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Zomato Ltd
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Ladies and gentlemen, a very good evening, and welcome to Zomato Limited's Earnings Conference Call. From Zomato's management team, we have with us today, Mr. Deepinder Goyal, Founder and Chief Executive Officer; Mr. Akshant Goyal, Chief Financial Officer; and Mr. Kunal Swarup, Head of Corporate Development.
Before we begin, a few quick announcements for the attendees. Anything said on this call, which reflects outlook for the future or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements.
I now hand over the conference over to Mr. Akshant Goyal. Thank you, and over to you, Mr. Akshant.
Thank you, Harshal. Welcome, everyone on the conference call. Before we begin with the Q&A, we just wanted to clarify and address a couple of questions that both Deepinder and I have been getting over the last 24 hours post our result. I think there are 2 key questions which have come from analysts and shareholders. And we thought before we get into the Q&A, we should talk about that, right?
So I think the first question is top of mind of everyone is what is the path to profitability for Zomato. We have seen reduction in losses now for a couple of quarters. And I think everyone wants to know at least where -- how long we think it will take for the Zomato business to get to operating breakeven and then making profits. And the second question, again, in the same line has been on Blinkit and Quick Commerce in terms of what's our view and outlook on the path to profitability there and the investments that we'll need to do before we get there.
So let me address these 2 and then we can jump into the Q&A. So on the first one on the Zomato business, I think first thing I wanted to highlight is that if you look at it on a cash flow basis, including treasury income, other income, last quarter, we were already positive on cash flow. So our adjusted EBITDA losses were $1.5 billion -- INR 1.5 billion, and our other income was INR 1.7 billion. So in some ways, therefore, we are not losing cash in that business anymore.
I think the next milestone for us -- and along with that, we also, as you would have noticed, got to adjusted EBITDA breakeven in the food delivery business. So now I think the next milestone there is to get the overall Zomato business to adjusted EBITDA breakeven. And we think we are close now. And in terms of time line, I think internally, we are aiming to get there by quarter 4 of this fiscal year. I think that's the internal goal that we have as a team. But we think that if you slip on that, I think it should not be later than Q2 FY '24, which is September 2023 quarter for getting to a breakeven on adjusted EBITDA at the Zomato level. So I think that's a broad outlook and essentially, an internal plan that we're working on. And we thought we should share that with everyone here now that we are getting closer to this milestone.
Now moving on, on Blinkit. We had last -- in a couple of quarters ago, given a guidance or rather a budget of $400 million investment in the next couple of years. I think the business has surpassed our expectations so far in terms of growth, as well as losses reduction compared to where we were 6, 7 months ago. And we wanted to now update that overall budget and guidance to down from -- I mean from $400 million down to about $320 million. I think given where the business is today and the path forward that we see, we think we should get that business also to breakeven with an investment of $320 million, starting January [ 2022 ], right? So this is not a guidance starting from today.
We've already invested about $150 million in that business. So including that, the overall budget or estimate is $320 million for getting that business to breakeven. In terms of time line on Blinkit, we don't have the kind of visibility that we have on the Zomato business. So I would not venture into guesstimating on by which quarter we get there. I think it's still early days. But the update essentially, we wanted to share with you was just on the overall investment that we think that business would need.
So with that, let me hand over back to Harshal and we can get into the Q&A.
[Operator Instructions] The first question is from the line of Mr. Vijit Jain from Citi.
Hello, can you hear me?
Yes, Vijit, Hi, go ahead, hear you.
Akshant, congratulations on a great set of numbers, Akshant and Deepinder. My first question is on the food delivery business. There's a fairly decent Q-o-Q improvement in take rate on a reported revenue basis around 40 basis point, right, or about INR 2.5 an order. Just wondering where this is coming from? Is it restaurant mix? Are you loading more advertisements or there is higher negotiated commissions here? If you can elaborate on that? And I'll just follow up on Blinkit next.
Sure, Vijit. So I think actually, it's a combination of all 3 that you said, as well as improvement in customer delivery charges, right? I think what we are seeing with the restaurant industry bouncing back post-COVID, I think the ad spends are increasing now on delivery. The take rate, the blended aggregated take rate or rather the implied take rate has also gone up as a function of us driving clarity on take rates with some lower take rate restaurants.
I wanted to clarify that we are not -- when we talk of take rate increase, we are not actually increasing the top end of the take rates for restaurants, but rather essentially normalizing take rate at restaurants, which could be at lower take rates right now. So that's playing out. As I said, ad sales is improving, as you pointed out, and we're also seeing improvement in customer delivery charges. So I think a combination of all of this, we are seeing the revenues going up.
