Does ONDC really pose a threat to Zomato & Swiggy? | Tata Motors breaks its 7-yr dividend drought | 5 high-growth small-cap stocks
The Open Network for Digital Commerce (ONDC), supported by the government, has captured the attention of social media users in the past week. The platform has garnered widespread acclaim from users who have lauded for its ability to offer superior pricing for products when compared to industry giants like Zomato and Swiggy, which dominate the food delivery sector.
What is ONDC?
ONDC is just a network that anyone can ride on to enhance their business. ONDC is actually a private company that has been backed by various institutional investors like the State Bank of India, Kotak Mahindra Bank, HDFC Bank, NSDL and BSE Investments. However, it is registered as a non-profit organisation.
Consider the analogy of UPI (Unified Payments Interface) for a moment. When a company intends to incorporate UPI payments into its application, it doesn’t have to engage with each bank across the nation individually. Instead, it can seamlessly integrate with the existing UPI network. This interconnectedness enables the banks and payment applications within the network to effortlessly communicate and collaborate.
Likewise, the functioning of ONDC follows a similar principle. It involves the presence of a third-party application, acting as a mediator connecting restaurants, other businesses, and consumers like us. This intermediary platform facilitates smooth and efficient interactions, allowing businesses and buyers to engage seamlessly with each other.
How does ONDC work in the food delivery segment?
Seller App: The process begins with the presence of a seller app, such as Magicpin or eSamudaay. These apps take on the responsibility of onboarding and aggregating all the restaurants in a particular area. They act as the intermediary between the restaurants and the ONDC network.
Joining the ONDC Network: Once the restaurants are onboarded by the seller apps, they become part of the ONDC network. This network facilitates seamless connections between various buyer apps and restaurants.
Buyer App: Buyer apps, such as Paytm, come into the picture. These apps have already established themselves as consumer-facing platforms with a large user base. When they join the ONDC network, they can interact with the seller apps, such as Magicpin or eSamudaay.
Adding ‘Food’ Tab: As part of integrating with the ONDC network, buyer apps like Paytm can create a new section within their app called ‘Food’. This tab enables users to access a wide range of restaurants that were aggregated by seller apps like Magicpin or eSamudaay.
The key advantage of this system is that restaurants become visible across all buyer apps without the need for individual tie-ups. This streamlined approach enhances convenience for customers and provides broader exposure for restaurants, benefiting both parties involved in the food-ordering process.
Why is ONDC considered a threat to Zomato and Swiggy?
Restaurants pay a commission for utilizing the services of the food-ordering platform. However, the commission charged is significantly lower compared to what Zomato and Swiggy typically charge. Reports suggest that the commission can range from 4% to 10% of the order value. This commission is likely to be divided among the seller app (e.g., Magicpin), the buyer app (e.g., Paytm), and ONDC.
The commission earned from restaurants is shared among the different entities involved in the food-ordering process. The seller app, buyer app, and ONDC each receive a portion of the commission as compensation for their respective roles in facilitating the transactions.
In addition to the restaurant commission, the customer pays a delivery charge. This charge is paid to a delivery service provider like Dunzo or a similar entity responsible for the actual delivery of the food to the customer’s location.
Through this process, each entity involved in the food-ordering ecosystem has the opportunity to earn revenue. The seller app, buyer app, ONDC, and the delivery service provider receive their share of earnings, allowing all participants to generate earnings from their involvement in the food delivery process.
Meanwhile below is the market share of these companies and a breakup of their valuation:
To read more on the threat that ONDC poses to the Zomato-Swiggy duopoly and how Magicpin can prove to be a disruptor, click here .
Up your finance quotient: What else needs your attention?
1) 5 high-growth small-cap stocks to watch in 2023
It's important to understand the nuances of the equity market and the unique opportunities that lie within it. That's where small-cap stocks come into play. These stocks are the cream of the crop when it comes to lower capitalization investments, offering enormous growth potential. In this video, we dive into the top 5 small cap stocks and give you a detailed fundamental analysis of each.
By definition, small-caps are those companies with a market capitalization of below Rs.5,000 crores. This lower market value allows investors a closer look at companies that may have been previously overlooked, offering a glimpse into a vast world of untapped potential.
While small-cap companies can be more volatile, they also have the ability to offer substantial rewards, making them a valuable asset to any investor's portfolio. With their higher growth potential, adding small-cap stocks to your investment strategy is a smart move.
2) Income Funds: High income generators with low risks
Mutual fund investors have diverse investment goals and risk preferences. While some seek high capital appreciation and are open to taking on greater risks, others prioritize a stable income source and opt for less risky investment options to meet their objectives. For cautious investors seeking a consistent income stream, income funds are often the preferred choice.
