(Reuters) -India’s Zomato reported a smaller-than-expected rise in second-quarter profit on Tuesday, hurt by a drop in margins, as it added more distribution centres to grow its quick commerce platform Blinkit.
Its consolidated net profit rose nearly five-fold to 1.76 billion rupees ($20.94 million) for the quarter ended Sept. 30, but fell short of analysts’ estimates of 2.70 billion rupees, per data compiled by LSEG.
The company also approved a fundraise of up to 85 billion rupees via a qualified institutional placement.
Competition in India’s online food and grocery delivery sector is heating up, with companies looking to raise funds to expand operations.
Zomato’s main rival Swiggy has offered shares worth $448 million in its initial public offering, while Zepto raised $340 million in August.
To combat rising competition, Zomato added 152 net new dark stores – or distribution centres – during the quarter, the most it has ever added in any quarter, taking the total count to 791 as of September-end.
However, its contribution margin – or the revenue generated from each additional order as a percentage of the gross order value – fell to 3.8% in the quarter from 4% in the previous quarter, after having risen in the past few quarters.
“Since new stores and warehouses take a few months to ramp-up, they end up being margin dilutive in the short term,” Zomato CFO Akshant Goyal said.
Zomato’s revenue rose nearly 69% to about 48 billion rupees, slightly ahead of analysts’ estimates of 47.30 billion rupees.
($1 = 84.0470 Indian rupees)
(Reporting by Ashna Teresa Britto in Bengaluru; Editing by Sonia Cheema)