Okay, thanks, Akshant. My second question on Blinkit, just trying to understand with the unit economics that you've reported, is there an outlook to by when any legacy infrastructure-related expenses will be out of the P&L, I mean, whatever was pre the transition into Quick Commerce? That's one. And second, with this new outlook on cash burn, when I look at your July month burn rate, it's an annualized, it's about maybe $140 million, $150 million a year, right? So is that an understanding that the burn rate is probably going to only go down on an EBITDA level here, even when you have integrated Blinkit into Zomato? So those are 2 questions.
Yes. So, Vijit, yes, I mean, once we -- I mean, post the transaction closure, yes, we expect -- I mean, the -- anyways as you're seeing from the numbers, the losses are coming down. I think that should continue going forward post the transaction as well as synergies kick in. So, yes, we expect that trend to continue. And to your first question on any legacy costs, I think there is none in the system as of now. I think pretty much that business is fully pivoted to Quick Commerce, and both the revenue and the cost structures right now are totally aligned to the current business model.
Next question is from the line of Mr. Gaurav Rateria from Morgan Stanley.
Am I audible?
Yes, Gaurav.
Yes. Congrats on good set of numbers. So 2 questions. Firstly, the selling and marketing spend has been in a very tight range. Yet we have seen an acceleration in the MTU growth in the last quarter. So what drove this better growth in MTU? Is it more coming from conversion of the annual transacting customer into MTU? And if you could highlight some of the initiatives that actually can drive the higher conversion and frequency, which you have mentioned as one of the key growth drivers in the medium term?
Yes, Gaurav, so I don't think we would want to talk about the initiatives here because that is like a core strategy for us for the business. But your observation is right. I think the growth in MTU is coming from increasing conversion, retention or essentially, the other way to look at it is conversion of annual transacting users to monthly transacting users. So we are definitely seeing that, as well as we are seeing growth in frequency of repeat customers. So I think both of them are driving order growth, which was pretty healthy in the last quarter.
Got it. Second question was with respect to your comment on the inflation related headwinds that impacted the costs. So are these largely absorbed in our P&L or there are more to come? Because this might come actually with some bit of a lag effect. So are these headwinds largely behind us or there's more to come in the coming quarter?
So again, hard for us to comment on that, Gaurav. At this point, we don't know honestly. I think -- and so far, essentially in the last couple of few months, these headwinds have existed and they continue to exist, but it's hard to call out whether we've fully seen this play out or not. I think it's a function of larger macro issues, which we are all -- most economies are going through. So can't comment on whether that is behind us or not.
Next question is from the line of Mr. Vivek Maheshwari from Jefferies.
2 questions, one is on what earlier participant asked on the MTU reduction. So I understand you can't give more information. But the other way of asking you is, let's say, what happened in the last 3 quarters, for example, when the number was stable and this time around when the number has moved up? So what has been different this time around versus the last 3 quarters, for example?
There's no difference, there's nothing different that we did or happened, I think, Vivek, right? So I mean, even if you go back -- I mean, while last 2, 3 quarters were flat, but if you look at a much longer term and maybe let's say, you look at year-on-year MTU growth, I think that has been healthy. And that is what we've been saying in the last few quarters as well that our business is lumpy and not always linear. And over a longer term, where you at least look at year-on-year trends, things will look more linear than versus looking at quarter-on-quarter trends, right? So I think this quarter, therefore, nothing different happened. There is not much seasonality that we see in this quarter anymore.
I think some people have this notion that April to June quarter as IPL and therefore, there is usually a bump. So at least in our business, we have stopped seeing any meaningful bump due to IPL in the last couple of years. So yes, so nothing different about this quarter. I think it is just growth catching up on the split, which was long due, and we expect this trend to continue.
Okay. Okay. And a related question on the AOV, which you mentioned in the press release, a slight increase. There was this theory that once things normalize and first quarter arguably was the most normal quarter in last -- in a couple of years, we have not seen AOV going down. So there will be a food inflation aspect, there will be premium restaurants, there will be differential pricing. But do you think that this is the number from which one should be building assumptions into the future or there is still that risk of bunched up orders getting split and therefore, AOVs coming down, not going back to the historical level, Akshant, but is there a possibility to settle down still at a lower -- at a level lower than what we are currently at or it will be fair to assume that this is the right level what we saw in the earlier quarter?
So, Vivek, there are no guarantees, I mean that can always happen, right? I think -- but if you look at the historical data and even if you go back 2 years, I think the AOV has not moved pretty much, right? I mean we disclosed our FY '21 and FY '22 AOV in our May shareholder letter, and that AOV was in both those years deferred by only INR 1, INR 397 and INR 398, right? And that ballpark, that is where are -- where we are even now and that hasn't changed, right? So that historical data gives me confidence that perhaps we are close to steady state in terms of AOV. There will always be counterbalancing forces here, which will push -- pull the AOV up or push the AOV down. But given that we have a long enough history and data points on this metric, I feel that there's not much downside here on the AOV front.
