Zepto should be cash flow positive in 12-15 months: CEO Aadit Palicha

Data shows that 10-minute deliveries matter to customers, says leader of quick-commerce firm

Zepto is likely to turn cash flow positive in the next year or so, Aadit Palicha, chief executive officer of the quick-commerce firm, has said as the sector shows signs of slowing down. Palicha, 21, spoke to Aryaman Gupta talks about Zepto’s plans and valuation.

Edited excerpts from an interview done over video call.

There was buzz that you were in the US for discussions on raising funds. A funding round now would make you India’s first unicorn.

I look at fundraising as a means to an end. Our objective is to build a large, enduring public business and we are not really concerned with what our valuation is. With every fundraise, we really look forward to bringing on more high-quality partners and investors that can add value to the business. For us, what is more important than vanity metrics like valuations is the quality of our partners and investors in our journey of building a generational consumer internet business in India.

The long-term viability of the quick-commerce model has been questioned. What is your take?

I don’t think anybody has really built a strong, high-quality return on invested capital (ROIC)-accretive e-commerce or consumer internet business in India yet. The ecosystem is in its infancy. Until we get there, we are going to have problems justifying the long-term viability of this venture-backed consumer internet model, unless we start generating some real ROIC, which I think we will see soon.

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We have got a large number of stores generating cash now, and we are doing it with lower capex investment and a faster time to profitability than established offline benchmarks. Our new stores are turning profitable even faster.

It’s all about execution. We are excellent at supply-chain efficiency and we think that is the most important aspect of the business. Around 30,000 people, directly or indirectly generate income through Zepto, be it our delivery partners, supply chain workers, etc. We are maniacal about efficiency. There are no silver bullets about how we got to where we have.

Over the next couple of years our numbers will speak for themselves. We are going to be the fastest consumer internet company in Indian history to generate cash flow. The numbers that we have today very clearly point in that direction.

Where is Zepto in terms of operations and how has the business grown from last year?

We are one of the fastest growing internet companies in Indian history. We have a few million customers transacting with us every month and we are doing between 300,000-400,000 orders a day. Our average order value (AOV) is between Rs 400-500 at the moment.

We have grown 300 per cent year-on-year in terms of our sales. Currently, we are operating more than 200 dark stores in seven cities, and most of our growth is coming from deepening our operations in existing geographies. Even without geographic expansion, we are seeing massive growth because of how big the market opportunity is.

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How close is Zepto to achieving profitability?

We are in a pretty good place on profitability. The dark stores that contribute to over 50 per cent of our business are now generating profits. More importantly, in about 12-15 months, the entire business should be cash flow positive.

We are one of the few companies right now that have managed to simultaneously grow rapidly and significantly reduce burn. I don’t think it is enough to have a flat line on growth and then achieve break-even. Our focus has and continues to be on achieving profitability while increasing scale.

Our aim is generating return on invested capital (ROIC), and putting ourselves in a position where we can return capital invested in the company in the form of PAT (profit after tax). We are focusing on building a real ROIC-accretive business.

Are you planning an IPO? What are your growth plans?

Our aim is to go public in the next 18-24 months. There are lots of geographies where we are not live in where we would want to launch stores, and we plan to scope out new cities over the course of the next three or four quarters. Our growth plans will be a combination of expanding our coverage in existing locations, coupled with launching operations in some new cities. We have seen most of our growth come from existing geographies so we are going to double down on our current store sales trajectory.

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Does Zepto plan to stick to ten-minute deliveries? How much of a differentiator is this brand promise?

Ten-minute deliveries matter to customers. Our retention data is meaningfully better for customers that receive orders within 10 minutes compared to customers getting deliveries within 20-25 minutes. And we have seen that at scale. If you are competing with the kirana stores down the road, then proximity and speed really matters.