Fundamental Analysis of Zomato | Zomato Business Model | Zomato earns Money | Zomato Future growth plan | Zomato IPO Review


Recently Zomato has filed for the IPO and is probably the most anticipated IPO in India. With this IPO Zomato is planning to raise $1.1 billion dollars which are rupees 1250 crore. But why is there such hype was for Zomato? And is it really worth applying for Zomato IPO? Well, the IPO date is not finalized, But I decided to write an article where we will discuss the business model Zomato and understand how it really earns money. We will also discuss the industry is no matter operating and the future growth prospect of the company along with competitive advantage, its competitors, and key risk. Alright, let's get started.

Fundamental Analysis of Zomato
Zomato Logo

Company and its business

Zomato is a leading foodservice platform in India, it is involved in two business segments, B2B that is business to business, and B2C that is business to consumer. If you look at the B2C segment Zomato has two major offerings. First is food delivery where customers can order food online using the Zomato platform. And second is dining out that provides a platform for customers to search the restaurant in the city read and write reviews about the experience, explore the photos, as well as menu cards, book a table and make payments while dining out at the restaurant. It also has a b2b business segment that includes Hyprocure that supplies high-quality ingredients and kitchen products to the restaurant partners. Then it also has a segment of Zomato pro which is a loyalty program for food delivery and dining out. While I'm sure some of you would be aware of the revenue model of Zomato let us briefly touch upon the various business segments of Zomato and its revenue model. 

Food delivery

Over the past few years, Zomato has gained significant market share in the food delivery business and it is a leader in this category with its gross auto value increasing 8.4 times from rupees 1344 crore in FY 18 to rupees 11,220 crores and FY 20.  Dear friends, please note that here we are discussing gross order value. That is the total value of food ordered on the platform. In FY 20 on an average of 1.07 crore, customers have ordered food every month on the Zomato platform. Zomato has the largest food delivery network in India. As of December 2020, Zomato had 1.61 lakh active delivery partners that delivered food at a median time of fewer than 30 minutes in FY 20. If you look at the restaurant partners Zomato had 1.31 lakh, active restaurant partners, on an average every month in FY 20. So basically Zomato earns a commission on every food that is ordered via its platform. And it is the biggest source of revenue for the company. In addition to this, it also earns from advertisements of restaurant partners on its platform. So restaurant partners pay Zomato to get visibility on the platform. 

Dining out

As of December 31, 2020, Zomato had its presence in 526 cities in India with 3,50,000+ active restaurant listings. So Zomato is the largest restaurant listing and review platform in India. The major source of revenue for Zomato in the dining out category is via advertisement where the restaurant partners pay them for higher visibility on the platform. In FY 20, 8064 restaurant partners paid for the advertisement on the Zomato platform. Currently, Zomato does not monetize table reservations or dining out platforms. But in the future, this can also generate additional income for the company.


Hyperpure is the farm to fork supplying offers for restaurants in India. Zomato sources fresh, hygienic, quality ingredients and supplies directly from farmers, mills, producers, and processors to supply to its restaurant partners. This helps the restaurant partner in making the supply chain more effective and predictable and also improves the overall quality of the food. Restaurant partners ordering supplies through Hyper pure get a “Hyper pure insight” tag on its Zomato page, And that basically provides customers with an assurance of the quality of ingredients used at the restaurant. Zomato started Hyper pure in 2019 and it's growing rapidly. In December 2020, the supply to over 6000 restaurant partners across 6 cities in India.

Zomato Pro

Zomato Business Model

Basically, Zomato Pro is an exclusive paid membership program that provides flat discounts to the customers at selected restaurants that are partnered with Zomato for pro membership. For example, if you can become a pro member on Zomato for just rupees 200 for 3 months, in that you would get up to 40% off on each dining experience, up to 30% extra off on food delivery, you get access to 25,000+ pro restaurants, and also jumped the queue for faster food delivery. Now that generates a consistent source of income for the company. It's like you join amazon prime for faster delivery. As of December 20, Zomato has 1.4 million active pro customers and 25,350 Pro restaurant partners.

Nykaa IPO window is between 28 October to 1st November 2021, excluding the weekend on 30th and 31st October, the IPO price band is between Rs 1085-1125, the shares are available at a face value of Rs 1, and the lot size is 12 shares. So, the total investment for one lot would be Rs 13,500, the issue size is Rs 5251 crores out of this there is fresh equity of Rs 630 crore and the remaining Rs 4721 crore is Offered for Sale where promoters are diluting their stakes., with this promoter stake in the company will reduce from 54.22% to around 52.56%.. Continue readingChemplast Sanmar IPO Review 2021 – IPO Date, Offer Price & Details!

Competitive advantage of Zomato

If you look at the competitive advantage of Zomato first strength is,

Comprehensive foodservice platform

How Zomato earns Money

One of the advantages of Zomato is its end-to-end food service approach. For example, in the US, you have Yelp, that is mainly used for reviews about the various business. Then you have DOORDASH, which is a food delivery company. Then you have OpenTable, which is a table reservation platform and restaurant. Now Zomato provides all these features of reviews, home delivery, and table reservation on a single platform that makes Zomato a high potential business.