Interesting. And last question on, let's say, EBITDA breakeven. So if you look at this quarter, let's say, food delivery was almost 0 and Hyperpure was marginally here and there. So essentially, the loss is coming from unallocable expenses of about [ INR 1.3 billion ], right?
Yes.
From here on for breakeven to happen, do you think food delivery EBITDA jumps up further quarter-after-quarter or is there something in the unallocable expenses also or losses also, which is -- which will -- because this number has been between INR 1.1 billion and INR 1.3 billion, right?
Yes.
So is there some lever here or it's primarily led by food delivery EBITDA jumping up going ahead?
Yes. So I think it will largely be driven by food delivery EBITDA growing. I think unallocated costs are -- I mean, we've been working on bringing our fixed costs down as well. And I think that is the reason why we've been able to absorb a lot of increases on the salary front, et cetera, which would have otherwise made this number much higher, right? So we are working on all aspects and critically looking at all costs. But having said that, I think the unallocated costs will remain range-bound around the number that you see right now. And majority of the reduction in adjusted EBITDA for Zomato as a company will come from incremental EBITDA from food delivery going forward and also Hyperpure losses coming down.
Next question is from the line of Mr. Manish Adukia from Goldman Sachs.
Yes. I have 2 questions, both follow-ups on the earlier questions asked by participants. First, when we think about, Akshant when you've guided to profitability by Q4 of this fiscal year or latest by middle of next fiscal year, what are the assumptions that are driving that profitability? When we think about, let' say, different levers that you've talked about in the past be it take rates, rider costs, marketing spends, et cetera, or AOV, where do you have the most amount of visibility that some of those numbers may move up higher and so you get to profitability? So if you can just help us understand the breakdown of from here until, let's say, next 3 or 4 quarters, what are the 1 or 2 key metrics that will drive that higher profitability? That is my first question.
Apologies, Manish, I don't think like this level of detail we'll -- we want to share. I think as you would appreciate, these are going to be key drivers of our strategy and we are in a highly competitive market. So I don't want to put down unit economics today and unit economics when we are breaking even at Zomato, right? So I think having said that, I mean, just to reiterate what we have said is that this improvement from where we are today in losses to breakeven is going to come from adjusted EBITDA food delivery going up, which is going to be a function of both the revenue side levers improving, as well as the cost side levers where we expect efficiency [ and improvement ], right? But beyond that, we don't want to venture into talking about individual metrics and how they're expected to trend because these things are tactical and we take very real-time calls on some of these things. So I don't think there's any -- I mean, from our perspective, it's going to be very hard to share more than this.
Sure. No, Akshant. Appreciate that. So just a quick follow-up on that. So as far as your rider costs are concerned, was June quarter, let's say, the peak of that? I mean the impact of, let's say, inflation or higher fuel costs, that would already be reflected in the rider costs in the June quarter, and from here on, that number should only improve or stay stable. Is that assumption correct?
So not necessary, Manish, because the current September quarter, we have rains, which has an adverse impact on the cost for us, the delivery cost, right? So we'll have to watch out how this quarter plays out in terms of how intense the rains are in the country, and that will drive the outcome on delivery cost. But from there on, perhaps, I would agree with you that we should see an improvement in reduction in delivery costs going forward.
Thank you, Akshant. My second question is, again, on MTUs, which has been discussed quite widely during the call. So again, just coming back to that discussion, when we look at your MTU trends over the last few quarters, and we appreciate that there's been COVID impact during the last couple of years as well. But it's been quite volatile, the MTU numbers, and like you rightly called out, it's been lumpy in some quarters, it's also been negative. Now when you look at the last quarter, where you grew [ 1 million ], which was an improvement versus the previous 2 quarters.
Is that run rate something that you're internally happy with? Again, there was a media interview of Deepinder, I think last month where I think the guidance was of a slightly higher annual number. So just want to understand, when you think about ATU to MTU conversion and the current run rate that you see, is that in line with where you think your long-term growth rate numbers would be or do you think there could be more upside to those numbers?
So, Manish, I think look, internally, we optimize for GOV growth. I think that is the North Star Metric for us, right? And while doing that, it's not always necessary that MTUs need to grow, right? Because periodically, you will figure out there is a bad quality customer cohort that you have, which you are okay, getting -- I mean, which you are okay losing, right, which could lead to a lower growth in MTU or a reduction in MTU, which is fine.
