ZOMATO - Zomato Limited Share Price

In the earnings conference call for Q1 FY26, Eternal Limited management provided a cautiously optimistic outlook. The management noted that existing polygons contributed most of their growth, with less than 5% of overall growth coming from newly opened cities. In Delhi, a relatively mature market for them, they achieved a year-on-year growth of 70%, reflecting strong performance even in well-established areas.

Management highlighted plans to move towards 1P (first-party) inventory ownership, expecting most of their business to transition to this model within the next two to three quarters. They anticipate that this shift will lead to immediate margin benefits, with expected margin improvement reflected in their financials over the same period.

For the quick commerce segment, Akshant Goyal pointed out that margins improved from -2.4% to -1.8% quarter-on-quarter, with projections for continued improvement dependent on competitive intensity. They noted that the overall business remains growth-focused, even at the cost of near-term margin sacrifice, emphasizing that while they are promoting growth, long-term margin expansion is still a goal.

The management indicated that the quick commerce industry still has strong growth momentum anticipated for the next two years due to infrastructure build-out, although they acknowledged uncertainties regarding market saturation thereafter. They expect their GOV (Gross Order Value) to exceed $5 billion with MTU (Monthly Transacting Users) rising above 15 million.

Overall, the management anticipates maintaining their leadership in quick commerce while adapting to competitive pressures, indicating a strategic mindset focused on growth and market adaptation while navigating the challenges ahead.

Question 1: Ankur Rudra from JP Morgan asked about same-store sales growth, specifically how it compares with growth from new stores as store additions may slow down.

Answer: Hi Ankur, same-store sales growth isn't tracked by us due to the dynamic nature of our store polygons and their catchment areas. Most growth comes from existing polygons; in fact, under 5% of our growth this quarter was from new areas. For instance, in Delhi, we've seen a 70% year-on-year growth, showcasing robust growth in mature markets despite not emphasizing same-store metrics.

Question 2: Ankur Rudra followed up on competition and asked if any changes to strategy were anticipated if competition intensified.

Answer: Absolutely, Ankur. We'll react to market conditions. Maintaining our leadership and offering excellent service to customers is paramount. We're committed to being responsive to competitive dynamics and will adapt our strategy as required to safeguard our position in the market.

Question 3: Manish Adukia from Goldman Sachs inquired about moving inventory to a 1P model and the immediate margin benefits from this transition.

Answer: Yes, Manish, we plan to transition most of our business to inventory ownership soon, and we anticipate margin benefits to materialize during that timeframe, aligning with our operational model. This strategic shift is expected to enhance overall profitability quickly.

Question 4: Manish Adukia asked about breakeven timelines for the quick commerce business due to improved margins and losses.

Answer: Manish, breakeven timelines are complex; they depend on the weighted average of mature versus new stores. Our adjusted margins have improved, but how quickly we achieve breakeven will depend on our expansion pace and market dynamics. We're focused on sustainable growth rather than providing a specific breakeven date.

Question 5: Aditya Soman from CLSA asked about ROCE assumptions for Blinkit, particularly working capital in relation to traditional retailers.

Answer: Aditya, our working capital of 18 days reflects efficiency in how we replenish inventory, not a direct comparison with traditional retailers like DMart. Our model allows us to minimize inventory needs significantly, resulting in better cash flow dynamics compared to conventional retail operations.

Question 6: Vivek Maheshwari from Jefferies inquired whether the transition to the 1P model will change how small sellers are featured on the platform.

Answer: No, Vivek, transitioning to a 1P model is primarily an administrative change for us and the brands. They retain the ability to promote their products and maintain discretion over their marketing strategies. This shift is designed to enhance compliance and operational efficiency without altering branding or promotional capabilities.

Question 7: Sachin Salgaonkar from Bank of America asked whether the increasing size of quick commerce would pose risks to the food delivery business.

Answer: Quick commerce has indeed affected food delivery growth. However, we believe food delivery can still grow at around 20% in the long term, despite short-term uncertainties. Innovations and unlocking new use cases in food delivery could help us regain solid growth levels moving forward.