Remember when Zomato was soaring high, fueled by the pandemic-induced food delivery boom? Well, the company has recently faced a significant setback. The tax authorities have issued a hefty GST demand of over ₹803 on Zomato.
This unexpected development has sent shockwaves through the market, leading to a 2.36% decline in Zomato’s stock price. As investors grapple with this news, it raises questions about the company’s future prospects and potential impact on its financials.
Let’s look into the details of this tax dispute and its implications for Zomato and its shareholders.
The Tax Demand: Details and Context
On December 12, 2024, Zomato revealed in a BSE filing that it had received a tax demand order from the Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra. The order, dated November 12, 2024, confirmed a GST demand of ₹401.70 crore from October 29, 2019, to March 31, 2022. Additionally, the order imposed interest and penalties of the same amount, taking the total demand to ₹803.40 crore.
The notice alleges that GST was not paid on delivery charges collected from customers during the specified period. Zomato stated that it plans to appeal the decision, emphasizing its confidence in a favorable outcome based on advice from external legal and tax advisors.
Market Reaction to the GST Notice
Following the announcement, Zomato’s shares moved mixed on the National Stock Exchange (BSE). After opening at ₹291.80, they climbed to ₹295 but closed at ₹284.9. The stock traded flat in the early hours today, oscillating between minor gains and losses.
Despite the flat trading performance, Zomato’s market capitalization remains robust at ₹2.75 lakh crore. Notably, Zomato’s stock reached a 52-week high of ₹304.50 on December 5, 2024, reflecting a significant 150% rebound from its 52-week low of ₹120.25 recorded on December 21, 2023.
Historical Background of the Tax Dispute
This recent order isn’t Zomato’s first run-in with tax authorities. On December 27, 2023, Zomato disclosed that it had received a show cause notice (SCN) from the Directorate General of GST Intelligence, Pune Zonal Unit, under Section 74(1) of the CGST Act, 2017. The notice sought an explanation for an alleged tax liability of ₹401.70 crore for non-payment of GST on delivery charges collected on behalf of its delivery partners.
The allegations were based on amounts collected as delivery charges from customers during the referred period. The latest demand order appears to be a continuation of this earlier investigation.
Source: BusinessToday
Financial and Business Performance
Despite the tax controversy, Zomato has delivered robust financial performance and steady growth in its share price over the past year. Here’s a snapshot of its financial trajectory:
- Yearly Performance: The stock has surged 138% over the past 12 months.
- Six-Month Performance: It gained 54% in the last six months.
- 2025 YTD Performance: A staggering rise of 129%.
- One-Month Performance: A modest growth of 10.5%.
For the second quarter ending September 30, 2024, Zomato reported:
- Net Profit: ₹176 crore, a multifold increase from ₹36 crore a year ago.
- Revenue from Operations: ₹4,799 crore, up by 68% YoY.
- EBITDA: ₹230 crore with a margin of 4.7%, an improvement of 50 basis points quarter-on-quarter.
Fundraising and Strategic Growth
In November 2024, Zomato raised ₹8,500 crore via Qualified Institutional Placements (QIP), issuing 33.65 crore shares at ₹252.62 per share. The funds are earmarked for:
- Strengthening the balance sheet.
- Supporting the growth of its quick commerce arm, Blinkit.
This marked its first significant fundraising since its stock market debut in July 2021. The move comes as competition intensifies in the quick commerce sector, with Swiggy recently raising ₹11,300 crore through an IPO and Zepto securing over $1.3 billion in fresh funding.
Index Inclusion and Potential Fund Inflows
Zomato’s strong performance has earned it a spot in India’s premier indices:
- Sensex Inclusion: Effective December 23, Zomato will replace JSW Steel in the 30-stock Sensex index.
- Nifty 50 Speculation: A report by JM Financial suggests that it’s inclusion in the Nifty 50 could lead to fund inflows of approximately $607 million. Source: BusinessToday
Industry Competition and Challenges
The company’s growth hasn’t been without challenges. The entry of Amazon into the quick commerce space has spurred investor concerns, leading to recent selling pressure on shares of the company and its competitor Swiggy. This adds to the ongoing pressures of inflation and high operational costs that the food industry is navigating.
What Lies Ahead?
As Zomato prepares to appeal the ₹803 crore tax demand, the outcome will significantly affect its financial health and market reputation. While the company’s fundamentals remain strong, this regulatory hurdle highlights the challenges of operating in a dynamic and highly regulated market like India. The coming months will reveal how Zomato balances its growth ambitions with compliance challenges, ensuring its position as a leader in the food delivery and quick commerce sectors.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