But overall, I think as long as directionally the GOV is growing, right, which means that orders are growing and your AOV is stable, and, I mean, minor variation on MTU is fine. So we don't necessarily, therefore, obsess over MTU growth. I think it's more an outcome of the things we do and the products and features that we launch, which over time drives MTU growth.
And for example, if you compare June quarter's MTU to the last quarter -- last year June quarter, you've seen a healthy 35-odd-percent growth, right? So I think that is in line with how the GOV has grown and the orders have growth in -- grown in that period. And I think broadly, we expect that trend to continue, right? There could be ups and down, but I think, as I said earlier that on a year-on-year basis, we should see a healthy growth, given that we have so much room to grow here compared to where we are today.
Next question is from the line of Mr. Chirag Shah from CLSA.
Yes. Hi, Deepinder and Hi, Akshant. Akshant, thanks for the opening clarification, indeed, a cash breakeven achieved on the entire business is a big milestone. So congrats on the same. Deepinder, if I look at the previous 5 quarters and read the operating metrics strength, it appears that the pace of change across various operating metrics is widely different. And that was one of the question from the previous participant as well.
Now it could very well be a conscious strategic decision from a perspective of shift from a network rollout phase to the focus on profitability or it could be because we have already reached a certain scale stage in terms of network. So for example, one of the striking thing is that active delivery partners haven't grown much in the last several quarters. Does it indicate that the focus is now shifting from recruiting more riders on the network to rider productivity? And if that is the case, and it is a big positive in terms of how operating leverage can really kick in?
Chirag, what I would say is that change is always slow and then it's actually fast, right? So I think you don't wake up one day and say, now I want change and then change happens overnight. So I think over the last year, we have been like really prepping and working hard to set up the, like infrastructure to make this change happen. And like this quarter is when all of those things actually started to happen. So I think that's what really happened. And we have been focused on the quality of business as well as growth. And while we -- while like we have been working on a lot of these things since the last year, some of these things just only went live this quarter. So none of the -- I mean whatever we like achieved this quarter, I think it's all an outcome of the work that we've done over the last 12 months. Nothing that we did last quarter brought about the outcomes that happened last quarter here.
Understand, Deepinder, that's super useful. But I'm just sticking to that point around active delivery partner numbers, right? I mean if you look at the last 3, 4 quarters, that number has moved in a very narrow band.
Yes.
So the question that I'm asking is that are we out of the network rollout phase and focusing more on productivity incrementally for the last 3, 4 quarters or there is still more to happen in terms of delivery partner improvement and restaurant partner increase at the same pace at which we were doing earlier?
No, I think this number will go up as we grew in terms of number of orders, because, I mean, we can't grow in number of orders, let's say, 2x, 3x and still be on the same number of active riders, right? So I mean, this number will also grow. And so far, the last quarter has been good because we have been able to get some efficiency gains out of the network quite a bit. But this can't flat-line here, this number also has to grow.
Sure, sure. And then on CAC, Deepinder, given that 90% of our business is from repeat users, more than 50%, 60% of new customer addition is organic, which is what we discussed last quarter as well, what impact do you think it is now at least having on the CAC going forward?
Yes. So I think, Chirag, CAC, I think CAC numbers have stabilized for us at very acceptable levels. And I think our marketing spends are also pretty steady now. So I think unlike 2, 3 years ago, when -- again, they used to be very, very skewed in one quarter versus other, I think now we are in a state where we are acquiring a similar number of users every month by spending slightly lower amount on marketing spends every quarter, right, going forward. So, CAC, therefore, remains at a healthy level and slightly keeps coming down slightly. And I think we are at a pace of new customer addition, which is -- which we are happy with. It's the right balance of growth versus continuing to improve our platform and retention. So that incremental new user retention over time continues to goes up -- continues to go up.
Sure. So before I get back in the queue, [ good one ] on the sustainability report published in June '22. I have more questions, but I'll get back in the queue.
Next question is from the line of Mr. Pranav Kshatriya from Edelweiss.
Yes. I have 2 questions. Firstly, we can see some reduction in the number of dark stores in Blinkit in last 3 months as well. So where should we see this number stabilizing? And the second question is, again, can you throw some light on how much is the difference in the delivery cost per order for Blinkit and Zomato? So these are my 2 questions.
So, Pranav, so, I think, yes, you're right on dark stores, the overall number has decreased. But I think we are now at a place where it might go up again as we sort of churned out the stores that did not make sense. And I'm talking of on basis of the knowledge I have talking to the Blinkit team, right? Of course, we still don't own the business, so can't comment on the detailed strategy part. But I think from what we know, we think we are at a place where the number should stabilize now more or less. And then as we look to expand post the deal closure, we might see an increase. As far as delivery cost is concerned, I think this is right now, I think very similar to the levels we see in Zomato, right? So I think post integration, hopefully, as we mentioned earlier, we're expecting some benefits to accrue as we integrate the 2 fleets, and that should then hopefully lead to reduction in losses.
