Zomato, one of India’s leading food delivery platforms, has found itself under scrutiny following a hefty ₹803.4 crore GST demand notice from the GST department in Thane.
The notice, which includes interest and penalties, pertains to alleged non-payment of GST on delivery charges between October 29, 2019, and March 31, 2022.
Here’s an in-depth look at the case, its implications, and other recent developments surrounding the company.
GST Notice: Details and Zomato’s Response
The demand notice outlines a GST liability of ₹401.7 crore, along with an equivalent amount in penalties.
Zomato has stated in a regulatory filing that it will contest the notice, asserting its strong legal position supported by opinions from external legal and tax advisors.
- Timeframe: October 29, 2019, to March 31, 2022.
- Total Demand: ₹401.7 crore as tax, with an additional ₹401.7 crore as penalties.
- Company Statement: Zomato plans to appeal the notice, citing a robust case.
The appeal process will be closely monitored by investors and stakeholders, as its outcome could have significant financial and reputational ramifications.
Financial Impact on Zomato
While Zomato maintains that it has a strong case, the GST demand raises concerns about potential financial strain. However, the company recently bolstered its financial position through a ₹8,500 crore equity share sale to qualified institutional investors.
These funds are intended to fuel its growth and strengthen its balance sheet, potentially mitigating any adverse financial impact from the GST case.
- Fundraising Details:
- Issued 33.65 crore shares at ₹252.62 each.
- Raised ₹8,500 crore with a 5% discount from the floor price of ₹265.91.
Environmental Claims and Public Scrutiny
In addition to the GST issue, Zomato’s environmental claims have come under fire. A prominent shareholder, Rajesh Sawhney, criticized the company’s “100% Green Deliveries” initiative after spotting a delivery executive using a petrol-powered bike.
This has sparked broader discussions on the transparency and authenticity of corporate sustainability claims.
Zomato’s CEO, Deepinder Goyal, has yet to provide detailed clarifications, which has placed the company’s environmental policies under scrutiny.
Zomato’s Recent Financial Performance
Despite these challenges, Zomato reported an impressive 389% year-on-year surge in consolidated net profit for Q2 FY2024:
- Net Profit: ₹176 crore, up from ₹36 crore in Q2 FY2023.
- Revenue Growth: 68% YoY to ₹4,799 crore.
However, the profit figures fell short of market expectations (₹260 crore), and these ongoing controversies could weigh on investor sentiment.
Stock Market Reactions
Shares of Zomato initially dipped following the GST notice but quickly recovered, reflecting investor resilience and confidence in the company’s long-term prospects. Notably:
- YTD Performance: Stock prices have rallied 129% year-to-date.
- SENSEX Inclusion: Zomato is set to enter the SENSEX index on December 23, marking a significant milestone and further boosting its market presence.
Key Takeaways
- Challenges:
- ₹803 crore GST demand adds potential financial strain.
- Environmental claims attract scrutiny, impacting brand credibility.
- Opportunities:
- Strong financial position supported by recent fundraising.
- Inclusion in SENSEX boosts investor confidence.
Conclusion
Zomato’s ability to navigate these challenges will be critical to maintaining investor trust and sustaining its growth trajectory.
While the GST demand and environmental controversies pose immediate hurdles, the company’s strong financial performance and strategic initiatives signal resilience. Investors and analysts will closely watch how these issues unfold in the coming months.
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