Zomato Q3 Results: Is the Turnaround Story Hitting a Speed Bump? Nikunj Dalmia Decodes

Zomato, one of India’s most renowned food delivery platforms, has been a darling for both institutional and retail investors. Its journey from being a disruptor in the food tech space to achieving a pedestal position in the market has been nothing short of remarkable. However, as ET NOW’s Editor-in-Chief Nikunj Dalmia highlights, the company’s Q3 results suggest a shift in dynamics that might require a deeper look.


A Stock That Outperformed

Zomato’s stock has been a ranked outperformer, climbing from INR 50 to INR 300 in a matter of years. This phenomenal growth has positioned Zomato as a favored choice for investors. As Dalmia explains, “Zomato is a stock which clearly enjoys pedestal positioning. It is a darling both for institutional investors and for retail investors.” The stock’s strong performance reflects the company’s ability to capitalize on the growing demand for online food delivery and quick commerce.

But does the Q3 report signal a plateau in Zomato’s growth trajectory?


Sequential Growth Slows Down

One of the key takeaways from Dalmia’s analysis is the evident slowdown in Zomato’s sequential growth. The linear growth pattern observed in recent quarters has raised questions about the company’s ability to sustain its aggressive upward trajectory.

Dalmia notes, “The sequential growth which markets were accustomed to is just going to be very linear. Now, it may just be a function of the strategies they will adopt to build their quick commerce business and scale their new event management business, District.”

The shift from rapid growth to linear progression could stem from two factors:

  1. Base Effect: With a larger operational scale, maintaining high growth rates becomes challenging.
  2. Increased Competition: The intensifying competition in the quick commerce sector is compelling Zomato to rethink its strategies.

Investing in the Future

To stay ahead of the curve, Zomato is now committing significant capital to future-proof its business. “When the business is showing signs of a base effect, the company will have to make itself future-ready. Zomato has to invest now so that when competition intensifies, they do not lose their dominance,” says Dalmia.

This strategy, while essential, comes at a cost. Increased investments in:

  • Quick Commerce: Competing with giants like Swiggy and emerging players in hyperlocal deliveries.
  • Event Management (District): Scaling up a new business vertical that could diversify revenue streams.

These moves are expected to impact cash flows in the short term but could potentially secure Zomato’s market leadership in the long term.


Outlook for FY26 and Beyond

Dalmia’s insights suggest that Zomato’s current phase is more about consolidation and strategic investment than a decline in performance. “It is not that there is a shakeout. It is just that the management has decided to roll out and commit to capital, which will have an impact on cash flow and how the next two quarters would move,” he explains.

The timeline for recovery and renewed growth hinges on Zomato’s ability to:

  • Execute its strategies effectively.
  • Expand without excessive cash burn.
  • Adapt to the evolving landscape of quick commerce.

Dalmia adds, “If they are able to roll more in FY26 and keep their aggression going, expand without too much of burn, then FY26 or FY27 could be very different for Zomato.”


The Turnaround Story: What’s Next?

The turnaround story that propelled Zomato’s stock from INR 50 to INR 300 appears to have reached its conclusion. Now, as Dalmia aptly puts it, the narrative will depend on how the company navigates the challenges of the next few quarters.

“The script of Zomato would move from INR 230 onwards as a function of the next two or three quarters. How are they able to really manage and stand tall in this quick commerce landscape?” he questions.

Zomato’s ability to remain a market leader will be tested as it balances growth with profitability, investments with returns, and competition with innovation.


Conclusion: Cautious Optimism

For investors, Zomato remains an intriguing opportunity, albeit with caution. The company’s Q3 results indicate a period of transition, where strategic investments are prioritized over immediate growth. While this may dampen short-term performance, the potential for long-term gains cannot be ignored.

As the company gears up for its next phase of growth, the focus will remain on sustaining its dominance in quick commerce and successfully scaling new ventures like District. With the right execution, Zomato could once again prove why it is a favored choice among investors.

Leave a Comment