Zomato Instant: ‘10-minute delivery’ move is to protect market share, not to boost growth, analysts opine

Food aggregator Zomato’s move to launch a 10-minute delivery is intended to protect company's market share than to boost its growth, several analysts opine. They also estimate that this move may improve company’s non-financial numbers such as orders and customers instead of its financial numbers in the near term.  

“A key attribute of this industry is that customer loyalty does not exist and competition among companies is primarily on pricing and services. So, with competition heating up, more than a move to boost its growth it seems like a move to protect its market share, Yesha Shah, Head of Equity Research SAMCO Group said. 

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She further added that this initiative will take considerable time to start contributing meaningfully to Zomato’s operational performance. 

Another analyst Sandeep Jain also stated that this move of Zomato will help company to add more customers and orders, and this is in exact line of grocery start-ups initiative of 10-minute delivery pattern. Jain is the Director of brokerage firm Tradeswift.

Zomato’s founder and chief executive officer Deepinder Goyal in a blogpost on Monday had announced ‘Zomato Instant’ – a move to make deliveries available in 10-minute. In a series of tweet, he explained that the aggregator would deliver most popular items on the menu such as bread omelette, maggi, poha, chai, biryani and momos, among others. 

Jain is little sceptical with the execution of this initiative and impact of the same on improving financials of the company, however. He, however, believes that it will be game changer if this happens. As, Zomato CEO quoted, “Nobody in the world has so far delivered hot and fresh food in under 10 minutes at scale, and we were eager to be the first to create this category, globally.” 

On the overall new age companies have delivered a muted performance on exchanges, Yesha Shah said.

“They tend to fall steeply during market downturns, failing to meet market expectations. Further, with interest rate hikes materializing, their future valuation takes a hit and hence globally stock prices of many such companies have plunged,” she said. 

With respect to Zomato shares, the analyst at SAMCO Group said, “Combined with factors such as no profit visibility, weak growth in the recent quarter, and intense competition, have added to the pressure on Zomato’s stock price.” 

“The new Zomato Instant move, although a right one, but will still need considerable investment by the company and may also add to the cash burn. Thus, despite the correction, Zomato still does not seem to be an attractive investment for risk-averse investors at this juncture,” she added.     

Stating that there is not enough clarity and visibility in the core business of Zomato, Richa Agarwal, Senior Research Analyst at Equitymaster said, “We are not sure if it’s a good idea to venture into a business which is even more challenging to execute from a logistic and operational perspective.”   

“While the market for Zomato could be huge, the sustainability of the business, especially with the current investment plans, is questionable. We would rather prefer a company in the ecosystem of new-age firms where there is comfort in profitability and cash flows,” Agarwal said in her comment. 

The share price of Zomato on Wednesday is trading over 1 per cent higher to Rs 82 per share on the BSE as compared to flat S&P BSE Sensex. The stock in year-to-date has slumped almost 43 per cent, as compared to around 2 per cent decline in the S&P BSE Sensex.