About Zomato

Zomato is a technology platform that connects customers, restaurant partners, and delivery partners, serving their multiple needs. Customers use their platform to search/discover restaurants, read/write reviews and upload photos, order food, book tables, and make payments while dining out. They provide restaurant partners with marketing tools to acquire customers.

Also Quick Note – Article in PDF Format here (Sharing with others is free, just saying 😛 )

Their mobile application is the most downloaded food and drinks application in India in each of the last three years since 2018 on iOS Appstore and Google Play combined, as per App Annie’s estimates.

According to RedSeer, they are one of the leading Food Services platforms in India in terms of the value of food sold, as of December 31, 2020. During Fiscal 2020, 41.5 million average MAU visited their platform in India.

Note – Zomato has taken a conscious strategic call to focus only on the Indian market going forward given the large market opportunity in India.

Issue Details

Zomato is offering equity shares worth ₹8,250 crores, out of which ₹7,500 crores will be a fresh issue (out of which 5625 cr will be used for funding organic and inorganic growth initiatives, rest being general corporate purposes), while ₹750 crore is an offer for sale from one of its earliest backers Info Edge.

Zomato, last valued at $5.4 billion, had also raised funds over the year as it prepared for the market debut.

Src – Business Insider

A Pre-IPO Placement of Rs 1500 cr may be undertaken in consultation with the Managers. The Pre-IPO Placement, if undertaken, will be at a price to be decided by the Company in consultation with the Managers and will be completed prior to the filing of the Red Herring Prospectus with the RoC.

History of Food delivery

Indian App Food delivery has seen many exits with only 3 players surviving – Zomato and Swiggy dominate the market with Amazon and other chains/unorganized players accounting for the rest.

Examples – Tasty Khana started in 2007 and shut-in 2014, Just Eat started in 2008 and shut-in 2015, Foodpanda was started in 2012 – was acquired by Ola in 2017 and shut down in 2019, Tiny owl was started in 2014 and shut down in 2016, Scootsy was started in 2014 and was acquired by Swiggy, OlaCafe was started in 2015 and then shut in 2016, Uber Eats was started in 2017 and was acquired by Zomato in 2020.

How is Zomato able to raise capital from markets being a loss-making entity?

How can a loss-making company get an IPO?

Why only a 10% retail quota?

Didn’t SEBI have a profitability rule?

All these questions answered below –

Platform Offerings

The platform is built around the core idea that over time, people in India are going out to eat at restaurants more than they cook at home. To capture value out of this shift in customer behavior, they have two core business-to-customer (B2C) offerings – (i) Food delivery and (ii) Dining-out, in addition to business-to-business (B2B) offering (iii) Hyper pure. Another important part of their business is (iv) Zomato Pro, a customer loyalty program that encompasses both food delivery and dining-out.

Each of their B2C, as well as B2B offerings, helps increase the value of their platform for customers, enabling them to further attract new customers and to deepen engagement with existing customers. (Network effect, we talk about it in the article).

What does Zomato offer its customers?

Discovery – Listing restaurant partners for free. This helps restaurant partners increase demand for their offerings for both food delivery and dining-out.

Hyperlocal delivery network – Leveraging their large fleet of delivery partners, restaurant partners can get their food delivered to customers reliably and quickly, without having to invest in their own delivery capabilities, driving incremental orders for their food and thereby increasing kitchen utilization and improving operational efficiencies. Customers can also order and pick up the food themselves from the restaurants using the ‘takeaway’ feature on our platform. They help restaurant partners expand their reach beyond the physical limitations of their restaurants.

Sales and promotion channel: Offers restaurant partners the ability to run brand marketing, sales, and promotion campaigns targeted at high intent customers who are looking for the kind of food/service being offered by these restaurant partners.

A suite of business support services: Providing restaurant partners multiple tools to enable them to run their businesses better including analytics and dashboards, table reservations, and payment processing, among others.

Cost Drivers for each Platform

How does it earn money?

How does it spend money?

Advertisement and sales promotion expenses – Includes (i) platform funded discounts (to the extent not netted off from revenue) (ii) marketing and branding costs (c) customer appeasement costs and (d) refunds made to restaurant partners

Outsourced support costs – Includes availability fee that they pay to their delivery partners as well as support expenses, such as costs related to call centers.

