HSBC Global Research has valued Gurgaon-based food delivery and restaurant discovery company Zomato at USD 3.6 billion, while its arch-rival Swiggy is reportedly valued at USD 3.3 billion after it raised USD 1 billion in December last year.
“Given the scope of its recent expansion and the need for further funding, we value Zomato on a discounted cash flow basis, at USD 3.6 billion (at a marginal 9% premium to its competitor Swiggy as of the latest round of funding) versus USD 0.9 billion earlier due to the change in business focus,” the HSBC report said.
The brokerage arm of financial services firm HSBC has upped Zomato’s valuation while taking stock of its publicly traded shareholder InfoEdge, which holds 26% stake in the company.
“We expect employee costs and delivery fee costs per order to gradually decline with larger acceptance of these platforms and an increase in the number of orders per person. We estimate 300 million food delivery orders a month by FY24, with Zomato enjoying 37%-40% market share,” the HSBC report said.
According to Deepinder Goyal, co-founder of Zomato, the company’s burn rate has improved over the last six months. Currently, the company loses about Rs 24 per order, compared to Rs 45 per order six months ago. In a detailed report on InfoEdge, HSBC said Zomato’s business has changed fundamentally, with food delivery now contributing about 70% of total revenue.
Zomato currently operates in 100 cities across India, and has targeted entering 500 cities over the next 24-36 months. It recently sold its UAE food delivery business to Naspers-backed Delivery Hero, a Berlin-based company, for USD 172 million. Zomato also raised USD 105 million from Delivery Hero in its recent funding round. Naspers is an investor in Zomato too.
HSBC estimates that the Indian market will mimic the growth in the Chinese food delivery market, with economies of scale kicking in, even as companies build out their infrastructure, along with rapidly evolving consumer behaviour.
“We estimate 70-75 million orders per month, 75-80% through Zomato and Swiggy. In China, by comparison, there are 600 million monthly orders,” the report said. Ele.me and Meituan Dianping are the two big players in the sector in China.