Should Zomato be spared the burden of quarterly financial filings?
Premium- Perhaps Sebi should consider a separate set of rules for firms where investors have a very long-term vision
Zomato Ltd has begun its post-listing journey with far lesser transparency compared with the high benchmark it set during its public offering of shares last month. When it courted investors for the ₹9,375 crore issue, it shared details such as monthly active users (MAU), monthly transacting users (MTU), active food delivery restaurants, active restaurant listings, average order value (AOV), number of orders, gross order value (GOV) and unit economics/contribution margins.
In its first filing post-listing for the June quarter, investors got a peek only into the GOV of the food delivery business, and none of the other metrics were quantified. “[The Zomato] release lacks details on MTU, AOV & unit economics [provided in red herring prospectus], which could disappoint investors as could the decision to have an annual earnings call," said analysts at Jefferies India Pvt. Ltd.
But investors are showing no sign of disappointment, with Zomato shares trading nearly 5% higher post-results.
Perhaps, they are excited about the 37% sequential growth in GOV in the June quarter. But note that dine-in services were impacted owing to the second wave, giving a boost to food delivery services. On a two-year CAGR (compound annual growth rate) basis, GOV has risen by only around 26%, about half the perceived growth of 50% investors have in mind for Zomato.
In comparison, Jubilant Foodworks reported a two-year CAGR of 22% for the delivery business of its Domino’s franchisee in Q1. And it did so without breaking a sweat, with the firm reporting an Ebitda of ₹212 crore on revenues of ₹879 crore last quarter.
Zomato’s delivery commissions and other revenues added up to a nearly similar revenue of ₹844 crore, but at the Ebitda-level, it reported losses of as high as ₹376.5 crore, which includes a ₹170 crore cost related to options granted to its chief executive officer in April. Ebitda stands for earnings before interest, tax, depreciation, and amortization.
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So Zomato’s growth is only slightly higher than that of Domino’s, but it spends ₹145 in operating costs for every ₹100 of revenue, whereas the latter spends only ₹76 for every ₹100 of revenue.
But evidently, investors have no time for these inconvenient truths. Analysts are busy estimating revenues 10 years from now and discounting them back to the present value. We are told Zomato’s valuations on a price-sales basis are reasonable using such methodology, based on the logic that Indian food delivery firms are 10 years behind global peers.
Some may be content if Zomato’s management appears only once a year and says, “We are confident about achieving your ten-year vision for us." By getting rid of the many metrics that were present in its red herring prospectus, and opting for an annual earnings call, Zomato’s management has already indicated they wouldn’t mind such an approach.
But alas, the regulations of Securities and Exchange Board of India (Sebi) require certain minimum disclosures. Perhaps it should consider a separate set of rules for firms where investors have a very long-term vision.
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