zomato took corrective actions: a) enhanced payout structure with c.15% greater earnings versus LY b) raise in money limit, enabling fleet to utilise money collected on COD orders c) remote on-boarding d) much better communication on insurance coverage positive aspects. NPS scores have enhanced and more work is underway. We see this as a positive step in the context of tightening regulations across nations and India may perhaps also see policy framework quickly.
Our estimates: Following a powerful 1Q, we raise FY22-24 income estimates by about 10-20%, mainly based on greater GOV (which in turn are based on greater MTUs).
We also raise our EBITDA loss estimates but continue to see break-even by FY25-26. We have also made modifications in our model structure to separately account for ESOP charge from right here-on and have also raised this. However, this has no money flow influence and we currently constructed-in 8% dilution. We retain ‘buy’ with slightly greater PT at Rs 175.