Zomato Ltd

NSE:ZOMATO

Earnings Call Analysis

Zomato reports growth and strategic expansions amidst rising competition

In the latest earnings call, Zomato highlighted impressive growth, with their quick commerce business seeing advancements in average order values (AOV), reaching INR 660, driven by expanding product offerings. The company remains on track to open 1,000 dark stores by FY '25 and aims for 2,000 by December '26. Despite a competitive landscape, management is focused on sustainable growth and expects EBITDA margins between 4% to 5% in the coming years. They also plan to raise up to $1 billion to enhance their financial position. Notably, Zomato's market share outside Delhi NCR has risen, comprising less than 40% of their overall business.

Navigating a Competitive Landscape

In its recent earnings call, Zomato expressed a commitment to concentrate on its unique business strategies amid increasing competition in the quick commerce market. Despite rivals raising capital, Zomato prefers to focus on sustainable and profitable operations rather than aggressive discounting strategies, indicating its priority on operational capacity over market share. This focus has been yielding promising growth, reported at over 120% year-on-year in operations, which reflects a robust business model despite heightened competition.

Growth Strategy and Market Expansion

The company revealed plans to continue its rapid expansion of dark stores, with expectations to meet an initial target of 1,000 stores by the end of FY '25, potentially reaching 2,000 by December '26. As of now, Zomato has been opening approximately 150 dark stores per quarter. The growth in store count is significant, as Zomato aims to capture broader market share beyond major metro areas, indicating a strategic shift toward non-Delhi NCR markets. Currently, non-NCR markets represent a growing segment, decreasing the firm's dependency on traditional markets.

Financial Guidance and Cost Management

Zomato's Chief Financial Officer, Akshant Goyal, provided insights on fixed costs, suggesting a steady increase due to expanding operations and marketing costs. Despite these increases, the company emphasizes sustainable revenue growth. Goyal clarified that the company's long-term guidance for Gross Order Value (GOV) growth is over 20% annually. Furthermore, the firm is currently not planning a more aggressive discount strategy, aiming instead to stabilize its balance sheet, which could signal cautious but strategic growth.

Performance Metrics and Average Order Value Trends

The company reported that the Average Order Value (AOV) in its quick commerce segment has seen an uptick, moving to INR 660. Factors contributing to this increase include seasonal demand spikes and a diversified product range. Interestingly, the overlap of customers between food delivery and Quick Commerce is diminishing, as the latter appeals to a wider demographic, suggesting Zomato is successfully expanding its customer base and enhancing its service offerings.

Capital Strategy and Market Outlook

Zomato is planning to raise up to $1 billion, subject to market condition assessments and shareholder approval. This infusion aims to strengthen its financial position rather than fuel immediate expansions or discounting measures. Current market conditions will guide the actual fund size, underlining a strategic yet cautious approach to capital management in view of investor interests and competitive dynamics.

Sustainability and Long-Term Vision

Despite the challenges posed by growing competition and market fluctuations, Zomato remains focused on maintaining a healthy balance sheet while exploring sustainable growth avenues. The target EBITDA margins for the quick commerce segment have been projected at 4% to 5% in the upcoming quarters. As measures continue to enhance operational efficiency and service quality, Zomato appears poised to leverage its market position further, indicating a forward-looking growth trajectory.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, a very good evening and welcome to Zomato Limited's Q2 FY '25 Earnings Conference Call. From Zomato's management team, we have with us today Deepinder Goyal, Founder and CEO; Akshant Goyal, Chief Financial Officer; Albinder Singh Dhindsa, Founder and CEO of Blinkit; and 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 our future performance and actual results may differ from those statements.

Additionally, please note that this earnings call is scheduled for a duration of 45 minutes, and we will be starting directly with the Q&A section of the call. [Operator Instructions].

[Operator]

The first question is from the line of Vivek Maheshwari from Jefferies.

[Vivek Maheshwari, analyst]

My first question is on the quick commerce competition. You have addressed just some parts of this in the letter. But how do you think about the next few quarters given that there is a capital raise. You are doing everybody -- your peers are also doing. On top of that, Flipkart [ management ] has entered and in general, I think the delivery time lines are generally going down with delivery companies also talking about participating in this entire QC bit one way or the other. So what is your outlook from a next, let's say, 2- to 4-quarter perspective?

[Akshant Goyal, executive]

Yes. Hi, Vivek. Akshant this side. Thanks for your question. So look, I think we are focused on our own business because competition, yes, is increasing. The business is also evolving. It's still a nascent business, and there's still parts of business, which are not fully built out yet where we need to problem solve. We're also expanding categories and assortment.

