Zomato would be reporting a loss without this

In recent discussions about India’s food delivery market, many have been quick to declare Zomato the winner in its rivalry with Swiggy. However, a closer examination of their financial reports reveals a more nuanced picture. This article aims to provide a balanced perspective on both companies’ performances, highlighting the importance of looking beyond headline figures.

The Headline Numbers

At first glance, Zomato’s FY2024 results appear impressive:

• Revenue: Rs 12,114 crore
• Profit: Rs 351 crore

In comparison, Swiggy’s figures are:

• Revenue: Rs 11,247 crore
• Loss: Rs 2,350 crore

Based on these numbers alone, one might conclude that Zomato is significantly outperforming Swiggy. However, this surface-level analysis misses crucial details.

Digging Deeper: Operational Performance

Zomato’s Operational Reality

While Zomato reported a profit, it’s essential to understand the source of this profit. Here’s a breakdown:

1. Revenue from operations: Rs 12,114 crore
2. Total expenses: Rs 12,670 crore
3. Operational loss: Rs 556 crore
4. Other income: Rs 847 crore
5. Reported profit: Rs 351 crore

This breakdown reveals that Zomato’s core food delivery business is still operating at a loss. The reported profit is entirely due to “other income,” primarily from interest and investment gains.

The Role of ‘Other Income’

Zomato’s other income of Rs 847 crore is approximately 7% of its operational revenue. This is a significantly higher percentage than what’s typical for most companies, where other income usually ranges from 1-3% of operational revenue.

While it’s not uncommon for well-funded tech companies to have substantial cash reserves generating additional income, relying on this for profitability raises questions about the sustainability of the business model.

Swiggy’s Progress

Now, let’s look at Swiggy’s performance:

1. Revenue: Rs 11,247 crore (36% growth from FY2023)
2. Loss: Rs 2,350 crore (44% reduction from FY2023)

While Swiggy is still reporting a loss, there are several positive indicators:

1. Strong Revenue Growth: 36% year-over-year growth is impressive, especially in a competitive market.
2. Significant Loss Reduction: A 44% reduction in losses indicates strong improvements in operational efficiency.
3. Narrowing Gap: Swiggy’s revenue is now only about 7.7% behind Zomato’s, suggesting it’s quickly catching up.

Comparative Analysis

When we compare the two companies’ operational performance:

1. Revenue Gap: Zomato leads by only Rs 867 crore (about 7.7%)
2. Operational Losses:
   • Zomato: Rs 556 crore
   • Swiggy: Rs 2,350 crore

While Swiggy’s losses are higher, it’s important to note that without other income, Zomato would also be reporting a significant loss.

The Bigger Picture

1. Market Dynamics: Both companies are major players in a highly competitive market, with Swiggy showing strong growth momentum.
2. Path to Profitability: Both are still working towards sustainable operational profitability. Zomato’s reported profit, while positive, is not from its core business.
3. Strategic Priorities: Swiggy’s high growth rate and improving bottom line suggest a focus on expansion and operational efficiency.
4. Investor Perspective: While Zomato’s overall profitability might be viewed favorably, Swiggy’s growth rate and improving financials are also positive indicators, especially as it prepares for a potential IPO.

Conclusion

The narrative that Zomato is decisively “beating” Swiggy oversimplifies a complex situation. Both companies have strengths and challenges:

• Zomato has achieved overall profitability but relies heavily on non-operational income.
• Swiggy is showing strong growth and significantly improving its bottom line, though still operating at a loss.

As the food delivery market in India continues to evolve, both companies show promise and face challenges. Investors and observers should look beyond headline numbers to understand the full financial picture and long-term sustainability of these businesses.