Employee benefits expense – salaries, wages, and bonuses paid to on-roll employees.

Board of Directors

Management Team

Economics of a food delivery order

The above diagram is quite illustrative and I believe it is self-explanatory, hence not touching upon it more.

Network Effect

When we talk about Zomato, a platform company, we have to talk about the network effect which is also called a snowball effect.

Let’s understand why – More orders completed on their platform results in more Gross order value being generated which in turn attracts additional restaurant partners and delivery partners to Zomato who seek to benefit from the enhanced business opportunities. An increase in the number of restaurant partners on the platform, in turn, attracts more customers. This network effect takes time to build and may grow slower in the future than expected.

On the flip side, if they fail to retain either existing restaurant partners (especially most popular restaurant partners), delivery partners (as a result of failing to provide compelling earning opportunities on their platform), or customers (including as a result of impaired relationships, decrease in popularity of a restaurant partner, delivery issues or competition) or fail to add new restaurant partners, delivery partners and consequently the customers, the value of this network may be diminished.

Order, Order, Order!

Don’t worry we are not in a courtroom, we will be talking about Zomato’s order details –

Observations – Gross Order Value (GOV) has increased quite well. 9MFY21 is not a correct indicator due to lockdown. Many restaurants have shut down, deliveries were halted and many people prefer homemade food. The number of orders going down again has the same reason.

The average order value (AOV) hasn’t moved anywhere in 3 years. The recent increase in AOV can be attributed to the fact that many people are ordering from these platforms as restaurants are closed and dine-in is also closed.

The delivery cost has reduced but so have discounts on their platform. Again discounts have reduced because food delivery isn’t a luxury anymore but a necessity in the recent quarters. (Due to COVID restrictions and fears)

Key Operating and Financial metrics

Again nothing to be added for above image, self-explanatory. We will touch upon financials in detail in financials section, we will tell you why 9M numbers are skewed and may not be a true picture of the company.

Per Order Unit Economics

Again we believe that 9MFY21 numbers are skewed as a lot of restaurants are dependent on platforms for their survival. Hence we see more commissions, more customer delivery charges, lesser delivery cost, and lesser of discounts.

Commission and other charges comprise commission from restaurant partners, food delivery-related advertisement sales revenue, and other revenue. Customer delivery charge comprises delivery fees paid by customers. Delivery cost comprises Payout to our delivery partners which include customer delivery charge plus availability fee paid by Zomato. Discounts comprise platform-funded discounts. Other Variable Costs comprise payment gateway charges, support cost, restaurant partner refunds, and other variable spends on account of activities like delivery partner onboarding, delivery partner insurance, SMS, cash on delivery handling, and call masking, among others. Contribution profit/(loss) is (i) + (ii) – (iii) – (iv) – (v).

Costs associated with marketing, branding, and other fixed operating costs are excluded.


They expect their costs to increase over time and losses will continue given significant investments expected towards growing their business

Failure to retain existing restaurant partners, customers, or delivery partners or fail to add new restaurant partners, delivery partners, or customers to their portfolio in a cost-effective manner

Intensely competitive markets characterized by low costs of entry, shifting customer preferences, fragmentation, and frequent introductions of new services and offerings. In particular, the Indian food delivery industry is fragmented and intensely competitive. According to the RedSeer, in India, they compete with other food delivery companies, chain restaurants that have their own online ordering platforms, cloud kitchens, other restaurants that own and operate their own delivery fleets, and companies that provide a point of sale solutions and restaurant delivery services. Also – traditional offline ordering channels, such as take-out offerings, telephone-based ordering, and paper menus that restaurants distribute to customers as well as advertising that restaurants place in local publications and digital media to attract customers. Further, they also face competition from mobile payment applications that facilitate food ordering.

No assurance that Zomato will not be forced, through competition, regulation, or otherwise to reduce the delivery charges charged by delivery partners, increase the fees paid to delivery partners for providing services through their platform, or further reduce the commissions they charge restaurants partners, or to increase marketing and other expenses to attract restaurant partners, customers, and delivery partners in response to competitive pressures.

Fiscals 2019, 2020, and in the nine months ended December 31, 2020  attrition rate in India was 42%, 33%, and 13%, respectively.

