Kotak Equities says ONDC does not pose a significant near-term threat to Zomato

The brokerage said the cost of ordering food on ONDC is lower because of the discount funded by ONDC, which may not continue. It added that the variable cost of running a food delivery business is lower for a hyper scaled up platform like Zomato as compared to a smaller player.

“Recent media reports have indicated that ONDC is processing 25,000 orders per day, a significant ramp-up from zero earlier in the year. The cost of ordering food on ONDC is comparable to that of Zomato/Swiggy, at least in some cases. This, however, is largely due to ONDC-funded rebates, which may not continue, Kotak said in a report.

“The variable cost of running a food delivery business is lower on a scale-up platform like Zomato versus a smaller player. This implies that a new entrant will have to contend with higher costs unless it chooses to invest in customer support, which may impact customer retention.”

The brokerage said it sees only limited impact of ONDC on Zomato in the near term; The long-term effects are, for now, hard to call.”

Brokerage firm Kotak Institutional Equities has ‘Buy’ rating and target price on Zomato 82, i.e. 29% above the current market price. 63.4.

“In the near term, Zomato’s massive scale, cost competitiveness and reasonable margin profile may leave it relatively untouched by ONDC. Kotak Equities said, given the dynamic nature of the industry, the long-term impact of ONDC is not yet clear.

The brokerage said in its report that Zomato had 330,000 average active monthly riders in 3QFY23, significantly higher than aggregators such as Shadowfax and Dunzo. The delivery cost per order depends heavily on the number of orders delivered per day by a rider

“We believe Zomato will score better than peers on this metric due to the large size of its network. Also, the time taken to deliver food is an important metric. We believe third-party aggregators have the potential to perform well in the 60-120 minute delivery window, but will falter in the 30-45 minute delivery window in which Zomato operates the many-to-many delivery mode. Is. ,

The brokerage pegs Zomato’s variable cost of delivery at Rs 75 per order for FY23. This includes Rs 57 delivery charges and Rs 18 other charges.

“Over time, Zomato has substantially reduced incentives/discounts, and thus a significant portion of other expenses are customer and restaurant appeasement expenses,” it said.

The company’s stock closed down 1.19 per cent on Tuesday. 62.92. The stock has gained 4.43 per cent on a year-to-date basis.