Kotak Bullish on Zomato: Platform Fee Strategy Signals Potential for Strong Performance

In a strategic move to bolster its profitability, foodtech giant Zomato recently introduced a platform fee of INR 2 per food delivery order. This initiative is part of Zomato's efforts to strengthen its financial performance and align with its long-term goals. The platform fee was later increased to INR 3 for certain users, further contributing to the company's bottom line.

Kotak Institutional Equities, a leading brokerage firm, analyzed the impact of this platform fee on Zomato's financials. According to their assessment, this fee structure is expected to result in an incremental contribution of INR 40.5 crore to Zomato's profit and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This additional revenue is a significant boost to the company's financial health.

The platform fee serves as a small charge levied on customers for each order placed through the Zomato app. In their app messaging, Zomato explains, "This small fee helps us pay the bills so that we can keep Zomato running." While Zomato has witnessed improvements in its take rate over the past few quarters, the primary driver of this increase has been the rise in restaurant take rates. In contrast, delivery take rates had lagged behind.

The introduction of the platform fee is a strategic step that aligns Zomato's revenue structure more closely with its operational costs. By sharing a portion of these costs with customers, Zomato aims to strike a balance that ensures the sustainability of its platform. This move is particularly important in an industry where logistics, delivery, and operational expenses play a crucial role in the overall cost structure.

Kotak Institutional Equities highlights that the platform fee is expected to result in approximately a 16 basis points (bps) increase in contribution margin. This incremental improvement is a significant step toward achieving Zomato's target of an 8% margin as a percentage of Gross Merchandise Value (GMV). In a competitive market, even small adjustments to contribution margin can have a substantial impact on a company's profitability.

As Zomato continues to expand its presence in the food delivery segment, these financial adjustments are vital to sustaining its growth trajectory. The platform fee not only supports the company in covering operational expenses but also demonstrates its commitment to maintaining a robust and efficient ecosystem for customers and restaurant partners.

Zomato's introduction of a platform fee is a strategic move aimed at enhancing its profitability. This initiative aligns with the company's long-term goals and financial sustainability. As Zomato works towards achieving its targeted contribution margin, such measures play a pivotal role in its journey to becoming a sustainable leader in the foodtech industry.

(Note: To stay updated on Zomato's financial performance, you can monitor the "Zomato share price today." Additionally, delivery partners can utilize the "Zomato delivery partner app" for efficient order management and delivery operations.)



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