They currently avail services from third-party service providers to operate the platform. They do not have control over the operations of the facilities of these service providers. The service providers’ facilities may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages, and similar events or acts of misconduct.

Contingent Liabilities

Market share Data

 Market share data is a bit confusing as it is indexed to 2018 sales why?

Factors that affect food delivery platforms

Certain of its competitors offer, or may in the future offer, lower-priced or a broader range of offerings. (Amazon is already testing food delivery in Bangalore)

Barriers to entry in Food delivery

  • Low barriers to entry
  • The cost to switch between offerings is low
  • Customers have a propensity to shift to the lowest-cost provider
  • Customers use more than one platform, independent contractors who provide delivery services
  • Restaurants also could use multiple platforms concurrently as they attempt to maximize earnings Restaurant partners could prefer to use the platform that offers the lowest commission rates and adopt more than one platform to maximize their volume of orders.

Capital Structure

Complex capital structure due to multiple subsidiaries in different parts of the world. Nothing seemed alarming.

Thoughts on M&A

They did the acquisition of CTPL and Tonguestun in 2018, the acquisition of Uber Eats India Assets in 2020 and Jogo in 2021.

They expect to continue to evaluate and consider a wide array of strategic alliances, investments, and acquisitions in line with overall business strategy. These transactions involve significant challenges and risks, including (i) difficulties in identifying suitable acquisition targets and competition from other potential acquirers; (ii) difficulties in determining the appropriate purchase price of acquired businesses, which may result in potential impairment of goodwill; (iii) potential increases in debt, which may increase finance costs as a result of higher interest payments; (iv) exposure to unanticipated contingent liabilities of acquired businesses; (v) receipt of requisite governmental, statutory and other regulatory approvals for any proposed acquisition; (vi) risks and cost associated with the litigations of the acquired businesses; and (vi) not realizing the benefits from certain investments, or certain investments not resulting in immediate returns.

Shareholding Pattern

AS on DRHP date i.e. 27th April 2021

And this is the SHP before one year

Peer Comparison

Amazon started its pilot food delivery project in India in May 2020 in the city of Bangalore, providing food delivery in 4 pin codes. It has now expanded to 65 pin codes out of a total of 250 pin codes in Bangalore. As per CLSA – “On delivery, Amazon has a fee of Rs19/order (35% discount to others), which is waived for prime members. Also orders through Amazon Food are 35-37% cheaper than Swiggy and Zomato.”


Balance sheet

Zomato’s balance sheet = Rs 6988 Cr , 4661 Cr is in investments – Liquid funds! They are raising equity at a rapid pace to fund the business and covering losses. Equity is the costliest form of capital (also dilution)! Road to profit? Need to hear this from management!


Please note – the company has only made a net loss in all the periods mentioned.

Also, the EBITDA seems to be optically less in this 9MFY21 period mainly because of lesser other expenses!

Let’s quickly run some calculations –

No of orders in FY20 – 40.3 Cr, other expenses cost in FY20 – 4002 Cr, but we will only take outsourced support cost which was 2094 Cr. Per order cost of this outsourced support was 51.9 Rs.

No of orders in 9MFY21 – 15.5 Cr, other expenses cost in 9MFY21 – 947 Cr, but we will only take the outsourced support cost was Rs 363 Cr. Per order cost of this outsourced support was 23.4 Rs.

Now a question is – is this cost toned down by the management itself? Or by virtue of scale, it was brought down? We can get more clarity on this in concall as DRHP doesn’t mention this.

The company also reduced its advertisement costs by 1000 cr from 1300 cr to 300 cr. (see below img)

Cash Flows

Bad cash flows. No free cash flow as company is loss making.


Zomato raised its last equity round at $5.4 billion in February. The company is looking at a $7-9 billion valuation in the IPO.

The EPS was -1.27 for 9MFY21 and the book value was 11.77 Rs as of December 31, 2020.


This cannot get any better for Zomato as it is Great IPO timing for them.

Why do the economics of this business suddenly look good for recent periods? By virtue of lockdowns, some businesses shifted from the luxury category to the necessity category

Patience is the greatest moat for investors – I will personally wait for more periods.

