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.

Quick Note – PDF Format of this article here –

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.

IPO Details

Quota – 75% QIB, 15% NII, 10% RII

Extremely strong investor interest for anchor book as per the management on the IPO analyst meet (across all categories, FPIs, domestic MFs, and Insurance companies)

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 which encompasses both food delivery and dining-out.

Each of their B2C, as well as B2B offerings, help 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.

The 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.

Arrangement with stakeholders

Board of Directors

Management Team

Economics of a food delivery order

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 result 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. FY21 is not a correct indicator due to lockdown. Many restaurants have shut down, deliveries were halted and many people preferred 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 for Zomato has reduced but so have discounts on their platform. Again discounts have been 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 the above images, self-explanatory. We will touch upon financials in detail in the financials section, we will tell you why FY21 numbers are skewed and may not be a true picture of the company.

Per Order Unit Economics

We believe that 9MFY21 and FY21 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 of delivery cost,s and lesser of discounts.

Commission and other charges comprise commission from restaurant partner, 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 comprises payment gateway charges, support cost, restaurant partner refunds, and other variable spend 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 (It is a cash guzzling business after all)
  • 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 are 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 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 FY21 attrition rate in India was 42%, 33%, and 18% 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
  • 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.

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 RHP date i.e July 06, 2021 date

Peer Comparison

Global Peer Comparison

Src – ET Graphics

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

Road to profit – Management didn’t mention anything


Please note – the company has only made a net loss in all the periods mentioned. Also, the EBITDA became positive because of lesser other expenses!

Other expenses (RHP) –

Other expenses decreased by 61.81% to ₹15,283.22 million in Fiscal 2021 compared to ₹40,016.38 million in Fiscal 2020. As a percentage of total income, other expenses were 72.14% in Fiscal 2021 compared to 145.90% in Fiscal 2020.

Outsourced support costs include availability fees that we pay to our delivery partners as well as support expenses, such as costs related to call centers.

Outsourced support cost decreased by 71.83% to ₹5,898.92 million in Fiscal 2021 from ₹20,937.72 million in Fiscal 2020 primarily because of reduction of 40.48% in the total food orders processed on the platform and change in our platform model from providing delivery service to customers up to October 28, 2019, to acting as a technology platform provider. Up to October 28, 2019, the entire payment to delivery partners was recorded as expenses on the statement of profit and loss. Subsequent to October 28, 2019, since they now act only as a technology platform provider through which the delivery partners provide delivery services directly to the restaurant partner and customer, hence delivery charges paid by the customer now are passed on to the delivery partner. They now pay only an availability fee to the delivery partner which is recognized as expenses. As a percentage of total income, outsourced support cost was 27.85% in Fiscal 2021 compared to 76.34% in Fiscal 2020.

Advertisement and sales promotion expenses decreased by 60.62% to ₹5,270.60 million in Fiscal 2021 compared to ₹13,384.28 million in Fiscal 2020. Advertisement and sales promotion expenses decreased as they reduced expenses on discounts promotions and advertising and digital marketing, amongst others. As a percentage of total income, advertisement and sales promotion expenses was 24.88% in Fiscal 2021 compared to 48.80% in Fiscal 2020.

Despite a 40% fall in orders, there was only a 23% revenue fall. This was because Zomato started taking more commissions from restaurants, reduced discounts, and charged more on delivery from customers. The EBITDA also turned into a profit because of the very same reason. But that was because delivery was a necessity, with more players coming in and more direct delivery taking the limelight and unlock of economy, it goes on to be seen if Zomato can still keep the same rates on the 3 things – Delivery charged to customers, commissions charged to restaurants and low discounts.

Cash Flows

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


  • Zomato raised its last equity round at US$ 5.4 billion in February.
  • Equity is the costliest form of capital (also dilution)!
  • 50623 cr + 9000 Fresh issue = 59623.6 Cr , a US $ 8 billion valuation post issue.
  • The EPS was -1.51 for FY21 and the book value was 15.09 Rs as of FY21.

Probable Pivots of Zomato and the competitive landscape in that area

One aspect I heard a lot in recent media discussions or social media discussions is that Zomato is going to be a tech company or a tech stack like Meituan, or they will go into grocery through Grofers (B2C) and HyperPure (B2B).

First, let’s understand HyperPure. Hyperpure is their farm-to-fork supplies offering for restaurants in India. They source fresh, hygienic, quality ingredients and supplies directly from farmers, mills, producers, and processors to supply to their restaurant partners, helping them make their supply chains more effective and predictable while improving the overall quality of the food being served.

Revenue from the sale of traded goods, which includes revenue from Hyper pure operations, was ₹2,001.97 million, ₹1,075.86 million, and ₹148.88 million in the Fiscals 2021, 2020, and 2019. In the month of March 2021, they supplied to 9,225 restaurant partners across six cities in India.

Now let’s talk about Grofers. Grofers’ total revenue in the fiscal year ended March 31, 2020, stood at INR 176.79 Cr, with losses growing 42% to INR 637.49 Cr. Bigbasket revenue was INR 3,818 Cr. Not really sure what Zomato is planning to get into here with Grofers. Ok, let’s ignore the losses and the small scale also.

One misconception being sloshing around is that grocery is an easy business, it is not! Again thin margins with Reliance dominating the offline market and online market being heavily contested for. RIL is also digitizing kiranas to get them into their retail ecosystem and capture the value share there.

Reliance Fresh – Reliance fresh – 2.9 million Units of groceries sold per day, 1,800+ MT Fruits, veggies, and staples sold per day, >50% Share of fruits and veggies in modern trade (Src – RIL FY21 Annual report)

On Online Grocery Market –

I don’t understand how Zomato can compete with Reliance and other players! For me, the decision of B2C grocery is just narrative than anything else!