So I think there's a lot of work to be done here at our end, and we just focused on that. We, of course, have to watch competition and make sure, I mean, take cognizance of that and make some decisions accordingly. But largely, I think it's -- there's no point in us trying to predict what will happen from a competitive standpoint because it's sort of everything is fairly new at this point, and a lot of things are not in our control. So we just like to focus on our own business at this point.

[Vivek Maheshwari, analyst]

Got it. And Akshant, a follow-up to that. So what are the key things that you're monitoring? So when you are seeing you have written at 1 of the places that it's a service level, which is important. And -- but let's say to the funnel, if let's say 100 new customers are joining the QC platforms, how do you ensure -- so are you monitoring of the incremental customers you are getting a fair share? Or basically, the question is that at what point you will say that if there is too much of discounting freebies 1 way or the other, you will have to, let's say, participate or retaliate in some days. What are those parameters that you're monitoring, which gives you confidence not to do -- go [ all-on ] today and may change your mind if it goes out of control, so to speak?

[Akshant Goyal, executive]

So I think we are less focused on market share at this point because the business for us is growing more than 120%, 130% year-on-year, right? And that's the capacity that we have in terms of how much business can we service sustainably, profitably and at good service levels, right?

So beyond that, how many incremental users are coming to the category and therefore, what share of that are we getting is sort of a moot point in our case because I think our business is operating at full capacity in terms of expansion and in terms of the number of customers that we can service. And that is evident in the growth numbers that you see even for the last quarter, right, despite the heightened competition.

[Vivek Maheshwari, analyst]

Got it. Got it. And Akshant, in terms of the -- and this is my second and last question. In terms of new store additions, can you highlight how much of those will be, let's say, non-NCR versus NCR?

[Akshant Goyal, executive]

Yes. So I think if you look at sequentially, the share of Delhi NCR in our business continues to fall. We had given this data a couple of quarters ago, when we had said that the share was around 47%. Today, that number is less than 40%.

So suffice it to say that I think as we're focusing on now building out markets beyond Delhi NCR, which was the focus from the first few quarters in our business. We are seeing our growth in other cities. And today, by GOV, we believe we are the largest player in all the major metros outside of Chennai and Hyderabad, right? So that just shows that the focus is paying off in terms of growth of the business even in the non-Delhi markets.

[Vivek Maheshwari, analyst]

Interesting. And just a follow-up to that, Akshant, the narrative always has -- or let's say, I mean, it's a relatively new business. But for last few quarters, the narrative was as you get into non-NCR cities, let's say, ex of Mumbai probably, your AOVs will actually start to shrink, but the reality is your AOVs are still moving up. So NCR and non-NCR, is it fair to say that all the cities are ballpark in the same AOVs or it's like Delhi, Mumbai significantly ahead of the other towns or cities?

[Akshant Goyal, executive]

So if you look at the top 7, 8 cities, the AOVs are similar, actually fairly similar. In fact, there could be 1 or 2 markets outside of Delhi, where the AOV is higher than Delhi. So what you mentioned about AOVs being lower in other markets, at least we don't see that in our business.

[Operator]

Next question is from the line of Aditya Soman from CLSA.

[Aditya Soman, analyst]

Sir, 2 questions. So firstly, adding on to the question before on the newer markets. Can you give us a sense, I mean, obviously, we see that now Blinkit is available in over 40 markets. So 1, how many markets do you see yourselves getting into? And second, how much would the top, let's say, 5 or 10 cities contribute to these markets, contribute to your overall GOV in the near term and maybe what you see over the next year or so?

And the second question is on CapEx, which you indicated has been about INR 214 crores. Can you give us a sense of where this is being spent because this has gone up, and this has also led to sort of an increase in depreciation. So maybe any color on that would be useful?

[Akshant Goyal, executive]

So I think while in terms of our presence in new cities, we've sort of launched a bunch of cities in the last quarter. I think what we're trying to test with that expansion is, 1, in how many cities, towns is this product or business viable? And the second question is like within a town like how much depth does it have, right? So it's 1 thing to open 1 store in a market and for the sake of like the number of cities, that count goes up. But the second question to be addressed is, okay, at this particular city or location, how many stores can we open and run the business profitably, right?

