Zomato Adds Paytm Ticketing Biz On Its Menu
Category
đź“ş
TVTranscript
00:00Pankaj, very good morning to you and great to have you this morning on NDTV Profit on
00:04I think the big story of the day for the markets undoubtedly.
00:07How do you view it?
00:08And let's start with the first question we've been talking about.
00:10Did Zomato overpay or is this looking like a good deal?
00:14Good morning to all of you and your viewers.
00:18See, I think it's a very strategic deal and I think it's a win-win for both.
00:23Don't look at the deal from a valuation perspective.
00:26I think that would be too short-term an approach.
00:28I think it's a very strategic sense for both the companies on both sides.
00:33For Paytm as a company which is trying to bring sharper focus on its core business because
00:39they're in the payments business, they've lost some market share, they've had regulatory
00:43issues.
00:44It clearly means that they're letting off one of the businesses which they had seeded
00:48and bring much more sharper focus on their core business which is payments and financial
00:54services including loan distribution, Paytm money which is about the security market business
01:00and insurance distribution.
01:02So that's great from their point of view.
01:05From Zomato's point of view, they already have now two engines which are firing.
01:10The food delivery business which is on a very strong growth curve and I think that business
01:14will continue to sustain growth momentum for the next decade, though the rate of growth
01:19might moderate, but still it will continue to be a high-growth business for the next
01:24decade.
01:25You have Blinkit now which is growing at a phenomenal rate and probably in three years'
01:31time, Blinkit could effectively be the largest retailer in India overtaking physical retailers
01:37who have been around for 20-30 years.
01:40And clearly now the idea with this acquisition is they're going to carve this out and their
01:44existing tining out business into a separate app called District which they intend to launch
01:49probably in a fortnight's time and build that as a category.
01:52It's an emerging category where Indians or the Zenzi are spending on events and everything
02:00else where they're going to combine all of that and obviously that business will benefit
02:04from cross-leverage from Zomato's existing user base.
02:07So from a strategic point of view, I think it's a great acquisition for Zomato because
02:11over a medium term, over the next 5 years, 10 years, the value of the business can be
02:15far, far higher because there's a huge potential, there's a significant incremental spend happening
02:19in that category.
02:20It allows them to capture that.
02:22And from Paytm's point of view, it just reduces one more incremental thing that we're doing
02:26because over a period of time, they've built so many of those businesses and in many of
02:31those businesses probably are not related to their core business.
02:35So it just helps them to bring or double down with a sharper focus on their core business,
02:40the payment business, where as it is they're seeing very sharp competition.
02:44So I would think it's a win-win for both of them.
02:47Good morning, Neeraj here.
02:49Thanks so much.
02:50And good to have you in this list of argumentative Indians out here talking about Zomato, Paytm.
02:55Just one quick thing, Pankaj.
02:56So let's assume that the ability to decode whether it is overpaid or not right now, as
03:01you said, is a slightly short term view and we don't know how it will turn out.
03:05If this doesn't work because Paytm has not been able to combat BookMyShow in that fashion
03:11and Zomato therefore entering this category as the second player, right, if you will,
03:17and BookMyShow has this stranglehold here.
03:20If this doesn't work, how big of a damage could it do to Zomato because of the money
03:24that it is paid out?
03:25Let's say three years out, if this doesn't work?
03:28Good question, Neeraj.
03:29See, from a financial risk point of view, now the 2000 crores cash they're paying out
03:35is equivalent to one year of Zomato's cash flow because it's a company which is generating
03:39cash.
03:40So in a couple of years' time, Zomato will be generating 5000 crores of cash.
03:43If I'm not mistaken, in FY27, Zomato is expected to generate 5000 crores of cash annually.
03:49And from there, their cash flow will keep increasing.
03:52So Zomato has now become a cash machine.
03:54So they're already sitting on about 10,000 crores of cash on their balance sheet and
03:59they're accruing cash every quarter or every day as we go along.
04:02So I don't think so that a failure of this business will have a significant impact on
04:10their balance sheet in that sense.
04:12For a company of that size, which is already $30 billion, they need to take meaningful
04:16bets to fuel their growth and sustain their growth for longer term.
04:21The growth initiatives or the growth bets for a high growth company like Zomato has
04:25to have adjacencies with their existing set of business.
04:29And I think this business has a very strong adjacency with their existing set of business.
04:34More importantly, it will bring some more incremental critical mass to the existing
04:38business which is there.
04:39And the very fact that they are moving it to a separate app clearly means that you're
04:46making this business very strategic and you want to scale this big time.
04:50You want to double down on this with a separate dedicated team for the business, carving it
04:55out in a separate company and an app and bring much more sharper focus on the business.
05:01On the opportunity set, I think the category is growing and it will emerge as a large category
05:07and it has a room to accommodate a second player.
05:10I think, as you rightly said, there's only one player which dominates the space currently,
05:13book my show.
05:14I think the space will definitely have, the industry will have space for one more player.
05:19So I think my sense and Zomato has proven their execution capability.