Next question is from the line of Mr. Swapnil Potdukhe from JM Financial.
So a couple of questions I have. First is on the media articles which are circulating and the talk about Eternal. And there's a mention of the new organization structure, which is expected to be -- you would -- you are expected to revamp it with 4 CEOs and then Deepinder at the top. Could you just help us like on those thoughts, like give some clarity on that?
So, Swapnil, I think right now, we know it's been in the media, but so far, I think it's been an internal announcement. I think I would say that we're looking at reorganizing ourselves as we get into a place where there is more than food delivery as a business that we need to run. And I think at some point in future, perhaps through a public announcement, we'll give you more clarity on the thought process behind this. But I don't think there's anything to worry about on that front. I mean it's internal restructuring just to get the teams and incentives aligned and the organized -- org structure aligned to the next 3, 4 years of going forward as a business.
Right. And secondly, on the dining out business. So if you look at the last 3, 4 quarters, the revenues from the business has not really moved significantly between INR 60 crores to INR 70 crores roughly. And -- but -- so what has been the reason for that? And how do you see that business evolving going ahead? And just a follow-up on that. And how should we look at the margins? Because even margins, despite the revenues not going much, the margins have been slightly more volatile in this business. So any thoughts on that? How should we look at both be top line as well as the margins part?
So, Swapnil, I would say that -- I mean, as we mentioned earlier that we are rebuilding that business. So I would say that let's -- we should expect these numbers to stay at the current levels for at least the next 1 or 2 quarters. And thereafter, I think as we get more data on how the rebuilding is going here and how the customer traction is then perhaps we could share more color on the expectation here on revenues and margins, right? I think this business for us is always going to be profitable, right? So that we know. So it's not going to take capital, but it's a function of getting the product right and the monetization model right here, which could really lead to a massive jump in the revenues here down the line. But I would say, we are still at least 1 or 2 quarters away before it really starts taking shape.
Right. Any sense on the number of restaurants or who are paying customers in this business, so if you help on that?
Yes. So we have -- that number is not public, Swapnil. I would refrain [ telling it ].
Okay, no worries.
Next question is from the line of Mr. Aditya Suresh from Macquarie Capital.
Deepinder and Akshant, so just 2 questions. One is, are you able to provide any updated insights on your transacting user mix? You used to provide things like high-frequency transactors, top paid, et cetera, any updated insights there in terms of that mix? That's one. And second is, are you able to provide any color here on employee expenses and share-based payments and how that kind of trends in the next few quarters?
Yes. So, Aditya, on the MTU mix, I mean, there is no incremental insight to share. I think we did share some details around this in our last 2 quarterly letters, right? So we'll keep periodically giving an update as and when there is material movement in those trends. So in absence of that, it's fair to assume that pretty much the older disclosures are where we are in terms of the mix.
On your second question, I think the ESOP expenses, as we had also indicated earlier, we're expecting them to come down going forward, because the way these numbers are accounted, the accounting charge is front-ended. And as therefore, we move forward, the accounting charge is expected to continue coming down. And the overall employee expenses outside of share-based compensation also, I think we don't expect that to move beyond the 15%, 20% annual increase range. So, yes.
Next question is from the line of Mr. Ashwin Mehta from AMBIT Capital.
Congrats on good set of numbers. So, Akshant, one question in terms of Hyperpure growth, which grew pretty smartly this quarter. So is there a component of you starting to supply fresh to Blinkit out here or it is largely due to the -- to possibly higher supplies and the increase in restaurant base that you're having?
Yes, Ashwin, so it's the latter, which you mentioned, which is essentially -- I mean we haven't done anything outside of supplying to restaurants so far. So this business growth, therefore, is like in that sense, if that was your question.
Okay. Fair enough. And the second one is in terms of from a competition perspective, if you look at the disclosures from process, it appears that you seem to be winning share. So any reactions that you are seeing in the marketplace or anything that you expect in terms of competitive intensity going forward?
Yes. So, Ashwin, an interesting question. So I think this is -- I mean this keeps changing honestly, every quarter, every month.
Every week.
Every week, sometimes, yes. So I think the competitive intensity and tactics are very dynamic. And we've -- I mean, this has been experienced not just now, but over the last 2 years also, right? So there's nothing outside of ordinary therefore that we see right now and the period of aggressiveness, and then it going to the other extreme, I think that swing in the pendulum is always on, right? So yes, let's -- we're watching that keenly. And as I mentioned earlier also, I mean, while it's a highly competitive market, and we -- it's important for us to continue monitoring what everyone else is also doing.