Strong restaurant network

As of December 2020, Zomato has a strong network of 3.5 lakh+ active restaurants in 526 cities in India, where the customers can access the photos, menu card, explore the contact details, reviews, address, and various details like opening timing, average cost per meal, indoor or outdoor seating, availability, etc. that's a lot of data. In fact, the majority of data include the reviews and photos are from the customers. So even the customers are contributing to the content. Since there is already a lot of content on the platform, it attracts more and more people that again increases the content. This again increases the customer visit that increases the restaurant listing on the platform. It's almost like a never-ending loop.

Efficient delivery network

Dear friends, Zomato operates one of India's largest Hyperlocal delivery networks with 161,637 active delivery partners in the month of December 2020. In FY 20 the delivery partners fulfilled 94.9% of the orders delivered the medium delivery time of orders which was less than 30 minutes in fiscal 20. Food delivery is highly complex as food is a highly perishable commodity that requires careful handling while maintaining a high level of hygiene and real-time on-demand service. Zomato uses technology like demand forecasting, fleet optimization and intelligent displace technology to optimize the matching of order and delivery partners using machine learning. This gives Zomato a strong edge over the competitors.

Technology-based platform

Dear friends, Zomato is a technology-based company that leverages artificial intelligence, machine learning, and deep data science to continuously drive innovations on their platforms. Zomato enables restaurant partners with fully automated order management systems. These systems offer dashboard data features such as order transmission, order processing, menu synchronization, payment reconciliation, content promotion, marketing tools, and invoice management features. Zomato delivery partners are able to accept orders see their per order earning and estimate the time and navigation to restaurant location and point of delivery using the mobile app. 

Industry Overview - Opportunity

To understand the growth opportunity for Zomato it is important to understand the internet market in India, as Zomato is essentially a technology-based platform where people access the platform over the app or website that requires internet. Over the past few years, the internet market in India has almost exploded from 2015 to 2019. The Internet and smartphone market has doubled in India, with the launch of JIo in 2016. Data prices have become very affordable at less than $1 per GB and internet penetration as soon from 31-33 crore internet users in 2015 to 57-60 crore internet users by 2019. At the same time, there is a significant growth in the adoption of smartphones and high-speed 4G connections. However, in comparison with China, we are still far behind in digital adoption. For example, in 2015, the smartphone penetration in India was 24% and it increased to 43% by 2019. Whereas China has 63% internet penetration by 2019. It is expected that internet penetration in India would increase to 68% by 2025. And smartphone penetration would increase from 33 to 58% by 2025. 

If we compare the foodservice market in India versus the US versus China for FY 19. Foodservice market is basically defined as non-home cooked food or restaurant food. So it contributed only 10% to the total food market in India. In the US, it is 54% and in China, it is 58%. The online food delivery users in India are just 9% compared to 36% in the US and 50% in China. Just imagine the kind of scope we have input the service industry in India.

If you look at the competition Zomato has strong competition from Swiggy in the food delivery business, then it also has competition from REBEL Food that operates the largest cloud kitchen chain in India. Offer cloud kitchens are gaining popularity in India very own just a kitchen and deliver the food online. It saves the high cost of opening a dining restaurant in a posh area of the city. Then Zomato has competition from QSR chains like Domino's Pizza, Magdi (McDonald's), etc, that has both dining and home delivery option. Earlier in 2020, Uber Eats exited from India and Zomato acquired the business of Uber Eats for rupees 2500 crore. Hence, overall Zomato is the leader in the foodservice industry in India. But there is one more competitor. It has recently started its operation in India. Can you guess the name? It's Amazon. Yes, Amazon has also started food delivery in India, and Amazon is the largest company in the world. If it gets into a business, it kills the competition and becomes the leader. Amazon started the food delivery in Bangalore as a pilot in May 2020. And within a year, it has already expanded to 62 pin codes in Bengaluru with over 2500 restaurants and cloud kitchens. It clearly means that in the future, there is going to be a war in the food delivery business similar to what we are seeing between Amazon and Flipkart in the e-com business. 

Future Growth

Let us first look at the short-term impact due to COVID. COVID had a significant impact on the Zomato delivery business during the q1 of FY 21. That gross order value dropped significantly. However, it recovered quickly in q2 and then in q3. However, there is again a strict lockdown in q4 of FY 21. And it looks like this would continue for the same till q1 or probably q2 of FY 22. On the other side, it's dining out business is still recovering from the pandemic as customers are reluctant to dining dine out. While COVID is certainly made a big negative impact in the short term, it has also accelerated the use of digital platforms, and mon and more people have started using its online food delivery platform. If you look at the long-term growth strategy, the major growth focus for Zomato is to acquire new customers as well as retain them for repeat purchases. And that requires significant investment in marketing and promotion. Over the years, the cost of acquiring one customer has seduced Zomato. 