So therefore, the city count is -- may not be the right indicator of the depth of this market at this point outside of the top 8 because opening just 1 store in 1 city means we have launched the city, but we are still scratching the surface in terms of addressable market in that city. And that's a hypothesis right now. We'll have to test that.

So I think our focus remains [indiscernible], but we also want to, at the same time, make sure we are venturing into newer markets with different demographics and seeing whether this model works or not. So while we had seen success in most of the markets that we've gone into so far, but our immediate focus in terms of building out the infrastructure and business remains in the top 8 cities because we still believe that is underserved from a supply standpoint.

And it's sort of lower hanging fruit in terms of the opportunity there before we really start building deeply into the smaller cities. On your question on CapEx, I think a bulk of that was spent on the store expansion that we have laid out in the letter. So in addition to the 152 stores that we opened, we also added 7 new warehouses, right? And I think a large part of the CapEx increase you see is on account of that expansion.

[Aditya Soman, analyst]

And maybe just quickly on that first point. So for a new city, would you just measure that again in the same way orders per store or GOV per day per store? And can you give us a sense, if those -- so when you say that most of those cities have been reasonable, so they would be hitting the same GOV or orders per store, is it?

[Akshant Goyal, executive]

Yes. So that's also a function of like what kind of assortment we are able to launch a store within a city. So we'll definitely look at that absolute scale. But I think, equally important is the ramp-up on how the store performs in the first 7 days, 10 days, 20 days, right, given the kind of assortment we launch with in a particular city, right?

So it's a combination of that. And yes, so far, as I said, that pretty much in every city or every new neighborhood we've gone, we haven't really been surprised. I mean we have been positively surprised with the takeoff in that market.

[Aditya Soman, analyst]

Fair enough. And lastly, on the CapEx and the warehouse and new stores. So are these new stores, majority of these would be franchised, right?

[Akshant Goyal, executive]

It's a combination of franchisee and our own store like in the past. So we continue to sort of make sure we -- our priorities is for franchisee stores. But when it's not available, a franchisee partner is not available, then we have to go ahead and open our own store.

[Aditya Soman, analyst]

Understand. And this cost will come before contribution or below? So warehouse cost will also come before contribution or between contribution and EBITDA. So it would come before contribution, right?

[Akshant Goyal, executive]

That's right. It's above the contribution line item. So everything is captured there. So 1 of the reasons the margin, there is a drag, which we've also explained in the letter, is because when you open these new stores, you incur the fixed cost, but it takes a while before you can actually make the store operational, right? So that fixed cost, whether it is the cost of people in the store or whether it is cost of rentals and so on, all of that is captured above contribution in our definition. So that is why you've not seen any contribution margin expansion in the last 2 or 3 quarters largely because of the expansion that we are doing.

[Operator]

Next question is from the line of Manish Adukia from Goldman.

[Manish Adukia, analyst]

I have 2 questions. Firstly, I think on the quick commerce business, your AOV has been going up, but take rate has been somewhat flattish. Is that due to non-grocery mix continuing to improve quarter-on-quarter, which probably has a high AOV, but lower take rate. And a related question to that, I mean, if you were to look at, let's say, the e-commerce market in India, which is like INR 50 billion plus, where you have let's say, smartphones, electronics and fashion being the largest categories, maybe also beauty. Where do you see the most room for, let's say, Blinkit to be able to capture a sizeable market share and where are you seeing the most amount of traction. That's my first question. I'll come back with the second one.

[Albinder Dhindsa, executive]

Manish, Albinder here. So on the take rate, I think, the majority of the impact that you're seeing is because of the higher velocity of new store openings. So when we open new stores, typically like that takes time to ramp up, so the take rates increase over time. So the mix of new stores is increasing. That's why you see a little bit of decrease in the overall take rates.

And in terms of categories, I think so far, the categories we launched over the last year is beauty, electronics, toys, all of these are still growing categories. We are still learning in which all use cases within these categories, we have further room to grow. So I think that is becoming more and more clear as we do more and more in these categories. So as of now, we are focusing on building out both the infrastructure, the backend and the customer experience across all of these categories.

[Manish Adukia, analyst]

And as you offer more categories, I think, in the last shareholder letter, you had 20,000-plus SKUs that I think you're potentially offering in a particular area. So will you look to open larger dark stores to serve the same vicinity? Or will you have, let's say, a network of dark stores, which are storing different categories to serve the same consumer? How are you thinking about that?

[Albinder Dhindsa, executive]

I think so far, our strategy is still the same. We always open the largest dark stores possible that we've done from day, 1. And our strategy is still to continue in the same direction.

