Raising platform fees in select markets will only have a 1-2 percent positive impact on Zomato’s EBITDA, analysts believe.
Shares of Zomato rose over 3 percent and hit a record high of Rs 232 on July 15, a day after the company announced raising its platform fee to Rs 6, up from Rs 5 that it charged previously. The new platform fees, which will be applicable in selective markets across Delhi and Bengaluru, are expected to have a mildly positive impact on the company’s profitability.
Zomato’s food segment is estimated to do about 87 crore orders annually and an increase of Re 1 in each convenience fee charged will lead to a positive impact of Rs 85-90 crore on EBITDA, which is around a 6-7 percent increase in profitability, Karan Taurani, Senior Vice President- Research Analyst at Elara Capital.
If applied across all cities, an increase in platform fees will have a positive impact of 30-35 basis points on profitability (currently at 20.6 percent as of Q4FY24), Taurani said. However, this hike is effective only in selective markets and hence, the positive impact on EBITDA could be a mere 1-2 percent (5-10 bps), he added.
Going ahead, Taurani also expects Zomato’s platform fee to rise to Rs 8-10 per order in select metro markets over the medium term, helping to offset the negative impact of zero delivery charges due to loyalty programs.
“We do not expect a significant increase in restaurant commissions in the near term, as these have largely plateaued in our assessment. The primary drivers for adjusting EBITDA as a percentage of GOV towards the management’s medium-term guidance of 4-5 percent(currently at 3.3 percent in Q4FY24) will be ad revenue and the platform fee,” he believes.