Good Morning Toasters!

Hey friends!! The market’s in a phase right now, with limited momentum to keep sustaining it. These days are tough, but as traders, you should be comfortable making money on both ends when the market rises as well as when it falls.

Zomato results enthused the markets, with the stock recording its highest-ever single day rise, on the back of a record high Gross Order Value. The company conducted its first-ever earnings call, since its IPO, sharing future growth plans.

Indigo parent, Interglobe released Q4 numbers, recording a loss as the company is/was hamstrung by the meteoric rise in Brent / Crude prices. Competitive intensity within the airline industry is rising, via the relaunch of Jet Airways and the newest entrant, Akasa.

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Market Watch

Nifty 50: 16,025.80 | -99.35 (-0.62%)
FII Net Sold: INR 1,803.06 crore

Sensex: 53,749.26 | -303.35 (-0.56%)
DII Net Bought: INR 2,229.82 crore

Company News

Zomato Gross Order Value at record high; what’s up and what do you need to know?

Financial Update

• Zomato Limited recorded its highest ever Gross Order Value (GMV equivalent in the world of food delivery), growing 6% QoQ and 77% YoY to INR 58.5 Bn largely driven by healthy growth in order volumes, while Average Order Value remained constant (more on this below)
• Revenue grew 75% YoY to INR 12.1 Bn, while EBITDA loss shrunk (very marginally) owing to higher contribution as a % of Gross Order Value (more revenue items are now contributing, including restaurant commission rates, ad-sales, customer delivery charges)
• In an effort to manage costs, with Net Loss also reducing to INR 400 Mn from INR 632 Mn in the previous quarter (removing exceptional items), Zomato is now actively managing expense levers like delivery cost and discounts
• Zomato has INR 122 Bn or USD 1.6 Bn in cash on its Balance Sheet (raised through IPO proceeds), which should hold the company in good stead for growth, without any further need to raise capital

Business Update

• The company launched operations in 300+ new cities, taking its cumulative count to 1000+ towns pan India and yet the new cities account for only 0.2% of GOV, while the Top 8 cities contribute 60% of GOV, and the Top 300 contributed 99% of GMV
• Average Monthly Transacting Users (MTUs) have continued to grow, touching 15.7 Mn during the quarter, up from 9.8 Mn in Q4FY21 (one year ago); however, weekly transacting users stands at 1.8 Mn, a small proportion of MTUs (more on this below)
• Customer delivery charges per order were stable during the quarter (vs an INR 7.5 drop in the previous quarter), which is key in ensuring customer stickiness (we believe)
• Average Order Value remained stable as well, coming in at INR 398 (vs INR 397 in the previous quarter), with volumes contributing to growth at a topline level

Interesting! Going forward? Didn’t Zomato host its first-ever Earnings Call? (Yes my man)

• Veering away from its initial plan of releasing/sharing business updates via blog posts only (something to do with its abysmal stock performance 😝), the Zomato management hosted its first ever earnings call (post IPO)
• The company highlighted spoke to improve its current average annual order frequency, which currently stands at a meagre 10 times, driving up the number towards the 40-50 mark (we covered this problem in a note)
• New user acquisition was higher in FY19 / 20 than in FY22, with ~90% of revenue coming from repeat customers, which when coupled with low order frequency probably indicates where the growth for Zomato is likely going to come from
• The company’s investment in Blinkit, pegged at the higher band of USD 400 Mn is expected to remain the same (over the next couple of years), with the management indicating a reduction in overall burn
• Unlike other tech startups/cos, who are struggling to run their ships, Zomato has indicated of no significant reductions in headcounts, with salary costs likely to rise due to inflation

Okay! Stock performance, valuations, final thoughts?

• Zomato’s initial play was on penetration, with an aggressive new city/town expansion strategy to build on its core infrastructure; while the company is still widening its reach, growth ultimately is coming from the Top 8 cities, indicating the demographic capability for a service like this
• Repeat transactions are key to growth for the company, and with minuscule (in comparison to MTUs) weekly transaction users, Zomato has its work cut it out, for it to grow responsibly (we believe)
• The stock was up 15% during the week leading up to the results, with the markets especially enthused on the day, with the stock dropping its highest-ever single-day gain
• It’s been beaten, is way lower than its IPO price and has a long way to go?