I do agree that lesser discounts and more delivery fee charges by Zomato are here to stay and that food delivery has increased but what if a deep-pocketed player comes in and disrupts the market like Amazon is doing? The Incumbent players are bound to raise more capital and undercut to stay competitive! We saw above in peer analysis how amazon is undercutting the delivery fee and we all know Amazon is known to be ruthless and kill its competition.

The DRHP itself puts it nicely – no barriers to entry or very low barriers to entry.


It is sometimes speculated that Swiggy and Zomato may merge.


In China – In 2015 for ride-hailing apps in China – Didi Dache (backed by Tencent) held 55% market share, while Kuaidi Dache (backed by Alibaba) held most of the remaining market share. Each company was burning cash and was aggressive to maintain market share. However, in February 2015, they merged to form ‘Didi Kuaidi’. By September 2015, Didi Kuaidi had obtained 80% market share in private car-hailing services and rebranded itself to ‘Didi Chuxing’. By 2016, ‘Uber China’ had become a major competitor for Didi. In August 2016, DiDi announced that it would acquire Uber China, valuing it at US$35bn. Hence, we saw Tencent (backed by Naspers) and Alibaba join hands for improving the market structure and ensuring they reduce unnecessary cash burn for gaining market share. They even went as far as acquiring a third player (Uber)

The same holds true for Indian food delivery apps – Zomato is backed by Alibaba and Swiggy is backed by Naspers- Tencent who have been burning capital continuously to gain market leadership. Hence what happened in China may repeat here.

Regarding the profitability, I did think of running some numbers forecasting in fancy excel sheets but that will waste both yours and my time, The management has to guide how they will reach profitability and in what manner.

Will they Pivot? (meaning new segments totally)

As noticed all over the world –

Adjacent categories – Grocery, Medicine, Fresh Meat

Leverage Services –Ride sharing, hyperlocal delivery, Cloud Kitchen

Leverage customer base – OTT Streaming, Payment, Movie tickets, hospitality, Mobility

Industry Insights

First of all , the company has not given any industry Data – which is extremely disappointing!

Roti , Kapda and Makaan are essential needs right?

Well in today’s age – the new essential needs are Roti, Kapda , Makaan, and Internet

Internet and smartphone penetration in India has nearly doubled from 2015 to 2019 and is increasing further.

Food consumption, at US$670 billion (₹46.9 trillion) in 2019 constitutes around a quarter of India’s GDP. Most of this though, is driven by home-cooked food.

Total addressable Food Services market opportunity of US$110 billion (₹7.7 trillion) in 2025

Food Services, defined as non-home cooked food or restaurant food currently contributes only approximately 10% to the food market. This is substantially low when compared to global economies like the United States and China which have approximately 54% and 58% contribution from Food Services respectively (of the total food consumption).


Food Services is a competitive market in India comprising food delivery players like Zomato and Swiggy, cloud kitchens like Rebel Foods, and branded Food Services players (including quick-service restaurants like Dominos, McDonald’s, and Pizza Hut, among others). Food delivery players also compete with multiple other participants in the Food Services industry including restaurants which own and operate their own delivery fleets, traditional offline ordering channels, such as take-out offerings and phone-based ordering, local publications, and other media, both online and offline where restaurants place their advertisements to attract customers.

In this competitive market, Zomato has consistently gained market share over the last four years to become the category leader in the food delivery space in India in terms of GOV from October 1, 2020, to March 31, 2021. The chart below represents a year on- year growth of Zomato and the industry.

Number of Orders, AOV and commissions

The number of orders placed on the platform is largely driven by the base of customers, restaurant partners and delivery partners, brand awareness among customers in the market and platform. The number of orders is also subject to seasonal fluctuations and they tend to be generally higher when customers may be less likely to dine out as a result of unfavorable weather or during certain festival seasons and holidays when customers are more likely to order food for delivery.

AOV is a function of the price of food at restaurants and the number of people the food is being ordered for. Everything else being equal, the AOVs are higher for orders from premium restaurants. Their AOV has increased steadily over the last seven quarters.

IPO Rush?

Decoding UI/UX of India’s food delivery apps

A really nice article written by a friend whom I became friends with online – Adithya Venkatesan. Read the article here. (A bit old but worth reading)

This is an article from a design point of view

Technical Terms

Thanks for reading till the end!

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