Zomato Ltd (ZOMATO) Q1 FY23 Earnings Concall Transcript

Zomato Ltd  (NSE:ZOMATO) Q1 FY23 Earnings Concall dated Aug. 02, 2022

Corporate Participants:

Akshant Goyal — Chief Financial Officer

Deepinder Goyal — Founder and Chief Executive Officer

Analysts:

Vijit Jain — Citigroup Inc. — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

Manish Adukia — Goldman Sachs — Analyst

Chirag Shah — CLSA — Analyst

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Swapnil Potdukhe — JM Financial Services — Analyst

Aditya Suresh — Macquarie Capital — Analyst

Ashwin Mehta — Ambit Capital — Analyst

Mukul Garg — Motilal Oswal Financial Services — Analyst

Karan Danthi — Jetha Global Limited — Analyst

Ankur Rudra — JPMorgan Chase — Analyst

Divyesh Mehta — Investec India — Analyst

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Operator

Ladies and gentlemen, a very good evening. And welcome to Zomato Limited’s Earnings Conference Call. From Zomato’s management team we have with us today Mr. Deepinder Goyal, Founder and Chief Executive Officer; and Mr. Akshant Goyal, Chief Financial Officer; and Mr. Kunal Swarup, Head of Corporate Development.

Before we begin, a few quick announcements for the attendees. Anything said on this call, which reflects our outlook for the future, or which could be construed as a forward-looking statement, may involve risks and uncertainties. Such statements or comments are not guarantees of future

Performance, and actual results may differ from those statements.

I now hand the conference over to Mr. Akshant Goyal. Thank you, and over to you, Mr. Akshant.

Akshant Goyal — Chief Financial Officer

Thank you, Harshal. Welcome everyone on the conference call. Before we begin with the Q&A, we just wanted to clarify and address a couple of questions that both Deepinder and I have been getting over the last 24 hours post our result. The two key questions which have come from analysts and shareholders, and we thought before we get into the Q&A, we should talk about that.

So I think the first question is, top of mind of everyone is, what is the path to profitability for Zomato? We’ve seen a reduction in losses now for a couple of quarters. And I think everyone wants to know, at least, where — how long we think it will take for the Zomato business to get to operating breakeven and then making profits.

And the second question, again, in the same line has been on Blinkit and quick commerce, in terms of what’s our view and outlook on the path to profitability there. And the investments that we’ll need to do before we get there. So let me address these two and then we can jump into the Q&A.

So on the first one, on the Zomato business. I think, first thing I wanted to highlight is that if you look at it on a cash flow basis, including treasury income, other income, last quarter we were already positive on cash flow. So, our adjusted EBITDA losses were INR1.5 billion, and our our other income was INR1.7 billion. So, in some ways, therefore, we are not losing cash in that business anymore. I think the next milestone for us — and along with that, we also, as you would have noticed, got to adjusted EBITDA breakeven in the food delivery business.

So now I think the next milestone there is to get the overall Zomato business to adjusted EBITDA breakeven. And we think we are close now. And in terms of timeline, I think internally we are aiming to get there by quarter four of this fiscal year. I think that’s a internal goal that we have as a team. But we think that — if you slip on that, I think, it should not be later than Q2 FY ’24, which is September 2023 quarter, for getting to a breakeven on adjusted EBITDA at the Zomato level.

So, I think that’s a broad outlook and essentially an internal plan that we’re working on. And we thought we should share that with everyone here now that we are getting closer to this milestone.

Now moving on, on Blinkit, we had last — a couple of quarters ago given a guidance or rather a budget of $400 million investment in the next couple of years. I think the business has surpassed our expectations so far in terms of growth, as well as losses reduction compared to where we were six, seven months ago. And we wanted to now update that overall budget and guidance to down from $400 million down to about $320 million. I think given where the business is today and the path forward that we see, we think we should get that business also to breakeven with an investment of $320 million starting January 2022. So, this is not a guidance starting from today. We’ve already invested about $150 million in that business. So, including that, the overall budget, our estimate is $320 million for getting that business to breakeven.

In terms of timeline on Blinkit, we don’t have the kind of visibility that we have on the Zomato business, so I would not venture into guesstimating on by which quarter we’ll get there, I think it’s still early days. But the update essentially we wanted to share with you was just on the overall investment that we think that business would need.

So with that, let me hand over back to Harshal, and we can get into the Q&A.

Questions and Answers:

Operator

Thank you, Akshant. Ladies and gentlemen, we will now start the Q&A section of the call. [Operator Instructions] The first question is from the line of Mr. Vijit Jain from Citi. Please go ahead.

Vijit Jain — Citigroup Inc. — Analyst

Hello, can you hear me?

Akshant Goyal — Chief Financial Officer

Yeah, Vijit. Hi. Go ahead. I can hear you.

Vijit Jain — Citigroup Inc. — Analyst

Congratulations on a great set of numbers, Akshant and Deepinder. My first question is on the food delivery business. There is a fairly decent Q-o-Q improvement in take rate on a reported revenue basis around 40 basis point, right, or about INR2.5 on order. Just wondering where this is coming from, is it restaurant mix, are you loading more advertisement, or there is higher negotiated commissions here, if you can elaborate on that? And I’ll just follow-up on Blinkit next.

Akshant Goyal — Chief Financial Officer

Sure, Vijit. So, I think actually it’s a combination of all three that you said, as well as improvement in customer delivery charges. I think what we’re seeing with the restaurant industry bouncing back post-COVID, I think the ad spends are increasing now on delivery. The take rate, the blended, aggregate take rate, or rather the implied take rate has also gone up as a function of us driving parity on take rates with some lower take rate restaurants.