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Around the World 🌎

• Mcdonald’s wins the Icahn saga – McDonald’s Corp is ahead of activist investor Carl Icahn according to early vote tallies and will most likely prevail in this proxy fight over the latter’s accusations of the corp’s treatment of pregnant pigs. Icahn never had much of a chance as the moves proposed did not present sufficient upside to investors and his tiny stake forced him to convince a larger-than-normal portion of shareholders. His suggestions would also significantly increase costs placing the burden on the end consumer
• Buyer demand waning – High-interest rates are impacting as expected with sales of newly built homes in April posting their biggest drop in nine years (at 16.6% MoM)  as a sign of falling demand. record-high home prices (median new-home sales price rose to $450,600 in April, up 19.6% YoY) limited inventory and rising mortgage rates are major reasons. Waitlists of prospective buyers have been shrinking as well
• Everyone has had enough of China – Strict Covid-19 policies in China are hurting consumer demand for major multinationals like Starbucks, Adidas and Intercontinental Hotels Group (IHG) who have all reported significant declines in revenue. Retail sales for the country declined 11.1% in April YoY, and are offsetting the strong sales in the USA and the rest of the world

Company News

Indigo’s market share drops due to increased competitive intensity; what’s up and what do you need to know?

Financial Update

• The operator of India’s largest airline, Interglobe Aviation dropped Q4 results, reporting a net loss of INR 1,681 crores, due to an 11% QoQ drop in ASK (available seat kms = # of seats available x # of kms travelled) and 15% QoQ drop in RPK (Revenue per Passenger per Km), impacted by the omicron wave, which ground travel to a halt during Jan’22
• Recording revenue growth of ~29% to INR 8,020 crores, Indigo’s passenger ticket revenues, which contribute ~86% of total revenues, grew by 39%, while ancillary revenues were up 19%
• Operating margins are down to 2.1%, from 10.4% a year ago (same quarter), primarily on account of growing Brent crude prices, which have caused fuel expenses to surge by 68% (insane!!)

Business Update

• On a full-year basis, Interglobe Aviation took its overall domestic destination # to 73, growing ~12%, while its closing aircraft # dropped by 3.5% to 275 (spread across Neos, Ceos etc), operating a peak of 1,577 daily flights per day
• Available Seat Km (ASK) and Revenue Passenger Km grew >50% for each metric, capturing the new route/location addition and growth in passengers on a full year basis
• The company recorded a dip in market share to ~51% from 55%, with gains made by TATA Group, combined airlines (Air India – Alliance Air- Vistara – Air Asia) whose share increased to 28% (from 21%) in CY21

Okay! Going forward? And any stock insights?

• Interglobe’s CEO has mentioned plans to increase capacity by 150% during the first quarter of this year, while full-year plans include expansion to the tune of 55-60%, as a means to wrestle back market share
• Likewise, the post-Omicron lull is over, with the company recording pre-Covid level bookings (at corporate travel level), while retail signs are encouraging as well
• The company maintained cognisance of entry of newer / older players like Akasa and Jet Airways while highlighting little threat of price wars, given prevalent macro scenarios (Brent crude et al.)
• Indigo has ~INR 77.6 Bn of cash on its balance sheet, which can be utilised to lease/acquire new aircraft (at present the company leases >90% of the current fleet)
• The stocks had a tough time YTD and more recently as well, comfortably in the red, given overall cost pressure at play; any new moves will hinge equally on fleet addition and Brent crude rationalisation (we believe)

What else caught our eye? 👀

Kohli-Watsa to hit a sixer

• Canadian billionaire Prem Watsa’s Fairfax Group-backed Digit Insurance will be raising $500 million through an IPO valued at $4.5 billion to $5 billion
• It was last valued at $4 billion and will complete five years of mandatory existence required to go public by September
• Virat Kohli is both an investor as well as a brand ambassador and the listing is expected to take place in January of next year

Spicejet solved its issues

• Spicejet and Credit Suisse AG have concluded the settlement wrt the pending dispute between them and it involves payment of a certain amount upfront and the remaining over a mutually agreed timeline
• SpiceJet had failed to make payments of over $24 million to Swiss maintenance, repair and overhauling (MRO) service provider SR Technics (Credit Suisse was mandated to receive this payment)
• SpiceJet is planning to induct more Boeing 737 Max aircraft over the next months; shares were up 4% at ₹51.70 on BSE on Wednesday

Results Preview (Nifty 200)

Thursday, 26th May: Berger Paints, Colgate-Palmolive, Cummins India, Hindalco, Muthoot Finance, NMDC, Piramal Enterprises, Zee Entertainment

Friday, 27th May: Astral, GAIL, Glenmark Pharma, Jindal Steel, JSW Steel, United Spirits, Info Edge, Oil India, Crompton Greaves, Nykaa, PB Fintech

Educational Topic of the day

T-line trading

Traders use the T-line on a chart to make a decision on the best time to enter or exit a trade. When the security closes above the T-line, it is an indication that the price will continue to rise. When the security closes below the T-line, it is an indication that the price will continue to fall.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com