The battle to dominate India's online food business is getting tougher. In the latest development, HSBC Global Research has valued Zomato at $3.6 billion which is almost 70 per cent higher than the valuation attributed when it secured capital in the recent round of funding. Strikingly, the hike in the valuation has propelled the restaurant discovery and food-delivery company ahead of its rival Swiggy which is valued at $3.3 billion after it raised $1 billion in December last year.
As per the HSBC's brokerage arm, InfoEdge -- which holds 26 per cent in the Gurgaon based Zomato -- is the major reason behind the jump in the valuation of the company. HSBC has said that Zomato's business has witnessed a fundamental change as the food delivery operation is contributing around 70 per cent of the total revenue.
The HSBC report said, "Given the scope of its recent expansion and the need for further funding, we value Zomato on a discounted cash flow basis, at $3.6 billion (at a marginal 9% premium to its competitor Swiggy as of the latest round of funding) versus $0.9 billion earlier due to the change in business focus."
Financial daily, the Economic Time has reported that Zomato has plans to increase its membership product Zomato Gold by two times. Further, to tap into the increasing importance of premium products, the food ordering app is also expecting to generate $20-25 million in revenue by the end of the calendar year 2019. It is to be noted that India's food-delivery market is still at an emerging state in comparison to China which records approximately 600 million orders monthly.
Zomato has admitted that the losses per order have come down. Deepinder Goyal, its founder said that on every order, Zomato now loses Rs 24 against Rs 45 per order six months ago. "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 FY24e, with Zomato enjoying 37%-40% market share," the HSBC report further added.
Currently, Zomato provides its services in 100 cities across India and plans to further enter 500 cities in the coming 2-3 years. The HSBC report also underlines that few issues that could hamper the valuation of the companies operating in the food-delivery segment include employee unrest due to low salaries and lack of social benefits.