I wanted to clarify that we are not — when we talk of take rate increase, we are not actually increasing the top end of the take rates for restaurants, but rather essentially normalizing take rate at restaurants which could be at lower take rates right now. So that’s playing out. As I said, ad sales is improving, as you have pointed out. And we’re also seeing improvement in customer delivery charges. So, I think as a combination of all of this we are seeing the revenue is going up.

Vijit Jain — Citigroup Inc. — Analyst

Great. Thanks, Akshant. My second question on Blinkit, just trying to understand with the unit economics that you’ve reported, is there an outlook to buy when any legacy infrastructure related expenses will be out of the P&L, I mean, whatever was pre the transition into quick commerce? That’s one.

And second, with this new outlook on cash burn, when I look at your July month burn rate, it’s an annualized, it’s about maybe $140 million, $150 million a year. Is that an understanding that the burn rate is probably going to only go down on an EBITDA level here, even when you have integrated Blinkit into Zomato? So those two questions.

Akshant Goyal — Chief Financial Officer

Yes. So, Vijit, yes, I mean, once we — I mean, t post the transaction closure we expect — I mean, anyways, as you’ve seen from the numbers, the losses are coming down. I think that should continue going forward post the transaction as well, as synergies kick in. So yeah, we expect that trend to continue.

And to your first question on any legacy cost, I think there is none in the system as of now. I think pretty much that business is fully pivoted to quick commerce and both the revenue and the cost structures right now are totally aligned to the current business model.

Vijit Jain — Citigroup Inc. — Analyst

Got it. I’ll just jump back into the queue for more questions. Thank you so much.

Operator

Thank you. Next question is from the line of Mr. Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

Am I audible?

Akshant Goyal — Chief Financial Officer

Yes, Gaurav.

Gaurav Rateria — Morgan Stanley — Analyst

Yeah. Hi, congrats on good set of numbers. So two questions. Firstly, the selling and marketing spend has been in a very tight range, yet we have seen an acceleration in the MTU growth in the last quarter. So, what drove this better growth in MTU, is it more coming from conversion of the annual transacting customer into MTU? And if you could highlight some of the initiatives that actually can drive the higher conversion and frequency, which you have mentioned as one of the key growth drivers in the medium term?

Akshant Goyal — Chief Financial Officer

Yeah. Gaurav, so I don’t think we would want to talk about the initiatives here, because that is like core strategy for us for the business. But your observation is right. I think the growth in MTU is coming from increasing conversion, retention, or essentially the other way to look at it is, conversion of annual transacting users to monthly transacting users. So we are definitely seeing that. As well as we are seeing growth in frequency of repeat customers. So, I think both of them are driving order growth, which was pretty healthy in the last quarter.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. Second question was with respect to your comment on the inflation related headwinds that impacted the cost. So, are these largely absorbed in our P&L or there are more to come? Because this might come actually with some bit of a lag effect, so are these headwinds largely behind us, or there is more to come in the coming quarter? Thank you.

Akshant Goyal — Chief Financial Officer

So, again, hard for us to comment on that, Gaurav, at this point. We don’t know, honestly. I think — and so far essentially in the last couple of few months these headwinds have existed and they continue to exist, but it’s hard to call out whether we’ve fully seen this play out or not. I think it’s a function of larger macro issues which we are all — most economies are going through. So can’t comment on whether that is behind us or not.

Gaurav Rateria — Morgan Stanley — Analyst

Okay, thank you. I’ll fall back in the queue.

Operator

Thank you. Next question is from the line of Mr. Bhavik Maheshwari from Jefferies. Please go ahead.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

Hi, good evening. Two questions. One is on what earlier participant asked on the MTU bit, Akshant. So, I understand you can’t give more information, but the other way of asking you is, let’s say, what happened in the last three quarters, for example, when the number was stable and this time around when the number has moved up? So, what has been different this time around versus the last three quarters, for example?

Akshant Goyal — Chief Financial Officer

There is no difference. There’s nothing different that we did or happened, I think, Vivek. So, I mean, even if you go back, I mean, while last two, three quarters were flat, but if you look at a much longer term and maybe, let’s say, you look at year-on-year MTU growth, I think that has been healthy. And that is what we’ve been saying in the last few quarters as well that our business is lumpy and not always linear. And over a longer term, where you at least look at year-on-year trends, things look more linear than versus looking at quarter-on-quarter trends.

So I think this quarter, therefore, nothing different happened. There is not much seasonality that we see in this quarter anymore. I think some people have this notion that April to June quarter has IPL and therefore there is usually a bump. So, at least in our business we have stopped seeing any meaningful bump to IPL in the last couple of years. So yes, so nothing different about this quarter. I think it is just growth catching up on the spread, which was long due. And we expect this trend to continue.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

Okay. And a related question on the AOV, which you mentioned in the press release, a slight increase. There was this theory that once things normalize, and first quarter arguably was the most normal quarter in last — in couple of years, we have not seen AOV going down. So there will be a food inflation aspect, there will be premium restaurant, there will be differential pricing. But do you think that this is the number from which one should be building assumptions into the future? Or there is still that risk of bunched up orders getting split and, therefore, AOV is coming down? Not going back to the historical level, Akshant, but is there a possibility it settles down still at a lower — at a level lower than what we are currently at? Or it will be fair to assume that this is the right level what we saw in the earlier quarter?