05:24So my personal sense is that they should be able to do a good job in execution and
05:29scale this business.
05:30In case it were to fail, I don't see it having significant impact on Zomato's balance sheet.
05:36Sajid here, just a comment from you, do you think that Ant Financial which exited partly
05:44or more than half of its stake in Zomato was early to exit because it did not see the strategic
05:51intent of the management?
05:55Well, see, I would not correlate both the issues.
06:00I think they're independent.
06:01I'm not sure whether Ant has a board skill, so they might not be aware of this impending
06:06transaction.
06:07But having said that, Ant Financial, for them, it was more a financial investment.
06:11They've been invested in the company for last, I think, nine or 10 years.
06:14What I read was, I think they've already paid their money, 405X, being invested into Zomato.
06:20So, financial investors will make their exit at some point of time or other.
06:25Having made good financial gains, I think they would have thought in their wisdom that
06:30it is fair for them to take their money off the table.
06:33Having said that, I don't think so.
06:36That's a reflection on Zomato's future growth prospects.
06:39I think the growth prospects of Zomato continues to remain strong and which is what also a
06:43reflection that the block by Ant, there were more than enough takers for whatever supply
06:50was there for Ant in that sense.
06:52One more.
06:53The going out business, we've seen BookMyShow having the majority stake in that market.
07:00But it's still not able to scale up as envisaged.
07:06The top line for BookMyShow was around 800 crores in FY28 and it's been there for nearly
07:10more than a decade now in this business.
07:14Zomato is arguing that in the next 2-3 years, it will have a 10,000 crore gross order value
07:22which is there.
07:24Do you see this entire segment growing at a very high pace?
07:32The way I've seen these internet businesses or new-age technology businesses work is you
07:37take your bets at an early stage of evolution of an industry or a segment.
07:43These are long-run businesses.
07:44In 2013 or 2014, when Zomato started its food delivery business, I never thought that Zomato
07:50will become among the top 40 companies of India.
07:54The fact is today, the business is large.
07:58It's within visibility that that business will start generating billion dollars of cash
08:02flows every year in the next 4-5 years.
08:04I would have given it a zero chance in 2013 when I first used Zomato app that a company
08:10like Zomato can generate billion dollars of cash flow in 5 years' time.
08:13India is young and India is changing very fast.
08:17Consumers are adopting very fast.
08:19The category is certainly out there.
08:22All of these emerging categories, they reach a point where you get to an inflection point
08:26and from there, you have a J-Cow growth or a hockey stick growth as we call in investing
08:31parlance.
08:32Some point of time, I think this space will emerge big time and we'll have a hockey stick
08:36growth.
08:37I think it is important when you're making strategic investments or business, this thing
08:41is to be there, build your platform and be out there so that when that J-Cow growth really
08:46plays out, you're out there to capture that growth and establish your dominance in the
08:50segment.
08:51In that sense, I think the move from Zomato makes imminent sense from a strategic perspective
08:57to my mind.
08:58Got it.
08:59Pankaj, let me, Harsh also joining in, let me quickly ask you on Paytm.
09:03From that perspective, from that lens, you've got roughly 8,000 crore of net current asset
09:08currently lying in Paytm, 7 to 8,000.
09:12This is now taking literally cash, more cash into the company, arming the company with
09:19more cash to probably grow its core businesses.
09:22How do you view it from Paytm's perspective?
09:25Harsh, so any incremental cash is a good, but I think the bigger implication for Paytm
09:32is they can do with less distraction and more focus, given that in their core business,
09:39which is the payments business, which is the core of Paytm and they've been building, trying
09:43to build businesses around that, they've seen severe competition where clearly PhonePe and
09:50GooglePay have taken market share and built dominant position from Paytm.
09:55So it's important for Paytm and there are many more players trying to get into the payments
10:00ecosystem because all of us know UPI is already $2 trillion of annual transaction value and
10:04it's still growing at a very high rate and probably will keep growing given the strong
10:09growth drivers.
10:12It's important for Paytm to sharpen their focus on their core business and define what
10:19their core is.
10:22When it comes to the internet businesses, the customers are very demanding.
10:26They don't like to get distracted and because the customers are so demanding, it's very
10:32important for businesses to succeed, to be very sharply focused on what they stand for,
10:39what value proposition they're offering to customers and bring a very sharp value proposition
10:44to the customers.
10:46In that sense, I think in the new strategy which Paytm is trying to build its business,
10:51it's very clear that they want to focus on payments and they want to focus on financial services.
10:57They had at one point of time designs or thoughts of doing Paytm Mall and all of that but I
11:02think now in the new scheme of things and or in the reworked strategy, all of that is
11:07clearly taking a backseat and I think it's wisely so.
11:10So I think while any cash is good and from Paytm's point of view, from where they bought
11:15this business, they've scaled it meaningfully in the last 6 years, 7 years and made handsome
11:20profits out of it but I think the bigger thing is it will help them focus more sharply
11:27on their core business which is financial services and double down their resources on
11:33that business rather than trying to do everything under the sun.