Next question is from the line of Mr. Mukul Garg from Motilal Oswal Financial Services.
Just a couple of follow-ups. First of all, Akshant, the number of orders per rider per day have been rising for the last few quarters. This quarter was a fairly strong jump. Was that a big factor in the improvement you saw in the contribution margin? And how should we expect the number of orders executives are able to carry going forward increase or improve from this current level of [ over 5.6 ] orders per day?
So I'm sure, Mukul, these are our estimates because I don't think we disclose either of these metrics, either orders per rider per hour or orders per rider per day, right? So, but directionally, I think...
Number of riders are the same.
But we don't even disclose the orders. So by anyway, I think directionally, your question is, I think if I can rephrase your question, you're asking that is improvement in delivery fleet efficiency leading to improvement in contribution margin, right? That was your first question. And your second question was how do we expect the number of orders to grow from here, right? So I think on the first one, as I mentioned, I think in response to one of the question earlier that -- I mean, so far, last 3, 4 quarters, we've not really seen any -- much improvement on the delivery cost. In fact, it has gone up materially in the last 1 year, which is one of the key reasons why the contribution margins had come down in the last few quarters.
And going forward, once -- we expect that to change and we expect the delivery cost to come down. And again, I want to reemphasize that we want this to happen along with increase in earnings per hour for the -- for our delivery partners, right? So this is not us versus delivery partners. I think there has to be a business case where they make more money per hour, while our cost per order comes down, which is essentially us sharing the benefit of increasing efficiencies with our delivery partners. So I think that's the thought process here, and we think that's going to play out now in the next few quarters as things stabilize on that front. On your second question on orders, I think, yes, I mean, again, we continue to see a healthy order growth over the last few quarters as the GOV has grown. And along with MTU growth, we think that's frequency growth is also going to be a key driver, which will overall lead to a steady increase in orders going forward.
Right. And the other question was in terms of on your growth on the food delivery side, the relative movement between AOV and what you marginally get at AOV, like we don't expect it to move for too much directionally. But what has been your experience over last quarter or so between people kind of returning to offices and office orders picking up versus the inflation which has also kind of taken on the overall order value. If you can give some sense of how the movement has been? And do you expect the proportion of single orders to increase going forward as people come back to office?
Yes. So, Mukul, I think AOV growth, I think a couple of levers you mentioned, which impact AOV, which is people coming back to offices and hence, the order size going down. Second is food inflation, which has been more stuck in the last quarter, which has resulted in menu price increases. Third, I would also say is that as the customer delivery charges go up, we see the order values going up as well because customers -- the basket size starts increasing once the delivery charge go -- charges go up, right?
Fourth is, again, the mix of restaurants on the platform in terms of premium restaurants versus the other restaurants. So I think there are multiple forces at play here, right? And each of them either lead to an increase in AOV [indiscernible] increase. And yes, and that's what we have shared in the letter with everyone.
Sure. If I can squeeze one last question, and I don't know whether you can share the data. You mentioned that the take rate improvement has been on account of the lower end of restaurants kind of moving more towards the average. Is it possible to share what portion of your restaurant partners are still meaningfully below the average take rate or maybe to put it another way, do you see -- still see a meaningful upside to the take rate ex of delivery costs?
Yes. So I would respond to the second part of your question. Yes, we do see, I think some upside, which is yet to be -- I mean, which is not -- or rather, I mean, which will continue to help the overall take rates go up in the subsequent quarters. So yes, we do expect that to happen.
[indiscernible] is from the line of Mr. Karan Gandhi from Xeta Capital.
I had 2 questions. The first was on moats and market share. I think there's a little bit of confusion around how a business like yours builds a sustainable moat over the next 2 or 3 years. You've already demonstrated you're pulling away from your #1 competitor. But if you could just echo once more, sitting here sort of 2 or 3 years from now, what are the moats you're trying to build such that your market share trajectory continues along its very favorable path?
And then secondly, on the frequency, an MTU question, I think you're showing very consistent growth in frequency. But yet, you're still short of, I think, global benchmarks on that metric. Others have used a loyalty program, clever couponing and other things to drive frequency up. So I'd be curious to know whether you're going to perhaps revisit the programs you have to keep drive -- to sort of keep driving further frequency? Because I know you mentioned you have about 2 million people who order 50 times a year or something. So if we can take that 2 million and make it 10 million, obviously, there's a big impact on the business. I'm just curious as to if there's any way to do that forcefully?