Akshant Goyal — Chief Financial Officer

So, Vivek, there are no guarantees, I mean, that can always happen. I think, but if you look at the historical data, and even if you go back two years, I think the AOV has not moved pretty much. I mean, we disclosed our FY ’21 and FY ’22 AOV in our May shareholder letter and that AOV was, in both those years, it deferred by only INR1, INR397 and INR398. And that — ballpark that is where our — where we are even now, and that hasn’t changed. So that historical data gives me confidence that perhaps we are close to steady state in terms of AOV. There will always be counterbalancing forces here which will push — pull the AOV up or push the AOV down. But given that we have a long enough history and data points on this metric, I feel that there is not much downside here on the AOV front.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

Interesting. And last question on, let’s say, EBITDA breakeven. So, if you look at this quarter, let’s say, food delivery was almost zero and Hyperpure was marginally here and there. So essentially the loss is coming from unallocable expenses of about $1.3 billion, right?

Akshant Goyal — Chief Financial Officer

Yes.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

From here on for breakeven to happen, do you think food delivery EBITDA jumps up further quarter-after-quarter? Or is there something in the unallocable expenses also losses also which is — which will — because this number has been between $1.1 billion and 1.3 billion, right?

Akshant Goyal — Chief Financial Officer

Yes.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

So is there some lever here? Or it’s primarily led by food delivery EBITDA jumping up going ahead?

Akshant Goyal — Chief Financial Officer

Yes. So I think it will largely be driven by food delivery EBITDA growing. I think unallocated cost are — I mean, we’ve been working on bringing our fixed cost down as well. And I think that is the reason why we’ve been able to absorb a lot of increases on the salary front, etc., which would have otherwise made this number much higher. So, we are working on all aspects and critically looking at all costs. But having said that, I think the unallocated costs will remain range bound around the number that you see right now. And majority of the reduction in adjusted EBITDA for Zomato as a company will come from incremental EBITDA from food delivery going forward, and also Hyperpure losses coming down.

Vivek Maheshwari — Jefferies India Pvt. Ltd. — Analyst

Got it. Thank you. Wish you all the best.

Akshant Goyal — Chief Financial Officer

Thank you, Vivek.

Operator

Thank you. Next question is from the line of Mr. Manish Adukia from Goldman Sachs. Please go ahead.

Manish Adukia — Goldman Sachs — Analyst

Yes, hi. Good evening. Thank you so much for taking my questions. I have two questions, both follow-ups on the earlier questions asked by participants. First, when we think about, Akshant, when you guided to profitability by Q4 of this fiscal year or latest by middle of next fiscal year, what are the assumptions that are driving that profitability? So when we think about, let’s say, different levers that you’ve talked about in the past, be it take rates, rider costs, marketing spend, etc., or AOV, where do you have the most amount of visibility that some of those numbers may move up higher so you get to profitability? If you can just help us understand the breakdown of from here until, let’s say, the next three or four quarters, what are the one or two key metrics that will drive that higher profitability? That’ll be my first question.

Akshant Goyal — Chief Financial Officer

Apologies, Manish, I don’t think like this level of detail we’ll want to share. I think as you would appreciate, these are going to be key drivers of our strategy and we are in a highly competitive market. So, I don’t want to put down unit economics today and unit economics when we are breaking even at Zomato. So I think, having said that, I mean, just to reiterate what we’ve said is that this improvement from where we are today in losses to breakeven is going to come from adjusted EBITDA of food delivery going up, which is going to be a function of both the revenue side levers improving as well as the cost side levers where we expect efficiency and movement.

But beyond that, we don’t want to venture into talking about individual metrics and how they are expected to trend because these things are tactical and we take very real time calls on some of these things. So, I don’t think there’s any — I mean, from our perspective, it’s going to be very hard to share more than this.

Manish Adukia — Goldman Sachs — Analyst

Sure. No Akshant, appreciate that. Just a quick follow-up on that. So as far as your rider costs are concerned, was June quarter, let’s say, the peak of that? I mean, the impact of, let’s say, inflation or higher fuel costs, that would already be reflected in the rider costs in the June quarter? And from here on that number should only improve or stay stable, is that assumption correct?

Akshant Goyal — Chief Financial Officer

So not necessary, Manish, because the current September quarter we have rains, which has an adverse impact on the cost for us, the delivery cost. So, we’ll have to watch out how this quarter plays out in terms of how intense the rains are in the country, and that will drive the outcome on delivery cost. But from there on, perhaps, I would agree with you that we should see an improvement and reduction in delivery costs going forward.

Manish Adukia — Goldman Sachs — Analyst

Thank you, Akshant. My second question is again on MTU’s, which has been discussed quite widely during the call. So again, just coming back to that discussion, when we look at your MTU trends over the last few quarters, and we appreciate that there has been COVID impact in the last couple of years as well. But it’s been quite volatile the MTU numbers, and like you’ve rightly called out, it’s been lumpy in some quarters, it’s also been negative. Now when you look at the last quarter where you grew 1 million, which was an improvement versus the previous two quarters, is that run rate something that you’re internally happy with?

Again, there was a media interview of Deepinder I think last month, where I think the guidance was of a slightly higher annual number. So, just wanted to understand when you think about ATU to MTU conversion and the current run rate that you see, is that in line with where you think your long-term growth rate numbers would be? Or do you think there could be more upside to those numbers?

Akshant Goyal — Chief Financial Officer

So, Manish, I think, look, internally we optimize for GOV growth, I think that is the North Star metric for us. And while doing that, it’s not always necessary that MTU’s need to grow. Because periodically, you will figure out there is a bad quality customer cohort that you have, which you are okay getting. I mean, which you are okay losing, which could lead to a lower growth in MTU or reduction in MTU, which is fine. But overall, I think, as long as directionally GOV is is growing, which means that orders are growing and your AOV is stable, I mean, minor variation on MTU is fine. So we don’t necessarily, therefore, obsess over MTU growth, I think it’s more an outcome of the things we do and the products and features that we launch, which overtime drives MTU growth.

For example, if you compare June quarter’s MTU to the last quarter or last year June quarter, we’ve seen a healthy 35-odd-percent growth. So I think that is in line with how the GOV has grown and the orders have growth in that period, and I think broadly we expect that trend to continue. There could be ups and down, but I think, as I said earlier, that on a year-on-year basis we should see a healthy growth, given that we have so much room to grow here compared to where we are today.

Manish Adukia — Goldman Sachs — Analyst

Sure. Thank you so much Akshant and team. And all the best.

Akshant Goyal — Chief Financial Officer

Thank you, Manish. Thank you. Next question is from the line of Mr. Chirag Shah from CLSA. Please go ahead.

Chirag Shah — CLSA — Analyst

Yeah, hi. Thanks for taking my question. Hi Deepinder and hi Akshant. Akshant, thanks for the opening clarification. Indeed a cash breakeven achieved on the entire business is a big milestone, so congrats on the same. Deepinder, if I look at the previous five quarters and read the operating metrics trend, it appears that the pace of change across various operating metrics is widely different, and that was one of the questions from the previous participant as well. Now, it could very well be a conscious strategic decision from a perspective of shift from a network rollout phase to the focus on profitability, or it could be because we have already reached a certain scale stage in terms of network.

So for example, one of the striking thing is that active delivery partners haven’t grown much in the last several quarters. Does it indicate that the focus is now shifting from recruiting more riders on the network to rider productivity? And if that is the case, then it is a big positive in terms of how operating leverage can really kick in.

Deepinder Goyal — Founder and Chief Executive Officer

Chirag, what I would say is that change is always slow and then it’s actually fast. So, I think you don’t wake up one day and say, now I won’t change and then change happens overnight. So, I think over the last year we have been really prepping and working hard to set up the infrastructure to make this change happen. And like this quarter is when all of those things actually started to happen. So, I think that’s what really happened. And we have been focused on the quality of business as well as growth.

And while we have been working on a lot of these things since the last year, some of these things just only went live this quarter. So none of the — I mean, whatever we achieved this quarter, I think it’s all an outcome of the work that we’ve done over the last 12 months. Nothing that we did last quarter brought about the outcomes that happened last quarter here.

Chirag Shah — CLSA — Analyst

I Understand. Deepinder, that’s super useful. But I’m just sticking to that point around active delivery partner numbers. I mean, if you look at the last three, four quarters, that number has moved in a very narrow band. So, the question that I’m asking is that, are we out of the network rollout phase and focusing more on productivity incrementally for the last three, four quarters? Or there is still more to happen in terms of delivery partner improvement and restaurant partner increase at the same pace at which we were doing earlier?

Deepinder Goyal — Founder and Chief Executive Officer

No, I think this number will go up as we grow in terms of number of orders. Because, I mean, we can’t grow in number of orders, let’s say, 2x, 3x, and still be on the same number of active riders. So, I mean, this number will also grow. And so far the last quarter has been good because we have been able to get some efficiency gains out of the network quite a bit. But this kind flat line here, this number also has to grow.

Chirag Shah — CLSA — Analyst

Sure, sure. And then on CAC, Deepinder, given that 90% of our business is from repeat users, more than 50%, 60% of new customer addition is organic, which is what we discussed last quarter as well. What impact do you think it is now at least having on the CAC going forward?

Akshant Goyal — Chief Financial Officer

Yes. So I think, Chirag, CAC — I think CAC numbers have stabilized for us at very acceptable levels. And I think our marketing spends are also pretty steady now. So, I think, unlike two, three years ago when, again, they used to be very, very skewed in one quarter versus other, I think now we’re in a state where we are acquiring similar number of new users every month by spending slightly lower amount on marketing spends every quarter going forward. So CAC, therefore, remains at a healthy level and slightly — keeps coming down slightly. And I think we are at a pace of new customer addition, which is — which we are happy with. It’s the right balance of growth versus continuing to improve our platform and retention, so that incremental new user retention over time continues to goes up — continues to go up.

Chirag Shah — CLSA — Analyst

Sure. Thanks. Sir, before I get back in the queue, good one on the sustainability report published in June ’22. I have more questions but I’ll get back in the queue. Thanks.

Deepinder Goyal — Founder and Chief Executive Officer

Thank you, Chirag.

Operator

Thank you. Next question is from the line of Mr. Pranav Kshatriya from Edelweiss. Please go ahead.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Yeah, hi. Thanks for the opportunity. I have two questions. Firstly, we can see some reduction in the number of dark stores in Blinkit in last three months as well. So where should we see these numbers stabilizing?

And the second question is, again, can you throw some light on how much is the difference in the delivery cost per order for Blinkit and Zomato? So these are my two questions. Thank you.

Akshant Goyal — Chief Financial Officer

So Pranav, I think, yes, you’re right on dark stores, the overall number has decreased. But I think we are now at a place where it might go up again as we sort of have churned out the stores that did not make sense. And I’m talking off, basis the knowledge I have, talking to the Blinkit team. Of course, we still don’t own the business so can’t comment on the detailed strategy part. But I think, from what we know, we think we are at a place where the numbers should stabilize now more or less. And then as we look to expand post the deal closure, we might see an increase.

As far as delivery cost is concerned, I think this is right now I think very similar to the levels we see in Zomato. So, I think post integration, hopefully, as we mentioned earlier, we are expecting some benefits to accrue as we integrate the two fleets. And that should then hopefully lead to reduction in losses. Sure. Thank you. That’s it from my side.

Operator

Thank you. Next question is from the line of Mr. Duke here from JM Financial. Please go ahead.

Swapnil Potdukhe — JM Financial Services — Analyst

Hi, thanks for the opportunity. So, a couple of questions I have. First is on the media articles which are circulating, and the talk about Eternal. And there is a mention of the new organization structure which is expected to be — you are expected to revamp it with four CEOs and then Deepinder at the top. Could you just help us on those thoughts and give some clarity on that.

Deepinder Goyal — Founder and Chief Executive Officer

So, Swapnil, I think, look, right now we know it’s been in the media, but so far I think it’s been an internal announcement. I think I would say that we’re looking at reorganizing ourselves as we get into a place where there is more than food delivery as a business that we need to run. And I think at some point in future, perhaps through a public announcement we’ll give you more clarity on the thought process behind this. But I don’t think there’s anything to worry about on that front. I mean, it’s just internal restructuring just to get the teams and incentives aligned and the org structure aligned to the next three, four years going forward as a business.

Swapnil Potdukhe — JM Financial Services — Analyst

Right. And secondly on the dining out business. So, if you look at the last three, four quarters, the revenues from the business has not really moved significantly between INR60 crores to INR70 crores roughly. So, what has been the reason for that? And how do you see that business evolving going ahead?

And just a follow-up on that, how should we look at the margins? Because margins, despite the revenue is not moving much, the margins have been slightly more volatile in this business. So, any thoughts on that, how should we look at both the top-line as well as the margins part?

Akshant Goyal — Chief Financial Officer

So Swapnil, I would say that, I mean, as we mentioned earlier that we are rebuilding that business. So, I would say that let’s — we should expect these numbers to stay at the current levels for at least the next one or two quarters. And thereafter, I think as we get more data on how the rebuilding is going here and how the customer traction is, perhaps we could share more color on the expectation here on revenues and margins. I think this business for us is always going to be profitable, that we know, so it’s not going to take capital. But it’s a function of getting the product right and the monetization model right here, which could really lead to massive jump in the revenues here down the line. But I would say, we are still at least one or two quarters away before it really starts taking shape.

Swapnil Potdukhe — JM Financial Services — Analyst

Right. Any sense on the number of restaurants who are paying customers in this business? If you can help us on that.

Akshant Goyal — Chief Financial Officer

So we have — that number is not public, Swapnil, I would refrain commenting on it.

Swapnil Potdukhe — JM Financial Services — Analyst

No worries. Thanks a lot for the opportunity.

Akshant Goyal — Chief Financial Officer

Thank you.

Operator

Thank you. Next question is from the line of Mr. Aditya Suresh from Macquarie Capital. Please go ahead.

Aditya Suresh — Macquarie Capital — Analyst

Thanks very much. So just two questions. One is, are you could provide any updated insights on your transacting user mix? You used to provide things like high transactors, the top eight, etc. Any updated insights there in terms of that mix? That’s one. And second is, are you able to provide any color here on employee expenses and share-based payments and how that kind of trends in the next few quarters? Thank you.

Akshant Goyal — Chief Financial Officer

Yeah. So Aditya, on the MTU mix, I mean, there is no incremental insight to share. I think we did share some details around this in our last two quarterly letters. So we’ll keep periodically giving an update as and when there is material movement in those trends. So, in absence of that, it’s fair to assume that pretty much the older disclosures are where we are in terms of the mix.

On your second question, I think the ESOP expenses, as we had also indicated earlier, we are expecting them to come down going forward, because the way these numbers are accounted, the accounting charge is front-ended. And as therefore we move forward, the accounting charge is expected to continue coming down. And the overall employee expenses outside of share-based compensation also, I think, we don’t expect that to move beyond the 15%, 20% annual increase range. So yeah.

Aditya Suresh — Macquarie Capital — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Mr. Ashwin Mehta from Ambit Capital. Please go ahead.

Ashwin Mehta — Ambit Capital — Analyst

Hi. Thanks for the opportunity. And congrats on good set of numbers. So, Akshant, one question in terms of Hyperpure growth which grew pretty smartly this quarter. So is there a component of your starting to supply fresh to Blinkit out here? Or it is largely due to the — due to possibly higher suppliers and the increase in restaurant base that you’re having?

Akshant Goyal — Chief Financial Officer

Hi, Ashwin. So it’s the latter, which you mentioned, which is essentially — I mean, we haven’t done anything outside of supplying to restaurants so far, so this business growth, therefore, is like in that sense, if that was your question.

Ashwin Mehta — Ambit Capital — Analyst

Okay, fair enough. And the second one is in terms of, from a competition perspective if you look at the disclosures, from process it appears that you seem to be winning share. So, any reaction that you’re seeing in the marketplace or anything think that you expect in terms of competitive intensity going forward?

Akshant Goyal — Chief Financial Officer

Yes. So Ashwin, interesting question. So I think this is — I mean, this keeps changing honestly, every quarter, every month.

Deepinder Goyal — Founder and Chief Executive Officer

Every week.

Akshant Goyal — Chief Financial Officer

Every week, sometimes, yeah. So I think the competitive intensity and tactics are very dynamic, and we’ve — I mean, this has been experience not just now but over the last two years also. So there’s nothing outside of ordinary, therefore, that we see right now. And the period of aggressiveness and then it going to the other extreme, I think that swing pendulum is always on. So yeah, let’s — we’re watching that keenly. And as I mentioned earlier also, I mean, while it’s highly competitive market and we — it’s important for us to continue monitoring what everyone else is also doing.

Ashwin Mehta — Ambit Capital — Analyst

Thanks a lot and all the best.

Akshant Goyal — Chief Financial Officer

Thank you. Ashwin.

Operator

Thank you. Next question is from the line of Mr. Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Thank you. Just a couple of follow-ups. First of all, Akshant, number of orders per rider per day have been rising for last three quarters, this quarter was a fairly strong jump. Was that a big factor in the improvement you saw in the contribution margin?And how should we expect the number of orders executives are going to carry going forward to increase or improve from these current level of about 5.6 orders per day? So, I’m sure, Mukul, these are all estimates, because I don’t think we disclose either of these metrics, neither orders per rider per hour or orders per rider per day. But directionally —

Deepinder Goyal — Founder and Chief Executive Officer

Number of riders are the same.

Akshant Goyal — Chief Financial Officer

But we don’t even discloses the orders. But anyways, I think directionally your question is, I think if I can rephrase your question, you were asking that is improvement in delivery fleet efficiency leading to improvement in contribution margin? That was your first question. And your second question was, how do we expect the number of orders to grow from here?

So, I think on the first one, as I mentioned I think in response to one of the question earlier that, I mean, so far last three, four quarters we’ve not really seen much improvement on the delivery cost. In fact, it has gone up materially in the last one year, which is one of the key reasons why the contribution margins had come down in the last few quarters. And going forward, once — we expect that to change and we expect the delivery cost to come down. And again, I want to reemphasize that we want this to happen along with increase in earnings per hour for our delivery partners. So this is not us versus delivery partners, I think there has to be a business case where they make more money per hour, while our cost per order comes down. Which is essentially us sharing the benefit of increasing efficiencies with our delivery partners. So, I think that’s the thought process here and we think that’s going to play out now in the next few quarters as things stabilize on that front.

On your second question on orders, I think, yeah, I mean, again, we continue to see a healthy order growth over the last few quarters as the GOV has grown. And along with MTU growth we think that frequency growth is also going to be a key driver, which will overall lead to steady increase in orders going forward.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Right. And the question was in terms of growth on the food delivery side, the relative movement between AOV and volume. You will hear that AOV growth is expected to move pretty much directionality. But what has been your experience over the last quarter or so between A, people kind of returning to offices and office orders picking up, bersus the inflation which has also kind of taken up the order value. If you can give some sense of how the movement has been? And do you expect the proportion of single orders to increase going forward as people come back to office? So, Mukul, I think AOV growth, I think a couple of levers you mentioned which impact AOV, which is people coming back to offices and hence the order size going down. Second is food inflation, which has been more stark in the last quarter, which has resulted in menu price increases. Third, I would also say is that as the customer delivery charges go up, we see the order values going up as well, because customers — the basket size starts increasing once the delivery charge go — charges go up. Fourth is, again, the mix of restaurants on the platform in terms of premium restaurants versus the other restaurants. So I think there are multiple forces at play here. And each of them either lead to increase in AOV or a decrease in AOV. And I think the net impact in the last June quarter has been that we have seen a very minor increase. And yeah, that’s what we have shared in the letter with everyone. Sure. And if I can squeeze one last question. And I don’t know whether you can share the data. You mentioned that the take rate improvement has been on account of the lower end of restaurants kind of moving more towards the average. Is it possible to share what portion of your restaurant partners are still meaningfully below the average take rate? Or maybe to put it another way, do you see a meaningful cost side to that take rate ex of delivery cost?

Akshant Goyal — Chief Financial Officer

Yes. So I would respond to the second part of your question, yes, we do see I think some upside, which is yet to be — I mean, which is not — or rather, I mean, which will continue to help the overall take rates go up in the subsequent quarters. So yes, we do expect that to happen.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Good. Thanks a lot for answering that question.

Akshant Goyal — Chief Financial Officer

Thank you, Mukul.

Operator

The next question is from the line of Mr. Karan Danthi from Jetha Capital. Please go ahead.

Karan Danthi — Jetha Global Limited — Analyst

Yes, thank you management for taking my question. I had two questions. The first one was on moats and market share. I think there is a little bit of confusion around how a business like yours bills a sustainable moat over the next two or three years. I think you’ve already demonstrated you’re pulling away from your number one competitor. But if you could just echo once more, so sitting here sort of two or three years from now, what are the moats you’re trying to build such that your market share trajectory continues along it’s very terrible [Phonetic] path?

And then secondly on the frequency, an MTU question. I think you are showing very consistent growth in frequency, but yet you’re still short of I think global benchmarks on that metric. Others have used a loyalty program, clever couponing and other things to drive frequency up. So I’d be curious to know whether you’re going to perhaps revisit the programs you have to keep driving for the frequency. Because I know you mentioned you have about 2 million people who order 50 times a year or something. So, if we can take that 2 million and make it 10 million, obviously it’s a big impact on the business. I’m just curious as to if there is any way to do that forcefully.

Akshant Goyal — Chief Financial Officer

Yeah. Hi, Karan. Thanks for your questions. So, answering them one by one. So on your first question, I think, our focus is always on a couple of things here, which we think — I mean, and a lot of things lead to those two things. But I think our focus remains on continuously increasing the quality of our service. I think that’s very important in a business like this where the customers are very sensitive to the service. I mean, you’re talking of food consumption here and almost a real-time delivery. So it’s a perishable product which you’re delivering to customers within 30 minutes. And therefore the expectation on the service levels is very high. So I think that remains one of the key, I would say, area that we focus on as a business. And I think that in turn drives a lot of other things, which leads to growth in the business and improvement in economics and propensity and inclination of customers to pay for the service as well. So that’s one.

And the second is, I think also leading from that is — and some other things is brand. I think eventually we think it’s important in a business like this to have a strong customer brand. And whatever we do, therefore, should continue to build that brand, which in turn further helps us retain customers. And therefore, significantly impacts our economics as well as growth going forward. So, I would — therefore, I think from our vantage point these are the twp things we focus on, and that is what leads to whatever that’s s happening in the market, and also in terms of our own growth.

On your — Sorry, just repeat your second question, Karan, I just — that slipped through my mind.

Karan Danthi — Jetha Global Limited — Analyst

Yeah, the question was frequency and any plans to revisit your loyalty program in order to drive frequency higher.

Akshant Goyal — Chief Financial Officer

Yeah. So I think loyalty programs, I would say, is just one of the vectors here and we are — we continuously think about that and how can we reinvent that, so that it remains a strong value proposition for the customers, while at the same time it doesn’t burn a hole in our pocket. I think but more than that, I think if we have to go from where we are today and meaningfully increase customer frequency, we’ll have to look beyond loyalty programs and look at introducing newer use cases, which perhaps leads to a lot of the current offline spend on restaurant food on our platform. So, continuously looking for innovative products and features, which will enable that. For example, we piloted an instant food delivery option last quarter, which is still relatively a small pilot. But I mean, I’m pointing — I’m highlighting that just to indicate to you that these are the things that we’re looking for, which we think will meaningfully impact the frequency of our users on our platform in the medium to long term, in addition to just the loyalty programs.

Karan Danthi — Jetha Global Limited — Analyst

Perfect, thank you. If I could just lodge one more in there. Just on the ad business, if you could just address the majority of the ad product, and where it goes from here.

Akshant Goyal — Chief Financial Officer

Yeah. So, I mean, there are two elements there in terms of monetization, one is the ad business that we get from restaurants for our food delivery business, that’s already baked into the food delivery numbers that you see. And the second bit there is the restaurant ad spend for our dining-out product and business, the listings business. So I think just keeping the monetization side, I think on a product level we think we have a fairly mature product, an evolved product. Given that that is the business — legacy business for us, that is how Zomato started monetizing 10 years ago. So I think, therefore, I think in terms of analytics, data mining, or even essentially making it informative for the restaurants and demonstrating the kind of ROI they get and the benefits they get, slicing and dicing data and showing returns to them. I think on all those aspects we think the product is there. I think right now for the ad sales revenue to go up it’s more a function of actually driving sales and growth and traffic on the platform, which should then, given the strong product, lead to incremental growth in revenues.

Operator

Thank you. Next question is from the line of Mr. Ankur Rudra from JP Morgan. Please go ahead.

Ankur Rudra — JPMorgan Chase — Analyst

Hi, thank you for taking my question. Sir, just one broad question, Deepinder and Akshant. You’ve mentioned in your letter that you responded to the environment and focused on profitability clearly successfully so far. The question is, at every point in the business’ evolution, you have faced with multiple trade-offs. So what was the trade-off this time which perhaps brought forward your profitability targets?

Akshant Goyal — Chief Financial Officer

I mean, really it’s — I mean it’s hard. I mean, there is no intentional trade off we made. But I’m sure, I mean, if we don’t focus on profitability, if we spend more on growth, marketing, we would have seen higher growth. I think the core —

Deepinder Goyal — Founder and Chief Executive Officer

It’s no like we were not spending what we could spend on market growth.

Akshant Goyal — Chief Financial Officer

Yeah. I mean, we’ve not really cut down anything meaningfully. I think it’s also evolution of the business. I think this business will not always remain loss making and I think, overall, the industry has gone through a heavy investment phase in the last three, four years. And now the core of the business is large enough right to actually throw off cash meaningfully, which is more than what we need to invest at this point. So, while one can argue if the environment was not the same, what would be our profitability. But my guess would be, it won’t be materially different. Of course, you can slightly over invest into growth, but I don’t think it is going to be a magnitude of — an order of magnitude difference from where we are today.

Deepinder Goyal — Founder and Chief Executive Officer

Most of the work to get here was done when our stock price was at its peak, so.

Ankur Rudra — JPMorgan Chase — Analyst

No, good to know. I was just curious about is there any initiative you chose to kill beyond just focusing on growth.

Deepinder Goyal — Founder and Chief Executive Officer

No.

Ankur Rudra — JPMorgan Chase — Analyst

Okay, understand. Thank you. And best of luch.

Deepinder Goyal — Founder and Chief Executive Officer

Thank you, Ankur.

Operator

Thank you. Next question is from the line of Mr. Divyesh Mehta from Investec. Please go ahead.

Divyesh Mehta — Investec India — Analyst

Thanks for taking my question. Can you share some light on what proportion of the customer delivery charge increase could be attributed to the range related increase in cost, which we see in delivery as a consumer?

The second question would be, if you see the delivery cost borne by Zomato, has increased only 5% but GOV is up by 10%. So, is this gap sustainable going forward, because it’s from utilization and other variables?

Akshant Goyal — Chief Financial Officer

Divyesh, I missed your second question, so I’ll ask you to repeat it, but let me answer the first one first. So, yes, so you’re right. I think at times when it rains, as I said, our delivery cost go up. And a portion of that gets recovered from higher customer delivery charges. In the last quarter I would say that the impact of that could be around 20% on the incremental delivery charge that we saw in the quarter because of rains.

Divyesh Mehta — Investec India — Analyst

And all of that is passed on to the drivers and none of it is retained by Zomato, right?

Akshant Goyal — Chief Financial Officer

That’s correct.

Divyesh Mehta — Investec India — Analyst

The second question was, the customer delivery charge borne by Zomato is up only by 5%, but GOV is up by 10%, and customer delivery charge borne by customers is up by 20%. So how it can be seen as that higher cost is — out of the whole delivery cost higher share is borne by customers, specifically in this quarter. So is this trend going to remain as is or is there something off what I’m reading?

Akshant Goyal — Chief Financial Officer

No, I think, I mean we expect — directionally, as I said, I think customer delivery charges to continue going up and delivery cost to come down. So the delta between them, therefore, which you are alluding to, I think should continue reducing.

Divyesh Mehta — Investec India — Analyst

So this is the first tranche of that delta?

Akshant Goyal — Chief Financial Officer

Yes, that’s correct,

Divyesh Mehta — Investec India — Analyst

Fair enough. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, in the interest of time, we will now take the last one o two questions. Next question is from the line of Mr. Rahul Jain from Dolat Capital. Please go ahead. Mr. Rahul Jain, are you there?

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Yes. Sorry. Can you hear me?

Akshant Goyal — Chief Financial Officer

Yes, Rahul, we can hear you. Please go ahead.

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah. Congrats on strong number. I just want to ask one question which is, we are planning to optimize the cost or the profitability in the business, but what would be the key growth KPIs that would make you revisit this, is it in terms of a minimum threshold order or revenue growth you would like to keep before you try and optimize beyond this?

Akshant Goyal — Chief Financial Officer

Yeah. So I think, Rahul, we’re not thinking of the business like this. I don’t think we’re optimizing growth and profit right now. It’s not growth versus profit in our mind. So we think we want — I mean, business is trending in a direction, and given the large market, we don’t see any reason why we can’t grow at healthy rates along with driving profitability.

Deepinder Goyal — Founder and Chief Executive Officer

Levers for growth are different from discounts and money driven things nowadays. So, I don’t think us driving for profit will reduce the possible growth that we have in the business.

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah. Appreciate it. Maybe if I could rephrase it in different way. So I’m sure that growth would come because of the adoption of the behavior and also because with higher growth the profit would come. But in any eventuality where we are not seeing growth, so what is that order growth or any other metrics threshold that would make you think to invest even more even at the cost of profitability, so that your growth aspirations are met?

Akshant Goyal — Chief Financial Officer

So I would say, Rahul, it’s a hypothetical question at this point. I mean, if it becomes a reality we’ll think about it. But I don’t think we are at a place where we worry about that at this point.

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah. And just one clarification to the earlier comment related to this delivery cost. I think you said there is a 20% increase in the delivery cost in this quarter. Is this because if the — if there are rain specific incentive and those are passed on to the customer, essentially the customer delivery charge increases per order. And if you don’t have those incentive anymore, the charges to the customer goes down and the earnings for the rider goes down. So eventually you have to compensate it once these rain incentives are not passed on to customers, which will go up in the subsequent quarter.

Akshant Goyal — Chief Financial Officer

Rahul, sorry, I’m a little confused. But I think what we meant when we said 20% was essentially the share of customer delivery charge increase that we’ve seen in the last quarter can be attributed to rains in the quarter. I’m not sure if you had the same understanding.

Deepinder Goyal — Founder and Chief Executive Officer

INR2.5 increase.

Akshant Goyal — Chief Financial Officer

Yeah, 20%, correct. So hypothetically, if the increase in customer delivery charges was INR2.5, INR0.50 of that was because of rains in the last quarter. I think that was the question which we got. I’m not sure if you are on the same page on that right now.

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah. So taking the same example, if this INR0.50 came because of that. Now let’s assume once the rains are behind, the same cost is not charged to the customer, and that’s why to that extent the earning of the rider goes down by INR0.50, which needs to be compensated by Zomato to ensure that these earnings are intact.

Akshant Goyal — Chief Financial Officer

No, so it doesn’t work like that because I think the expectation for earning during rains is higher than usual if it is not raining. If I’m expecting to make INR100 an hour during non-rain times, than that expectation, let’s say, for example, hypothetically goes up to INR150. Whereas I can only recover a portion of that from the customers. And therefore, when this reversal happens, we actually have a positive impact on contribution, because the overall cost benefit that we have here is larger than the revenue that we forego.

Rahul Jain — Dolat Capital Market Pvt. Ltd. — Analyst

Understood. Appreciated the color. And if I could squeeze in one more. You had a good margin in this Hyperpure business. So, is there a way to see this business that, what are the kind of margin on a steady basis this business can achieve? Or maybe near to medium term any ballpark margin aspiration that we have here?

Akshant Goyal — Chief Financial Officer

Yeah. Rahul, so we have I think shared Question 14 of the letter that we expect 5% to 10% EBITDA margins here in a steady state. And I think that’s what the aim is at this point. And then we’ll see how we go from there.

Operator

[Operator Closing Remarks]