Profit down by 90%, but why Zomato's share is rising?

Eternal Limited (formerly Zomato Limited) reported a 70% rise in revenue for the April-June 2025 quarter. But its net profit dropped by 90%. In this article, we will examine the factors that drove growth, the reasons behind falling profits, the performance of different business segments, and what lies ahead.

What are the key highlights of Zomato Q1 Result?

• Zomato earned ₹7,167 crore from its main operations in Q1 FY26. This was ₹2,961 crore more than the ₹4,206 crore earned in Q1 FY25, a 70% increase year-on-year.
• Its total income, including other earnings, was ₹7,521 crore, up from ₹4,442 crore in the same period last year.
• The company’s total expenses grew to ₹7,433 crore, from ₹4,203 crore in Q1 FY25. rising by 77% year-on-year.
• Despite the revenue growth, net profit dropped sharply. The company reported a net profit of ₹25 crore in Q1 FY26, compared to ₹253 crore in Q1 FY25, a decline of ₹228 crore or 90% year-on-year.

Why Net Profit of Zomato (Eternal) Dropped by 90%

Even though revenue increased by ₹2,961 crore (70%) compared to last year, the company’s net profit fell by ₹228 crore (90%). Several factors led to this decline.

One key reason was the change in Blinkit's business model. The company moved from working only as a marketplace to also selling goods directly. In Q1 FY26, approximately 3% of the company's Net Order Value (NOV) was fulfilled through its own inventory. This inventory-led model means Eternal now buys products, stores them in warehouses, and delivers them to customers. Because of this:

• The cost of goods purchased increased sharply, rising from ₹1,116 crore to ₹2,557 crore. This is an increase of ₹1,441 crore, or 129%.
• The company also spent more on warehousing, packaging, and inventory handling.
• This change made revenue appear higher because of direct sales, but it also increased operating costs.

In addition to this:

• Advertising and promotion expenses rose by ₹275 crore, from ₹396 crore to ₹671 crore. That’s a 69% increase.
• Delivery expenses grew by ₹541 crore, from ₹1,328 crore to ₹1,869 crore, a 41% rise.
• The company continued to report losses in newer segments such as Blinkit and Hyperpure.
• Spending increased on technology and integration of newly acquired businesses.
• Depreciation and amortization expenses also rose due to these ongoing investments.
• While the company’s revenue growth was strong, these rising costs, especially from the change in business model, affected the overall profit.

Business Segments of Zomato

Eternal operates across multiple segments. Here's how they performed:

• India Food Delivery earned ₹2,261 crore, making up 32% of total revenue. This segment earned a profit of ₹465 crore.
• Hyperpure (B2B supplies) earned ₹2,295 crore (32% share) but posted a loss of ₹5 crore.
• Quick Commerce (Blinkit) earned ₹2,400 crore (33% share), but made a loss of ₹42 crore.
• Revenue in this segment grew by ₹1,458 crore, a 155% increase from ₹942 crore last year.
• Dining and Events earned ₹207 crore (3% share) and had a loss of ₹48 crore.
• Other smaller businesses contributed ₹4 crore and posted a loss of ₹45 crore.

Together, all segments earned ₹7,167 crore and recorded a combined operating profit of ₹325 crore before tax and overhead costs. This is lower than ₹362 crore in Q1 FY25, a 10% drop.

Standalone Business (Zomato India Core)

The India food delivery unit, run by Zomato India, continued to be profitable.

• Revenue was ₹2,413 crore in Q1 FY26, up from ₹1,943 crore in Q1 FY25, a 24% increase.
• Net profit stood at ₹602 crore, rising from ₹470 crore last year, a ₹132 crore gain or 28% growth.
• EPS improved to ₹0.66, up from ₹0.54.
• This shows the core business remains strong, even though losses in other areas are impacting the group-level results.

Acquisitions and Investments

During the quarter, the company completed two key acquisitions from One 97 Communications (Paytm):

• Orbgen Technologies Pvt Ltd (movie ticketing) was bought for ₹1,236 crore.
• Wasteland Entertainment Pvt Ltd (events) was acquired for ₹778 crore.
• The total deal value was ₹2,014 crore.
• These purchases resulted in recognition of goodwill in the financials.

Summary of Zomato Results

• Revenue jumped 70% year-on-year to ₹7,167 crore, but net profit dropped 90% to ₹25 crore due to rising costs.
• The shift in Blinkit's business model to inventory-led operations drove up the cost of goods by 129% and increased warehousing and handling expenses.
• Ad and delivery costs surged — advertising rose 69% to ₹671 crore, and delivery expenses grew 41% to ₹1,869 crore.
• Losses continued in newer segments like Blinkit (₹42 crore loss) and Hyperpure (₹5 crore loss), while India food delivery remained profitable with ₹465 crore segment profit.
• Zomato India’s standalone business stayed strong, with ₹602 crore net profit (up 28%) and EPS improving to ₹0.66.
• The company made two major acquisitions from Paytm worth ₹2,014 crore, adding to integration costs and depreciation.

Outlook

In the short term, the company expects pressure on profits. This is due to high costs and the ongoing work to expand and integrate new businesses.

In the long term, the company sees growth potential in quick commerce, B2B supplies, and the events segment. These could support overall profits once they reach scale and improve their cost structure.

The tax-related legal disputes remain a key risk for the company.

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