[Manish Adukia, analyst]

Right. And just last question on this point. Albinder, I think last quarter you had mentioned that despite all these store openings, you expect throughput per store to remain stable, which has been in the September quarter, but that is also the expectation going forward despite all the store rollout, you're not expecting any negative impact on store throughput.

[Albinder Dhindsa, executive]

Yes. Actually, I think that stays.

[Manish Adukia, analyst]

Okay. Perfect. Second set of question, just on the capital, where you've called out [ return in ] less competition. And so they are raising capital, so you are also -- you've also looked to raise capital. So 1 question, how did you decide the $1 billion number? Like I mean, is there any math behind why $1 billion?

And maybe like a second question there. Over a period of time, are you looking to potentially own inventory that you have in the dark stores and how does that impact either working capital or margins? That's it from me.

[Akshant Goyal, executive]

Yes, Manish. So the Board has passed our enabling resolution right now, to raise up to $1 billion, right? So this is also subject to shareholder approval. And the actual fundraise size will be dependent on the demand market conditions at that point. So we'll see what is right for the business at that time and how then -- and how the market conditions are. So we're sort of still open on size.

And on your second question on owning inventory, I think there are pros and cons of different business models. We think our current marketplace business model works well for now. It helps our sellers. It helps our customers, right? But having said that, we'll continue evaluating different options that are available to us from time to time, especially given that this whole -- and entire industry and the business is new, as I said earlier, right?

So as the business matures, things might keep changing, and we'll continue revisiting that. But at this point, there is no plan to move away from the business model that we have at this point.

[Manish Adukia, analyst]

Right. And Akshant, just to confirm, in your current shareholding structure, as of today, you are -- you cannot own inventory. Is that understanding correct?

[Akshant Goyal, executive]

Right.

[Operator]

Next question is from the line of Sudheer Guntupalli from Kotak AMC.

[Sudheer Guntupalli, analyst]

Congrats on a good set of numbers. My first question is, so there's a lot of noise around in general economic and consumption slowdown. So how do you see this impacting your food delivery, which is generally perceived as more discretionary compared to your Blinkit?

[Akshant Goyal, executive]

Yes. So I think so far, we haven't seen much of -- I mean, I would say so far, we haven't seen any impact, which is sort of noticeable in our business at least. We are watching it because we are aware that some of the businesses are reporting it. But as you see, even in the last quarter, the business has grown reasonably well despite adverse weather conditions.

So it could have been -- the growth could have been much better without that. And even in the current quarter, we are on track in terms of what our plan was, right? So there's no visible sign of any slowdown, at least in our business at this point.

[Sudheer Guntupalli, analyst]

Got it, Akshant. And the second question is, see, with this fund raise and also the funds being raised by competition, is it fair to assume that the discounting aggression in the industry in general will increase? Or do you have any intentions to start increasing the aggression in terms of discounts?

[Akshant Goyal, executive]

I don't think those 2 things are linked. I think -- I mean, if we have to do that, we have enough cash in the bank to do that. And so I would like to say there's no plan. I mean we are not raising money to start discounting more. I think, we could do what is right for the business first. And we don't think, therefore, discounting is going to help our business at this point in time. The code is purely to strengthen our balance sheet therefore, nothing else.

[Sudheer Guntupalli, analyst]

Okay. And if I understand your prior response clearly, you are saying this is just an enabling resolution and size and all you guys have not decided yet. Is that a correct understanding?

[Akshant Goyal, executive]

Yes. I mean the size, the cap on the size is an indication of sort of the ballpark range, where we want to be. But yes, I mean, shareholder approval is pending, and we have to have a sense of the market conditions at the time of the QIP launch. So we'll take that into account and tweak the size if needed.

[Sudheer Guntupalli, analyst]

Fair enough. Just 1 bookkeeping question. So you have a tax liability or a tax expense during the quarter. So our understanding is some amount of carryforward losses will help. So is that completely exhausted or we have become a fully taxpaying company now, how to think of that ETR item?

[Akshant Goyal, executive]

Yes. So I think this is tax now on the treasury income because we have run out of unabsorbed depreciation. So we have to pay tax on the treasury income. As far as the profit from the operations is concerned, those are still getting set off with the -- on a carryforward losses. And I think that will continue for a while. I think we'll have a couple of years before we have to pay tax on the operating income for the business. So this tax expense that you see is purely on the treasury income.

I've been given a note on [ expert B ], just to explain that in case you want to refer to that also.

