Zomato surges 3.09% after hiking platform fee amid GST impact mitigation

Zomato shares surge: The shares of online food aggregator, Zomato, have witnessed 3.09 per cent surge, reaching an intraday high of Rs 128.35 apiece, following the food delivery giant's decision to raise its mandatory platform fee. This move comes as international brokerage CLSA maintains its bullish stance on the stock, predicting positive outcomes after the fee adjustment.

The platform fee, charged to users, has been increased from Rs 3 to Rs 4 in Zomato's key markets. Analysts at CLSA emphasise that this 33 per cent hike in the platform fee aims to offset the impact of the Goods and Services Tax (GST) on delivery charges. CLSA holds a 'buy' call on Zomato, setting a target price of Rs 168 per share.

In the previous session, the stock closed 0.4 per cent higher at Rs 124.25 on the National Stock Exchange (NSE). Zomato's recent platform fee adjustments follow a series of changes implemented to enhance its financial performance. In August 2023, the company introduced a Rs 2 platform fee, later increasing it to Rs 3 before the latest adjustment to Rs 4 on January 1.

Despite a temporary hike to Rs 9 on December 31, the recent fee revision is expected to have a positive impact on Zomato's Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA). This increase in the convenience fee, effective in 33 per cent of cities, is projected to contribute to a significant boost in EBITDA, equivalent to around 5 per cent. However, considering the limited application of this hike, the overall positive impact on EBITDA is estimated to be approximately 2 per cent.

Record-beaking deliveries on New Year's Eve

The adjustment in fees comes amidst Zomato's remarkable surge in order volumes on New Year's Eve, underscoring the company's resilient performance and adaptability. The platform fee applies universally, affecting all customers, including those enrolled in Zomato's loyalty program, Zomato Gold.

Zomato Founder and CEO Deepinder Goyal and Blinkit CEO Albinder Dhindsa celebrated the highest-ever orders and bookings on New Year's Eve. Excitement about the future was expressed as Zomato Founder Deepinder Goyal shared, "We have delivered almost as many orders on NYE 23 as we did on NYE 15, 16, 17, 18, 19, 20 combined. Excited about the future!"

The platform fee adjustment is aligned with Zomato's commitment to ensuring the long-term viability of its economics. Chief Financial Officer Akshant Goyal stated, "It is a small fee to make our economics better and viable in the long run. We make sure we keep our service affordable for our customers at all times."

In the last six months, Zomato's stock has witnessed a remarkable surge of over 64 per cent, outperforming the Nifty 50 benchmark, which has risen around 12 per cent during the same period. The stock's impressive performance has doubled investors' money in the past year, experiencing a growth of over 106 per cent. The revised platform fee is effective January 1, 2024, further contributing to Zomato's ongoing efforts to enhance its financial stability and market position.