Zomato
Internet
Priming the innovation engine…
Zomato’s ability to ‘execute’ at scale is well recognised by investors. We believe the company is now gearing up to improve its credentials as an ‘innovator’. We note it has launched multiple new initiatives in the past 40 days which aim at improving customer experience or exploring adjacencies in its core ‘food delivery’ business. While the launch of ‘veg only’ fleet and ‘large order’ fleet may be aimed at growing its user base/usage occasions, the introduction of ‘delivery on priority’ seems to be an attempt to monetise ‘convenience’ and ‘peace of mind’. We believe all these steps are in the right direction and reflect Zomato’s ability to address customer needs. At the same time, the suspension of ‘Intercity Legends’ (link) is indicative of its agile ‘RoI-oriented’ decision making. Maintain BUY.
Launched ‘veg only’ mode
India still has a sizeable population that is vegetarian because of their religious beliefs. To resolve the dietary preferences of these consumers, Zomato launched ‘veg only mode’ in late Mar’24 (link). The ‘veg only mode’ has a curation of 100% vegetarian-only restaurants and has a dedicated fleet to deliver only from these restaurants. We believe the idea is to assuage consumers who are otherwise hesitant to order on food delivery platforms due to religious considerations.
Introduced ‘large order’ fleet using e-rickshaws
Zomato launched a fleet of electric three wheelers (e-rickshaws) dedicated to handling large group/party/event orders in mid-Apr’24 (link). This is a departure from the traditional food delivery which employs two-wheelers in India. The vehicles are designed to serve orders for a gathering of up to 50 people. Zomato is also in the process of customising this fleet with new features such as cooling compartments and hot boxes based on demand.
Extra fees for ‘delivery on priority’
As of late Apr’24, Zomato is piloting a new feature wherein a consumer has a choice of paying extra delivery fees (INR 29 per order) to get his/her food delivered on priority in select localities of Bengaluru and Mumbai (link). The additional charge applies even to ‘Gold’ members. We think the idea is to sell ‘convenience’ and ‘peace of mind’, especially during peak hours.
Valuation
We re-iterate our BUY rating on Zomato and based on our 3-stage DCF-based target price to INR 300. Zomato remains our top pick in the Indian internet space. Key risks: Slowdown in discretionary spending, negative externalities disrupting business operations.
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