[Operator]

Next question is from the line of Abhisek Banerjee from ICICI Securities.

[Abhisek Banerjee, analyst]

Yes. Again, congratulations on a great set of numbers. Quickly on quick commerce, your AOV has again gone up to 660, right? So if you could help us understand whether there is any seasonality to this upper move -- and how should 1 kind of think about this going ahead?

[Akshant Goyal, executive]

Yes, Abhisek. So the seasonality in the AOV, this is actually more related to the rains. So during rains, our capacities do get crunched a little bit. So we tend to see slightly higher average order values during that time. So that helps the overall AOV increase. And the other significant factor here is just we've been increasing our range steadily.

So the number of use cases on the app has gone up, especially in non-Delhi markets, we've increased our overall assortment. So that also helps our AOV.

[Abhisek Banerjee, analyst]

Got it. And 1 more question on quick commerce, which is, from what I understand, you used to have a pretty healthy proportion of customer charges, which you got. And from what I remember, you used to charge for delivery even for orders above INR 200, INR 300. Off late, we are seeing a lot of instances, where you are saying, you're lowering the threshold to INR 200. So if you could just explain the thought process behind that.

[Akshant Goyal, executive]

So for a fairly long time, our threshold has been INR 200, like where -- above which the delivery charges drop. Only in cases, where we open up new stores in particular localities during the early stages of the store do we offer free delivery above that amount or even or at a nominal amount in the early stages of the store. So that's what you must be seeing.

[Abhisek Banerjee, analyst]

Understood. So earlier, it used to be that when a new user also came in, you used to give it for a few months. But for new stores also, you do the same thing, basically?

[Akshant Goyal, executive]

Yes. Because mostly, if we are opening a new store, especially in a non-serviceable -- previously non-serviceable area, those customers do tend to be new to the platform.

[Operator]

Next question is from the line of Gaurav Rateria from Morgan Stanley.

[Gaurav Rateria, analyst]

My first question is on AOVs for Blinkit. How should we think about it more on a structural basis as you are adding more and more categories and assortment? Is it fair to believe that structurally, this AOV number can actually inch up quite a bit?

[Akshant Goyal, executive]

So I think or the way that Quick Commerce works is that the primarily customers are using it for urgent use cases. So even in categories which are slightly higher AOVs, we don't see that much of an upward increment in terms of AOVs for even those use cases because customers are not making really high involvement purchases on the platform.

So I think this will continue to be the majority. So while we think that there would be goodness because of the proliferation of new categories and more customers buying in new categories, but we don't think that will be materially change, it will dramatically change from the current levels.

[Gaurav Rateria, analyst]

Got it. Second question is on SKUs. How to think about what was the limiting factor on SKUs? Like can it go to like even 30,000, 40,000 SKUs from a medium-term perspective? What would be the limiting factor?

And also, a related question, like is selection no longer important for consumers from a buying behavior perspective, like even on constrained selection, delivery timeline is becoming more important, and hence, quick commerce is gaining traction. What is your sense on that?

[Akshant Goyal, executive]

I think, Gaurav the customer behavior around selection is very, very subject to which category of buying we are talking about. So for example, if you're talking about beauty that customers would want a larger selection to be able to make a purchase, but the same might not be true for some other categories. So the overall SKU count for us goes up, when we decide to launch categories.

So when we launch categories which have -- which -- where the natural customer buying behavior is reliant on the presence of a number of SKUs, we will add that. So to answer your first question, we will keep seeing the increase in the selection available to customers for the foreseeable future because we are adding categories that are -- that require a high selection for customers to be able to order within the use cases, obviously, that we are serving.

[Gaurav Rateria, analyst]

At this juncture, you don't think there is a limiting factor in your mind that at least in the mini SKUs, the model caps out because it either compromises on the delivery time line or compromises on something else?

[Akshant Goyal, executive]

We think of it as a problem to solve, not as a limiting factor.

[Gaurav Rateria, analyst]

Okay. And last question is on what should -- what kind of investment 1 should think about from a transition point of view in the going out segment for your new app from the existing app?

[Akshant Goyal, executive]

Gaurav, at this point, honestly, we don't know the answer because we will -- we are about to launch the new app in the next few weeks, and we'll have to respond to the situation in terms of how customers are transitioning from the platforms to the new app. And we are not in a hurry to actually transition every customer to the -- from the existing Zomato and PayTM platforms to the District app. So there is no pressing need therefore to do it in 1 shot or spend inordinately more than what we need to.