Let us have a look at the unit economics of Zomato. In FY20 for one customer received Rs 43.6 in commission and other charges, Rs 15.3 in customer delivery charge, but it spent Rs 52 on delivery cost. So, delivery is the biggest cost factor for Zomato that expense will be 21.7 on discount, and Rs 15.7 on other variable costs. So, the total contribution per customer was Rs -30.5, which means in FY20 Zomato lost Rs 30.5 per customer. However, let's look at the FY21 data, for the initial 9 months per customer commission income has increased to Rs 62.8, customer delivery charge income has increased to Rs 26.8, the delivery cost has reduced to Rs 44.6, the discount cost is reduced to Rs 7.3, and another cost is reduced to Rs 14.8, this has resulted in each customer contributing Rs 22.9. So, as compared to FY20, the customer acquisition cost of Zomato has actually increased from a loss of Rs -30.5 per customer to profit to Rs 22.9 per customer. Please note that the cost associated with marketing, branding, and other fixed operating costs are not considered here. However, due to the increase in customer base, and increasing repeat purchase Zomato advertising cost has also been reduced due to economies of scale. Its ad spend has reduced from 88.43% of total income in FY19 to currently at 22.4%.

Zomato future plan

So, going forward Zomato's plan would be to increase the penetration by adding more customers as well as more restaurant partners. Then another focus would be to increase the pro customer base. As this creates a good steady income for the company. Zomato would continue to increase its delivery infrastructure and expanded its delivery partner base. If you look at the marketing of Zomato I think it is one of the best marketing teams in India. If you follow them on Twitter or other social media platforms, they have been very active and publish a lot of witty content that increases brand awareness. For example, in one of the funny tweets, Zomato posted that 

Papa "Mera beta bada hoke collector banega"
Beta "becomes a collector of oregano and chili flakes packets"

Key Risk

If you look at the key risk, Zomato has several risks.

Strong competition

Zomato has strong competition from Swiggy, QSR chains like Domino's, McD, and other cloud kitchen companies, and especially Amazon could end up reducing its market share and can impact the growth and profitability. So Zomato needs to continue to add more restaurant partners, delivery partners and offer attractive rates to woo the customers.


The next risk is the profitability, Zomato is not yet a profitable company, it incurred heavy losses in the last few years and in FY18 the loss was 106 growth. In FY19 the loss increased almost 10 times Rs 1010 crore and FY20 the loss was Rs 2385 crore and for the initial 9 months of FY21 till December 20, the loss has been Rs680 Cr. Zomato expect the cost to increase over time and the losses would continue due to significant investment and business growth. Dear friends, No matter how fancy a business is, no matter how much revenue your business earns, and at the end of the day, what matters is how much profit the company makes. So it would be interesting to see when Zomato becomes profitable. And it would also be a major risk for the company. COVID is still not over and it would continue to negatively impact the business of Zomato.

Loss of restaurant partners

Another risk is the loss of restaurant partners. Dear friends, please try to understand that Zomato charges a commission with restaurant partners. This results in lower profit for the restaurant owner, in the future restaurant owner, can discontinue Zomato services, and hence There's always a risk with that. 


If you look at the shareholding, as of IPO filing Infoedge holds an 18.5% stake in the company which is the highest, is followed by Alipay and Antfin that together hold 16.53% share. Apart from this, no shareholder has more than a 15% stake in Zomato. 

Zomato IPO Details

IPO Opening Date

Jul 14, 2021

IPO Closing Date

Jul 16, 2021

Issue Type

Book Built Issue 

Face Value

₹ 1 per equity share

IPO Price

₹ 72 to ₹ 76 per equity share

Market Lot


Min Order Quantity      


Listing At


Issue Size

 Eq Shares of ₹ 1 (aggregating up to ₹9,375.00 Cr)

Fresh Issue

 Eq Shares of ₹ 1 (aggregating up to ₹9,000.00 Cr)

Offer for Sale

 Eq Shares of ₹ 1 (aggregating up to ₹375.00 Cr)


Overall if we conclude, Zomato has a very promising business model. The foodservice market in India has a very bright future growth prospect, being technology-driven. company has a strong competitive advantage over the traditional foodservice sector in India. Hence, it is well-positioned to cater to the growing trend of the food delivery business, along with other services like food review, and its b2b business or supplying the ingredients to restaurant partners. On top of that, Zomato has a strong brand name in the foodservice sector. However, it won't be easy right for Zomato. It already has strong competition in the market, with players like Swiggy and cloud kitchen-based companies along with QSR chains like Domino's. On top of that, the big daddy Amazon has also entered into the food delivery business. Dear friends, there is no doubt about the fact that Zomato has been on an amazing growth journey. But let's not forget that it is still a loss. On top of that, the strong competition, from the likes of Amazon would make it bleed more. Hence, it would be interesting to see when it becomes profitable. And unless the company generates profit, it can't create value for the investor. "I would recommend to all of you investors stay away from this IPO and its stock until the company starts making profits." With this, I will conclude this article. I hope you will find this article insightful.

If you want to know more about investing, you can read this:

Post a Comment