Zomato Set to Enjoy Spoils of Market War

Jan 25 2016
Aditi Shrivastava
The Economic Times (Mumbai).

Co on course to double its revenue in current fiscal & break even at operating level by mid-2016

Indian consumer internet companies tend to proudly wear losses on their sleeves as battle scars earned in capturing large markets. So there may be reason to cheer when online restaurant discovery firm Zomato says it will be operationally profitable by June.When that happens, Zomato will be the first among Indian ecommerce `Unicorns' -startups estimated to be worth at least $1billion -to reach the coveted milestone, ahead of larger companies like Flipkart and Ola.One that investors are urging their portfolio firms to rush to after seeing in the past year that market growth alone cannot be a self sustaining goal.

Zomato, which began operations eight years ago as a company listing restaurant menus, is on course to double its revenue in the current fiscal year ending March 31 and break even at the operating level by mid-2016, co-founder Pankaj Chaddah said in an interview to ET.

The company, which is val `6,700 ued at about $1 billion (. crore now), also expects to become India's largest online food ordering platform in two months, overtaking Rocket Internet-backed Foodpanda and SAIF Partners funded Swiggy, Chaddah said, emphasising the company's big thrust on the business it launched nine months ago in April.

Chaddah said he expects the business to grow by at least four times by the end of this calendar year to 50,000 orders a day, with an average order value of 550. Zoma to's core ads business, however, will remain its largest contributor, accounting for 80-85% of total revenue, he said.

For 2014-15, Zomato recorded an operating revenue of Rs. 96.7 crore and loss before interest, taxes, depreciation and amortisation of Rs. 136 crore. That compares with op` erating revenue of Rs.30.6 crore and Ebitda loss of Rs. 41.39 crore for 2013-14. Info Edge (India), the largest investor in Zomato with a 47% stake, is scheduled to announce its annual financial report next week.

“Our unit economics work,“ Chaddah said, referring to an operating metric keenly watched by investors. “We have very low customer acquisition costs (of Rs.7.50 per customer), so we don't need money for existing businesses.(About) 90% of the time our (food ordering) discounts are driven by the merchants,“ said Chaddha. Food-tech companies in India have struggled to sustain in recent months after burning large stacks of money raised from investors to win customers. TinyOwl, for example, had to shutter operations in some cities. Zomato, too, has been cutting costs and pulling back from cities where operations have not been viable.

Last year, it laid off 300 employees, many of whom had come on board via Zomato's $52-million acquisition of Urbanspoon in January 2015, its biggest overseas purchase.

This month, it shut food-ordering operations in Lucknow, Kochi, Indore and Coimbatore. Zomato will, instead, focus on food delivery in 10 large cities, including Ahmedabad and Pune, for the next one year, said Chaddha. “More than 9899% of the demand is from these cities,“ he said. Zomato began aggressively expanding overseas in 2014-15 by acquiring restaurant search firms in New Zealand, Poland, Czech Republic, Slovakia, Turkey and Italy.

Its purchase of Urbanspoon handed it a base to take on Yelp in the US as well as enter Australia and Canada. Zomato is now present in 22 countries and has about 2,600 employees globally.

In the past year, the company has turned its focus to breaking even.In September, Zomato raised Rs.390 crore in funding led by Singapore based Temasek and including existing investor Vy Capital.

Prior to that, it raised Rs.310 Crore from existing backers Info Edge and Sequoia Capital.