So I think we'll be able to -- we'll be in a better position to talk about this maybe in the next quarter once we have some data points with us.

[Operator]

Next question is from the line of Bhavik Mehta from JPMorgan.

[Ankur Rudra, analyst]

This is Ankur from JPMorgan. So just first question is on the food delivery business. Can you elaborate, there's been some sort of moderation on take rates, if there was any seasonality there, what happened there?

And secondly, sticking to food delivery. We've seen in the quarter some experiments on the 10-minute delivery model by 1 of your peers. I know you've been experimenting with a version of that, too. What's the current thought process of the team? Is there adequate evidence for product market fit in such a delivery model?

[Akshant Goyal, executive]

Ankur, so I think the take rate is just a fluctuation. And you're right, I think seasonality has a role to play there. It's also like mix changes between quarter-to-quarter in terms of the kind of restaurants people order from and different kind of restaurants could be a different take rate. So I think it just -- I would not read too much into that beyond seasonality.

On your second question, yes, I mean, we've been -- I mean, like in any case, even in the Zomato business, we're focused on reducing the delivery times, increase restaurant availability, making sure customers have enough choices closer to them so that the delivery time reduces because the food travels fresher, hotter. And we have seen in the past that, that drives more consumption on our platform.

So directionally, I think we are focused on bringing down delivery times. But how do we get there? I think there are sort of various ways we are trying that -- to do that. And I think it's too early to talk about any 1 particular answer where we see a strong product market for it. But I think we'll continue to experiment and maybe share more in future once we have better answers.

[Ankur Rudra, analyst]

Moving to Quick Commerce then. You mentioned investments in the business. I know you mentioned also your new stores and warehouse openings. But is there more to it? Are you also investing anything into changing your existing store profiles, especially, I think, Albinder mentioned that you want to open the biggest or possible. So when you try to try and do that and your category makes your assortment looks very different now versus what it was maybe when many of these stores were open. How much of this is going into refurbishing, existing store footprint, beefing up the quality of supply chain to make it more resilient to the changing nature of the category mix you have?

[Akshant Goyal, executive]

So Ankur, I think even in the past 2 years, where the business has been around, all of this has happened, right? So in our case, the store design, we started from the business with, I think it's not there anymore. So everything has evolved, as size of stores has pretty much remained constant because of the real constraint in terms of the amount of space available within the cities that we are operating in, right?

But outside of that, how does the store look and feel? How is it stacked up in terms of [ RAN ] racks? What are the kind of products and categories we are servicing and storing in those stores? How is replenishment happening at those stores? I think all of that has evolved meaningfully and I think will continue to evolve. And yes, all of this has an impact on the profitability of the business, right?

So as we build, we have to make sure that we invest in upgrading this entire infrastructure as we learn new things. And over time, as that learning curve becomes less steep, we will see the profitability improve as a result of that.

[Ankur Rudra, analyst]

Okay. Just maybe 1 -- sorry.

[Akshant Goyal, executive]

Go ahead.

[Ankur Rudra, analyst]

Now I was going to ask, in terms of in Quick Commerce also, sort of continuing. As we potentially look at addition of more and more going deeper into electronics and appliances, and I know you guys have launched returns as well. If you play this out over the next 2 or 3 years as sort of this becomes a bigger part of your GOV mix, how should we think this impacts take rate and overall contribution margins?

[Akshant Goyal, executive]

I think very hard. I mean we -- I mean it's like crystal ball leasing right now. But I think directionally, the guidance we've given on margins is that we believe this business can get to 4% to 5% EBITDA margins. And I think with every passing quarter, that seems more and more realistic and achievable to us is what I would say.

[Ankur Rudra, analyst]

Okay. Last question on the capital raise. I know you've given a detailed answer in the report. But I wanted to ask you, beyond just the fact that you want to keep a level playing field, how does this potentially expand your strategic options?

You will -- if you, for example, are able to raise a lot more capital. You're already probably the most profitable company in commerce working in India right now and your relative cash position will be probably among the strongest there. So from a strategic perspective, are there things you can do which your competitors in the space cannot?

[Akshant Goyal, executive]

I don't think so, if there's anything like that at this point, and we are thinking of that. I think what we have seen is that in the past, strong balance sheet has helped us build the business the right way, and I think the industry has responded well to that. And we hope sort of we are able to build out the quick commerce business also in the same way in the next 2, 3 years without losing this cash.

[Operator]

Next question is from the line of Vijit Jain from Citigroup.