Karan, thanks for your questions. So answering them one by one. So on your first question, I think our focus is always on a couple of things here, which we think -- I mean, and a lot of things lead to those 2 things. But I think our focus remains on continuously increasing the quality of our service. I think that's very important in a business like this where the customers are very sensitive to the service. I mean you're talking of food consumption here and almost a real-time delivery, right? So it's a perishable product, which we are delivering to customer within 30 minutes. And therefore, the expectation on the service levels is very high, right? So I think that remains one of the key -- one of a key, I would say, area that we focus on as a business. And I think that in turn drives a lot of other things, which leads to growth in the business and improvement in economics and propensity and inclination of customers to pay for the service as well, right? So that's one.
And the second is I think also leading from that is -- and some other things is brand, right? I think eventually we think it's important in a business like this to have a strong customer brand. And whatever we do, therefore, should continue to build that brand, which in turn further helps us retain customers and therefore, significantly impacts our economics as well as growth going forward, right? So I would -- so from -- therefore, I think from our vantage point, these are the 2 things we focus on, and that is what leads to whatever that's happening in the market and also in terms of our own growth. On your -- sorry boss, can you just repeat your second question, Karan. I just -- that slipped through my mind.
Yes. No, the question was frequency and how -- any plans to revisit your loyalty programs in order to drive frequency higher?
Yes. Yes. So I think, yes, so I think loyalty programs, I would say is just one of the vectors here, and we are -- we continuously think about that and how can we reinvent that, so that it remains a strong value proposition for the customers, while at the same time, it doesn't burn a hole in our pocket, right? I think but more than that, I think if you have to go from where we are today and meaningfully increase customer frequency, we'll have to look beyond just loyalty programs and look at introducing newer use cases, which perhaps leads to a lot of the current offline spend on restaurant food on our platform, right?
So continuously looking for innovative products and features which will enable that. For example, we piloted an instant food delivery option last quarter, which is still a relatively small pilot. But I mean I'm highlighting that just to indicate to you that these are things that we're looking for, which we think will meaningfully impact the frequency of our users on our platform in the medium to long term in addition to just the loyalty programs.
Perfect. If I could just [ lodge ] one more in there. Just on the ad business, if you could just address the maturity of the ad product and where it goes from here?
Yes. So, I mean there are 2 elements there, I mean, in terms of monetization. One is the ad business that we get from restaurants for a food delivery business, right? So that's already baked into the food delivery numbers that you see. And the second bit there is the restaurant ad spend for our dining out product and business, the listings business, right? So I think just keeping the monetization aside, I think at a product level, we think we have a fairly mature product and a vol product, given that, that is the business -- legacy business for us, that is how Zomato started monetizing 10 years ago.
So I think, therefore, I think in terms of analytics or data mining or even essentially making it informative for the restaurants and demonstrating the kind of ROI they get and the benefits they get, slicing and dicing data and showing returns to them, I think on all those aspects, we think the product is there. I think right now, for the ad sales revenue to go up, it's more a function of actually driving sales and growth and traffic on the platform, which should then give the strong product lead to incremental growth in revenues.
Next question is from the line of Mr. Ankur Rudra from JPMorgan.
So just one broad question, Deepinder and Akshant. You've mentioned in your letter that you responded to the environment and focused on profitability clearly successfully so far. The question is at every point in the [ business' ] evolution you have faced with multiple trade-offs. So what was the trade-off this time, which perhaps brought forward your profitability targets?
I mean really it's -- I mean it's hard -- I mean there's no intentional trade-off we made, right? But I'm sure -- I mean, if we don't focus on profitability, if we spend more on growth marketing, we would have seen higher growth, right? But I think the core principles...
It's not like we were not spending what we could spend on marketing.
Yes. I mean we've not really cut down anything meaningfully. I think it's also evolution of the business. I think this business will not always remain loss-making. And I think overall, the industry has gone through a heavy investment phase in the last 3, 4 years. And now the core of the business is large enough, right, to actually throw up cash meaningfully, which is more than what we need to invest at this point, right? So while one can argue if the environment was not the same, what would be our profitability, but my guess would be it won't be materially different, right? Of course, you can slightly over-invest into growth, but I don't think it is going to be a magnitude of -- I mean not a magnitude of difference from where we are today.
Most of the work to get here was done when our stock price was at its peak. So...
No, no, [ Deepinder ], I was just curious about, is there any initiative you chose to [ kiln ] beyond just focusing on growth?
No.
Okay. Understand.
Next question is from the line of Mr. Divyesh Mehta from Investec.
Can you share some light on what proportion of the customer delivery charge increase could be attributed to the rain-related increase in costs which we see in delivery as a consumer? The second question would be, if you see the delivery costs borne by Zomato has increased only by 5%, but GOV is up by 10%. So is this gap sustainable going forward because it's from utilization and other variables?