Now, of course, they are sitting on lots of consumer and ordering pattern data which can be used for cloud kitchens, etc. However they face competition here again and Rebel Foods (owner of Behrouz biryani, Oven story, Faasos, etc) is the biggest one as they have hyper-scaled up in this area with a lot of brands using cloud kitchens!

Quick Overview On Meituan – the juggernaut Chinese “super-app” which dominates China’s services economy, offering consumers everything from food delivery, restaurant reviews, travel booking, bike-sharing, movie ticketing, and countless other entertainment and lifestyle services all at the touch of a button. Already China’s 3rd largest tech company by market cap (behind just Tencent and Alibaba), Meituan did $15 billion in net revenue in FY2019 and continues to grow rapidly. (Src – Acquired Podcast. Link here to listen to their amazing podcast)

Quick Overview on Rebel Foods here


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? Suddenly how they clocked an operating profit in FY21? By virtue of lockdowns, some businesses shifted from the luxury category to the necessity category.

Also, Zomato is raising equity at a rapid pace to fund the business and covering losses, investors should take note of this as well.

Patience is the greatest moat for investors – I will personally like to wait and see how the competitive landscape evolves.

I do agree that lesser discounts and more delivery fee charges by Zomato may be 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 lower prices 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. NRAI is also stepping up competition and aggressiveness against Zomato/Swiggy by voicing their concerns and building their own loyalty app and encouraging more direct delivery. New age aggregators such as DotPe, Thrive, Peppo are offering better terms on pricing front to restaurants and sharing data too.

One thing to note here is that if the ecosystem wins, then the platform owner wins, or else it doesn’t. When the market expands and profits/make more money, the platform benefits. So it’s hard to see how sustainable is squeezing out restaurants (Already restaurants work on wafer thin margins and if u pay 20-30% to old aggregators, then how will the restaurant partners make a profit).

Also, the RHP itself puts it nicely – no barriers to entry or very low barriers to entry.

IPO Analyst Meet Takeaways

  • Concerns on Direct ordering and NRAI and new platforms such as Thrive – Restaurants are digitizing their own channel, additional channel, no threat
  • Will do more than direct order channel, more than 10x/20x/30x than that. Continue to listen to and work with 1000s of restaurants. Some issues misplaced
  • Plans on entering home cooked market – as of now nothing , as they see lots of opportunities in what they do already
  • 88% in FY19, advertising as % of revenue and 49% and more down now, downward trend sustainable? Or going to go up again? – going ahead function of growth areas, will dictate these investments going ahead (So basically not clear yet how it will move ahead)
  • Zomato Pro users as % of total users – 1.5 mn active Zomato pro customers, monthly transacting active users 7 mn in FY21.
  • New age aggregators and Amazon – Thrive is tech enabled, digitizing and direct order is good, not a big thread, instead an enabler for the industry, no substitute to the platform.Competition is good
  • Path to profitability – No Guidance
  • Grocery HyperPure – grocery a large optionality, huge market in India, online grocery is smaller, but will grow. They do want to pilot that to experiment and learn more, slowly as they get comfortable. Conviction, right customer value proposition, they will spend more and invest more to grow the business. Hyperpure – B2B grocery business – it might have synergies with B2C business as and when in future it gets ready
  • How do you pay delivery partners? Attrition dealing? – paid on a variable basis, the function of various things, how many orders in a day, the distance they travel per order, time on platform, etc. Attrition is high not just because of competition but nature of the job as extreme weather, physical toil, etc (people usually do 1-2 year gig). doesn’t hurt us as many people who want to do this
  • Delivery partners – independent contractors, use own vehicle
  • 15000-16000 Cr Cash post IPO – organic growth, invest in customer acquisition, grow delivery infra, build tech, continue to deploy in these areas, M&A also one area (recent one 750 cr in Grofers), general corporate purposes
  • Own Loyalty app of NRAI – very competitive market, they compete with cloud kitchens, restaurants with direct delivery (Jubilant), telephone ordering, etc, so not just NRAI.
  • Home-cooked food – is the real opportunity
  • Payment aggregator and gateway license apply – as per recent RBI directive, firms who connect e-commerce merchants need to apply for the license, nothing new, just for payments facilitation
  • Why India listing? So much customer love in India
  • Meituan into hotel bookings and grocery – Will India develop in the same way? Hard to predict

Direct Delivery, NRAI’s own Loyalty APP and new age aggregators – Takeaways

Takeaways from my chat with Anurag Katriar, President of National Restaurant Association of India, ED & CEO – deGustibus Hospitality P Ltd, Naman Pugalia, Peppo Founder, Karan Chechani, CO founder Thrive, Hashtag Loyalty  and Mr. Raja Sekhar Reddy , Founder & Director – Squaremeal Foods Pvt Ltd ( Mirchi & Mime and Madeira & Mime)  – This was a space that I hosted on Twitter spaces on July 09

Takeaways were – Anurag said aggregators can’t squeeze restaurants to the extreme or else how will restaurants function. Naman and Karan spoke about the new age aggregators, how they share data with restaurants, help them with CRM/Marketing, the coexistence of a lot of players in the food delivery space and Raja spoke about how aggregators have helped them expand the market but also they are now working with new aggregators.

Why your nearby restaurant has a sweet-sour relationship with Zomato/Swiggy?


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 an 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 –Ridesharing, 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 good 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 contribute 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.

Online Grocery (Src – BoFA Report)

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. Link here. (A bit old but worth reading). This is an article from a design point of view

Additional Reading / Viewing –



Technical Terms

Thanks for reading till the end!

If you would like to add anything or give any feedback or would like to appreciate the article, reach out to me on twitter – aditya_kondawar or email me at [email protected]!

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