[Vijit Jain, analyst]

So my question is on quick commerce. Overall, in quick commerce, has the audience overlapped with the food delivery business in Zomato, they overlap with the audience and that increased, you would say, over the last, say, 3 to 4 quarters as e-commerce has expanded meaningfully? And a related question to that would be do new categories and SKUs actually bring in new kind of audience into quick commerce?

[Akshant Goyal, executive]

Yes, Vijit, actually the overlap is decreasing with time because we are seeing that Quick Commerce is appealing to a much wider demographic than food delivery. So while in terms of absolute MPUs, Quick Commerce is still small, but that just because the reach and the audience is reaching out to is much smaller given that, the footprint is smaller, right? But like-for-like, I think same neighborhoods. We see that the overlap is reducing by time because it's a broader demographic that Quick Commerce is appealing to.

[Vijit Jain, analyst]

Got it. Yes, sure. And would you say -- so the new categories bring in new customers. But is the GMV mix also skewed towards, say, the top 500, 1,000 SKUs disproportionately? Just like, for example, in terms of cities, it's right now skewed more towards Delhi-NCR. Is that the same case with top 500, top 1,000 SKUs as well, would you say?

[Akshant Goyal, executive]

Vijit, there is always a [indiscernible] in every business, so there exist 1 year. Not commenting on the number of SKUs. But yes, I mean, there are leading categories. And it's also a function of how mature a particular store is, right?

I think eventually, when you start off, the assortment is not as wide as you will see in a more mature store because the audience graduates to buying more stuff over time. So therefore, there's not a generic answer. I mean, specifically, it may vary from store to store. But generally speaking, yes, there's a [indiscernible] to it in the business as well.

[Vijit Jain, analyst]

Got it. And my last question is so I mean, you've covered the AOV increase in quite a detail in previous questions. But when you look at your older cohorts of customers, right, do you see the Quick Commerce GOV per month still rising there? And related to that, in Delhi NCR, when you acquire new customers today, are they coming in at comparable AOVs as existing customers even in Delhi NCR?

[Akshant Goyal, executive]

Yes, the answer to both that question is yes.

[Operator]

Next question is from the line of Sachin Salgaonkar from Bank of America.

[Sachin Salgaonkar, analyst]

First question is on District, your going out business. Wanted to understand what all use cases come under it? Is it ticketing experience? And should we also consider travel like a traditional OTA business also?

[Akshant Goyal, executive]

So Sachin, at this point, the plan is to just transition the landing out business, which we've been running for the last 2 years and the new trading business that we acquired to the District app, right? So I think for the foreseeable future, the focus will be to continue to build in these categories. And then over time, we'll see if it makes sense to add more categories to it.

[Sachin Salgaonkar, analyst]

Okay. Makes sense. Second question, I just wanted to understand on the fund raise. Anything has changed for you as compared to last few quarters in terms of expansion strategy, i.e., whenever you get this QIP approved, should we see a faster rollout of the 2,000 stores, which you had indicated earlier? Or could we see opening of stores, which could be way higher than 2,000?

[Akshant Goyal, executive]

No, no change in I think strategy or guidance we've given on these things. If there is, we'll communicate that. I don't -- as I mentioned, I don't think the fund raise will dictate or influence how we run the business at this point.

[Sachin Salgaonkar, analyst]

Got it. And last question, just wanted to understand on the TAM on Quick Commerce. Clearly, when you started, the thought process was it could cater to a high-end of India. But over a period of time, you have scale, you have a bargaining power with FMCG companies. And in that process, the price points of SKUs do come out there. So on the back of it, do you see an expansion on TAM in a meaningful manner, which could be well beyond, let's say, the top 30-odd million households?

[Akshant Goyal, executive]

We don't know, Sachin, I think that's what we're trying to discover by getting into newer cities, right? I mean, theoretically, it does look like, yes, I mean the data that you've seen so far, as I said, it's appealing to wider demographics. So as a result, at this point, we do feel that it's definitely a much broader TAM than just the top 7, 8 cities. And I think we'll know more as we get into smaller cities and build more conviction around this over time.

[Sachin Salgaonkar, analyst]

Got it. And my last question, both of your competitors on Quick Commerce do have some kind of a loyalty program. Any thoughts in terms of having a loyalty program?

[Akshant Goyal, executive]

Not at this point.

[Operator]

[Operator Instructions] The next question is from the line of Swapnil Potdukhe from JM Financial.

