Q1 results review: Zomato, Paytm & Nykaa to focus on profitable growth

New-age tech platforms seem to be finally realising the importance of focusing on growth with sustainable profits. A look at the FY23 first quarter results shows that the management of the companies is eyeing improved margins and bottom line growth.

Food delivery aggregator Zomato, for instance, has brought down its losses by huge margin. Losses for the Q1 of FY23 were Rs 186 crore against Rs 359.7 crore in Q1 of FY22 and Rs 359 crore in Q4 of FY22.

Moreover, the company managed to break even on adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) during the quarter (against -1.3 per cent and -2.2 per cent, in Q4 and Q3 of FY22, respectively). 

The company managed to achieve this by increasing the monthly transacting users (MTU) to 16.7 million, improving order frequencies and buoyant food delivery gross order values. Gross order values grew 42 per cent year-on-year (YoY) and 10 per cent, sequentially.

The company managed to grow its MTU despite a fall in advertisement spends.

Advertisement expenses were Rs 196 crore for the quarter from a high of Rs 357 crore in Q1 of FY22 and Rs 222 crore in Q4 of FY22.

What also helped was growth in hyperpure (a segment), which many believe can have margins in 5-10 per cent range.

Deepinder Goyal, founder and chief executive officer (CEO), in a results note, said, “The real driver here is focus and mindset. Our focus on profitability has sharpened over the past few months with the change in market context, without compromising our focus on growth. We are doing that by assessing everything with a critical lens and allocating resources by taking a long-term view to sustainable growth as well as profit.”

The other company — which has been a source of constant worry for investors — is Paytm, which widened its losses for the quarter.

However, the management said that the company was on the path of achieving operating profit on the back of better cost leverage.

Paytm’s losses widened to Rs 644.4 crore for the quarter ended June 30, 2022, from Rs 380.2 crore reported during the same quarter last financial year.

However, a strong revenue growth of 89 per cent YoY and improved unit economics increased contribution margins to 43 per cent (35 per cent in Q4 of FY22).

As a result, Ebitda (before employee stock option cost or ESOP cost) losses have reduced by Rs 93 crore since Q4 of FY22.

What drove this margin improvement was reduction in payment processing charges. This resulted in surge of payments business profitability, growth in lending business and reduction in Ebitda (before ESOPS) to Rs 275 crore.

Additionally, Paytm’s net payments margin for the quarter (defined as payments revenue minus payments processing cost) increased to 35 per cent of payment revenues. This compares to 17 per cent in Q1 of FY22. It was driven by continued growth in device subscription revenues, improved margins in online merchants business, and better negotiations with existing partners.

“We view this as a significant improvement, despite no United Payments Interface (UPI) incentives recorded this quarter.

We have redoubled our focus on driving profitable payments across UPI, wallet, cards and other instruments,” said the management during an analyst call.

Beauty and fashion platform Nykaa continued to grow its revenue. However, margins were under pressure as it focused on acquisition and marketing spends.

The gross merchandise value (GMV) for Q1 was Rs 2,155 crore, up 47 per cent YoY. The company also saw its profit after tax surge 42 per cent YoY at Rs 5 crore.

Overall Ebitda margins declined by 70-basis points (bps) YoY (flat in QoQ) to 4 per cent, largely due to higher marketing and advertising expenses (over 90 bps rise YoY and flat QoQ). These expenses were for acquiring new customers, higher employee costs and selling and distribution expenses.

Unit economics for the beauty and personal care business continues to improve while the fashion business has maintained its unit economics (at positive contribution profit). However the company’s foray into fashion and adding new brands are playing out well.

The other company, which was otherwise on a profitable path but reported loss, was logistics firm Delhivery.

It saw an adjusted Ebitda loss of Rs 217 crore in Q1, compared to a net loss of Rs 58 crore in Q1 of FY22 and Rs 81-crore profit in Q4 of FY22.

The company’s performance was impacted due to the final phase of integration of Spoton. However, the firm said it was well prepared to capture growth in the second half, which seasonally has higher volumes.

WHAT WORKED, WHAT DIDN’T 

• Zomato: Monthly transacting users (MTU) grew without advertising spends
  Food delivery & Hyperpure business also recorded growth 
• Paytm: Strong revenue growth was driven by new device subscriptions, utility payments & loan disbursals
  Payment processing charges fell; MTU and gross merchandise value (GMV) rose
• Nykaa: Revenue growth was strong with GMV jumping 47% YoY
  Inflationary pressures, which affect discretionary spends, didn’t impact sales
• Delhivery: Results were impacted due to the final phase of integration of Spoton
  Spoton integration challenges cost the firm Rs 196 cr, said an ICICI Securities report