Zepto, the fast-growing quick commerce startup, has reported a significant jump in revenue for the fiscal year 2024, posting a 2.2X increase. Despite the surge in its earnings, the company’s spending also escalated substantially, leading to a marginal reduction in losses.
Zepto’s revenue from operations soared to Rs 4,454 crore in FY24, up from Rs 2,026 crore in FY23. However, the company’s total expenditure for the year reached Rs 5,747 crore, reflecting a sharp 71.6% increase over the previous fiscal year. While the revenue growth was impressive, the cost structure reveals the ongoing financial challenge Zepto faces in its ambitious expansion.
Exponential Revenue Growth Amid Rising Costs
Zepto’s remarkable growth was driven largely by its core business of delivering groceries within 10 minutes. With over 550 dark stores operational and processing more than 700,000 orders daily, the company has cemented its position as a leader in the quick commerce space. The sale of products alone contributed 89.2% of its total operating revenue, which rose 120% to Rs 3,973 crore in FY24.
The company’s total income, which includes non-operating income of Rs 44 crore from interest on deposits, reached Rs 4,498 crore in FY24, marking a substantial increase from Rs 2,077 crore in FY23. This growth in income showcases Zepto’s strong market demand and efficient delivery network, which has become an integral part of urban life.
Costing Factors: A Significant Jump in Expenditures
Despite the increase in revenues, Zepto’s expenditure has also risen sharply. The company’s largest cost component, procurement of products, accounted for 60.5% of its total expenditure, growing 87% to Rs 3,481 crore. This highlights the cost pressures Zepto faces as it scales its operations to meet customer demand.
Employee benefits, which grew by 62% year-on-year to Rs 426 crore, also contributed significantly to the overall expenditure. This increase includes a non-cash cost of Rs 74 crore related to Employee Stock Ownership Plans (ESOPs).
Furthermore, Zepto ramped up its investments in technology and marketing to build its brand and infrastructure. IT spending jumped by 65.7% to Rs 116 crore, while advertising expenses rose by 40.3% to Rs 303 crore. The firm also saw substantial costs in warehousing and delivery, with expenses in these areas amounting to Rs 493 crore and Rs 580 crore, respectively.
Managing Losses and Operational Efficiencies
Despite the mounting costs, Zepto managed to reduce its losses slightly. The company reported a loss of Rs 1,248.6 crore in FY24, a marginal improvement from Rs 1,272 crore in FY23. While the reduction in losses is modest, it signals progress in controlling costs relative to the company’s rapid growth.
Zepto’s Return on Capital Employed (ROCE) improved to -119.3%, showing that while the company is still operating at a loss, its ability to generate returns on its invested capital has seen some progress. Similarly, its EBITDA margin also improved slightly, reaching -23.81%, reflecting better operational efficiencies.
Future Outlook and Challenges
Zepto’s management remains optimistic about the future. Despite its significant losses, the company continues to scale and expand its operations rapidly. With over 550 dark stores and a growing customer base, Zepto is well-positioned to capitalize on the booming demand for quick commerce services.
However, the company faces challenges in balancing its rapid growth with rising operational costs. The significant increase in procurement costs, employee benefits, and technology investments will need to be managed carefully to ensure long-term sustainability. As the company focuses on profitability, it will be crucial to optimize its spending while continuing to innovate and expand its services.
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