[Swapnil Potdukhe, analyst]

So the first question is on fixed cost. So what I've noticed is like your fixed cost in both [ food delivery ] business and Quick Commerce business have been rising quarter-on-quarter meaningfully. I understand that this quarter could be -- wage hikes coul d be 1 of the reasons, and there seems to be some A&P increase also. But this increase we have seen noticed for the last 2, 3 quarters. So any [indiscernible] from this side?

[Akshant Goyal, executive]

Yes. So I think the fixed cost tier below contribution has few elements. There is marketing costs, there is server cost, there's people cost, there is infrastructure cost. So Quick Commerce, and dining out, hyperpure were high growth businesses right now. So I think some of that increase you see is because of that.

[Swapnil Potdukhe, analyst]

And in the food delivery side, because I would have presumed that would have be more stable, but still there is a decent increase?

[Akshant Goyal, executive]

Yes. I mean food delivery, the marketing spends vary quarter-to-quarter, right? And therefore, it's sort of -- it's not really a fixed costs in terms of people and rental and infrastructure. I think that cost is pretty stable right now. But the marketing cost does go up depending on the plan for that quarter, and that's why you see the fixed cost going up slightly.

[Swapnil Potdukhe, analyst]

Got it. And the second question, again, on food delivery is with respect to -- you mentioned your ambition of 30% sustainable growth in the near term at least, whereas we are currently at 21%. I mean there's quite a bit of a distance from 30%, right? I mean, any changes in our business model, any new things that we want to try out to ensure that we move towards our ambitions?

[Akshant Goyal, executive]

No, no. I don't know where this 30% is coming from. We've never -- we've always spoken about 20% plus GOV growth as guidance on sort of a CAGR basis over the next few years, right? So I don't think we stated ever that the business is likely to grow at 30% in the near term. I think that's like a misunderstanding.

[Swapnil Potdukhe, analyst]

Okay. And on the quick commerce side, just to understand if our AOVs are sustainable. Would it be possible for you to share the SKUs per order, typically, how much do we have? And how have they moved given that we have been adding categories and there could be some high categories getting added. And does that play a role just to get to -- get some sense on that?

[Akshant Goyal, executive]

Too much data. Sorry, we will not be able to share this detail.

[Swapnil Potdukhe, analyst]

Okay. And just last one. So now I know this is too early to ask, but still, I would go ahead and would want to understand, your stores in your lower-tier cities, where you are venturing out right now. How would the metrics -- operating metrics be different in those stores versus your Tier 1 cities, let's say, on AOVs, SKUs per store, store size, rental differences or delivery costs. If you can just give a broad understanding of how different those things are in lower tier cities.

[Akshant Goyal, executive]

Again, I think, Swapnil, we do not want to share this information. I mean these are all competitively sensitive things. And the business in the Tier 2 market is still young, and we are still learning. So I think at the right time, we'll talk about it to our shareholder latter, but don't want to give these details at this point. Sorry about that.

[Operator]

Next question is from the line of Nikhil Choudhary from Nuvama Capital.

[Nikhil Choudhary, analyst]

My first question is on dark store addition. We have seen a bit of ramp-up in the last 2 quarters. And if we maintain the current quarter run rate of 150 dark store addition, we'll more or less overshoot our initial target of 1,000 dark store addition by end of FY '25 and even we'll achieve our medium-term target of 2,000 addition by December '26.

So is it fair to assume that we will like to keep the current run rate? Or is there an immediate plan to even take it higher from the current level?

[Akshant Goyal, executive]

Nikhil, so I think like this expansion could be lumpy because we don't control the entire process of opening a store. There's a lot of dependency on external bodies, licenses and so on, right? So please don't expect this to be linear. Having said that, broadly, yes, we think we are on track on achieving the 1,000 stores by March '25 and 2,000 stores by December '26 guidance that we had given, we think we are on track on that. But there could be sort of ups and downs along the way, given how the process is as far as opening a new store is concerned.

[Nikhil Choudhary, analyst]

Sure. My second 1 is on private label. We don't have any private label on Blinkit. While some of the peers have launched and with e-commerce player basically launching their Quick Commerce venture, they are bringing their private label on Quick Commerce as well. So any plan to increase the contribution or maybe venture into private label, which could also help in the contribution margin going ahead?

[Akshant Goyal, executive]

Not considering at this point, Nikhil, but we'll continue to evaluate.

[Operator]

Ladies and gentlemen, we will now conclude this conference call. Thank you for joining us, and you may now disconnect your lines.