Yes. So, Divyesh, I missed your second question, so I'll ask you to repeat it, but let me answer the first one first, right? So yes, so you're right. I think in -- at times when it rains, as I said, our delivery costs go up, and a portion of that, I mean, it gets recovered from higher customer delivery charges, right? So in the last quarter, I would say that the impact of that could be around 20% on the incremental delivery charge that we saw in the quarter because of rains.
And all of that is passed on to the drivers and none of it is retained by Zomato, right?
That's correct.
Okay. The second question was the customer delivery charge borne by Zomato is up only by 5%, but GOV is up by 10%, and customer delivery charge borne by customers is up by 20%. So how it can be seen, is that higher cost is -- or the whole delivery cost, a higher share is borne by customers specifically in this quarter. So is this trend going to remain as is or is there something off what I'm reading?
No, I think -- I mean we expect directionally, as I said, I think customer delivery charges to go -- continue going up and delivery costs to come down. So the delta between them, therefore, which you're alluding to, I think should continue reducing.
So this is the -- this is the first tranche of that delta?
Yes. That's correct. That's correct.
[Operator Instructions] The next question is from the line of Mr. Rahul Jain from Dolat Capital.
Can you hear me?
Yes, Rahul, we can hear you. Please go ahead.
Yes. All right. Congratulations on strong number. [indiscernible] the plan to optimize the cost or the profitability in the business, but what would be the key growth KPIs that would make you revisit this? Is it in terms of a minimum threshold order or revenue growth you would like to keep before you try and optimize beyond this?
Yes. So I think like Rahul, we're not thinking of the business like this. I don't think we're optimizing growth and profit right now.
Growth versus profit.
I think -- it's not growth versus profit in our mind. So we think we want -- I mean, our business is trending in a direction and given the large market, we don't see any reason why we can't grow at healthy rates along with driving profitability, right? So...
Levers for growth are different from discounts and...
Yes, money-driven things nowadays. So I don't think us driving for profit will reduce the possible growth that we have in the business.
Yes. Appreciate maybe if I could rephrase it in a different way. So I'm sure that growth would come because of the adoption of the behavior and also because with higher growth, the profit would come. But in any eventuality where we are not seeing growth, so what is that order growth or any other metric threshold that would make you think to reinvest even more, even at the cost of profitability, so that your growth expectations are met?
So I would say, Rahul, it's a hypothetical question at this point, right? I mean, if it becomes a reality, we'll think about it. But I don't think we are -- I mean, we are at a place where we worry about that at this point.
Yes. And just one clarification to the earlier comment related to this delivery cost. I think you said there is a 20% increase in the delivery cost in this quarter. Is this because if the -- if there are rain-specific incentive and those are passed on to the customer, essentially, the customer delivery charge increases per order. And if you don't have those incentive anymore, the charges to the customer goes down and the earnings for the rider goes down. So eventually, you have to compensate it once this rains incentive are not passed on to customer, which will go up in the subsequent quarter?
Rahul, sorry, I'm a little confused. But I think what we meant when we said 20% was essentially, the share of customer delivery charge increase that we have seen in the last quarter, can be attributed to rains in the quarter, right? So I'm not sure if you had the same understanding.
INR 2.5 increase.
Yes, 20%, yes, correct. So hypothetically, if the increase in customer delivery charges was INR 2.5, INR 0.50 of that was because of rains in the last quarter. I think that was the question which we got. And I'm not sure if you are on the same page on that right now.
Yes, yes, yes. So taking the same example, if this INR 0.50 came because of that, now let's assume once the rains are behind, the same cost is not charged to the customer.
Yes.
[ And that's the way ] to that extent, the earning of the rider goes down by INR 0.50, which need to be compensated by Zomato to ensure that these earnings are intact.
No. So it doesn't work like that, because I think the expectation for earning during rains is higher than usual, right, if it is not raining, right? So if I'm expecting to make INR 100 an hour during non-rain times, then that expectation, let's say, for example, hypothetically goes up to INR 150, right, whereas I can only recover a portion of that from these customers, right? And therefore, when this reversal happens, we actually have a positive impact on contribution because the overall cost benefit that we have here is larger than the revenue that we forgo.
Understood. Appreciate that color. And if I could squeeze in one more, you had good margin in this Hyperpure business. So is there a way to see this business that what are the kind of margin on a steady basis this business can achieve or maybe in near to medium term, any ballpark margin aspiration that you have here?
Yes, Rahul, so we have, I think shared in question 14 of the letter that we expect 5% to 10% EBITDA margins here in a steady state. And I think that's what the aim is at this point and then we'll see how we go from there.
Thank you, ladies and gentlemen, we will now conclude this conference call. Thank you for joining us. And you may now disconnect your lines.
Thank you, everyone.
Thanks, everyone.