Zomato's Phased Platform-Fee Hikes Helping It Reach Ebitda Guidance
However, one downside to the hike is that it is only effective in selective markets,
Zomato Ltd. has hiked its mandatory platform or convenience fee for the fourth time in the last one year to Rs 5 per order. Apart from the ad revenue and higher commissions from restaurants, this hike is one of the ways the food delivery company can improve its profitability and breach the 4-5% guidance for Ebitda as a percentage of the gross order value over the near term.
Impact on Ebitda
Zomato is estimated to do about 85–90 crore orders in the current financial year. The increase of Re 1 in convenience fee will lead to a positive impact of Rs 85–90 crore on its earnings before interest, taxes, depreciation and amortisation. This is approximately a 5% positive impact on the Ebitda, according to Karan Taurani, research analyst at Elara Capital.
With a Re 1 hike of Zomato's platform fee across all cities, take rates would be impacted positively by 30 basis points. However, a downside to the hike is that it is only effective in selective markets, potentially reducing the impact to 1–2%, which translates to a 5–10-basis-point higher take rate.
Past Benefit Of Fee Hike
Zomato has increased its convenience fee four times in a phased manner in the past year. Over this period, the convenience fee has been raised from Rs 2 to Rs 5. The company hiked prices twice in August 2023 and once in January 2024.
On the back of these hikes, Zomato's Ebitda as a percentage of gross order value has grown 60 basis points to 3.2% since the second quarter of fiscal 2024, which was the first quarter where the platform fee was introduced, according to Elara Capital.
More Hikes On The Cards?
Taurani expects the platform fee to move towards Rs 8–10 per order over the medium term. This hike would mainly happen in select metro markets and would offset some negative impact that the zero-delivery charges have due to the loyalty programmes.
Taurani said a big increase in restaurant commissions over the near term is highly unlikely as the increase as plateaued.
Shares of Zomato were trading 1.4% higher at Rs 191.85 apiece on the NSE, compared to a 0.66% gain in the benchmark Nifty 50 at 12.14 p.m.
Twenty-four out of the 28 analysts tracking the company have a 'buy' rating on the stock and four suggest 'sell'. The average of 12-month analyst price targets implies a potential downside of 3.4%.