But what exactly are income funds, and how do they operate?
Income funds, whether mutual funds or exchange-traded funds (ETFs), prioritize generating regular income over capital gains or appreciation. These funds typically consist of a diversified portfolio that includes government, municipal, and corporate debt securities, preferred stocks, money market instruments, and dividend-paying stocks.
It's important to note that the share prices of income funds are not fixed; they tend to decrease during periods of rising interest rates and rise when interest rates decline. Typically, the bonds held within these funds are of investment-grade quality, and other securities are carefully chosen to ensure capital preservation.
To read the full blog, click here .
3) In Fast Lane: MRF breaches the 1 lakh mark
MRF, India's largest tyre manufacturer, has become the first company to briefly cross the ?1 lakh mark.
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But why such a high stock price?
Does a high stock price mean high value?
No. Expensive stocks do not mean they are high value investments or define their worth. They might be less prone to volatility at times but there’s no such thing as more the price, more the profits.?
Why is MRF’s stock price rising?
This was not always the case!
To get more such quick takes on brands, stocks and economy, follow us?here .
Question in Focus
Tata Motors breaks 7-year dividend drought with JLR's curious turnaround: A deep dive analysis
Tata Motors announced impressive Q4 results on May 12th,? including record consolidated revenue of ?1.6 lakh crores, and a net profit of ?2,690 crore, as the luxury car unit, Jaguar Land Rover (JLR), fuelled its growth extensively. This positive performance has allowed Tata Motors to declare a final dividend of ?2 per share, the first in almost seven years. The companies’ shares hit a 52-week high of ?520.50 apiece after the results were announced, reflecting investor confidence in the company's strong performance and future prospects.
How did it deliver record-breaking results??
The revenue growth was largely due to price hikes, increased demand for JLR cars, and Tata Motors' commercial trucks and electric vehicles, such as the Nexon EV and Harrier SUVs. JLR's contribution has been particularly significant, with the luxury car unit's free cash flow expected to almost quadruple to over $2.50 billion this fiscal year.
JLR expects to clock Ebit margin of over 6% in FY24. This was just 2.4% in FY23. Further, it aims to clock a free cash flow of over ￡2 billion in FY24.?
The Q4 results showed a year-on-year and sequential expansion in operating margins across all three key verticals: JLR, commercial vehicles, and passenger vehicles.?
In a significant achievement after several quarters, the commercial vehicle (CV) segment of Tata Motors recorded a double-digit EBITDA margin in Q4. This notable accomplishment was facilitated by strong volume performance, partly by pre-buying trends.
Coming to passenger vehicles, Tata Motors' increased its market share in the PV segment to 13.5% in FY23. This has indeed been a significant achievement. Tata Nexon leads the front when it comes to most sales (15,002 units sold in April’23), and Tata Punch comes at the second spot. 10,934 units of Punch were sold in April’23.?
Chip supply constraints and various other challenges in the automobile sector have also led to a rise in input costs not just for Tata Motors but for its competitors as well. Hence, the company has marginally increased prices by 0.6% for its passenger and commercial vehicles this year. With this, they aim to offset the impact of rising expenses.?
However, rising prices seem to hardly have an impact on consumer demand, particularly for sport utility vehicles (SUVs). In fact, SUVs made up more than half of India’s record 4 million PV sales in FY23.? This has enabled the company to maintain its profitability and navigate the complex landscape of cost fluctuations effectively.
The company plans to further increase the penetration of its electric vehicle business, but here’s the catch: the EV business is not profitable yet.?
It is currently in the red, with a negative EBITDA margin of 4.6% in FY23. While the company claims the EV business is almost EBITDA neutral when excluding product development costs, reaching the goal of a double-digit margin in EV passenger vehicles seems challenging in the near future.
Despite these challenges, Tata Motors' net automotive debt continues to trend lower, with the company expecting to reach near-zero net auto debt by FY25.?
Fuelled by rising domestic demand, pricing actions and easing supply chain issues, Tata Motors has a glimmering future ahead. As chip supply eases, resulting to more units being produced, the company might continue to show strong results.?
Week Ahead for Markets: What to expect?
1) Corporate Earnings: Over 500 companies are set to announce their quarterly numbers in the week ending May 21. Among the large-cap names, ITC, State Bank of India, Bharti Airtel, Indian Oil,?Jindal Steel and Power, Power?Grid, JSW Steel, NTPC and Bank of Baroda will be in focus.
2) WPI Inflation to be released on May 15. Balance of trade data for April on May 15. Foreign exchange reserves for week ended May 12, and deposit and bank loan growth for the fortnight ended May 5 will also be released on May 19.
3) Global Economic Data: