Shares of Deepinder Goyal-led Zomato gained over 3 per cent to Rs 62.90 apiece on the BSE on May 10. The stock which was under pressure for the last few days, saw some recovery after a report by Motilal Oswal said that ONDC poses no immediate threat to the food aggregator at the current scale. However, the brokerage mentions that ONDC may impede Zomato's expansion of take rates in the near term, which could delay the company’s timeline for achieving profitability.

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At the time of writing this news, the stock was trading 1.25 per cent higher at Rs 61.70. 

In its report issued on May 9, 2023, the brokerage said, "We believe that the risk posed by ONDC, will only become significant if it scales up in multiple categories (food, e-commerce, grocery), which would give it the scale to override the delivery scale of the existing players. Motilal Oswal notes that the current 10,000 deliveries per day (40 per cent in Bangalore) across categories do not present enough scale to absorb the delivery rider cost for the platform. For comparison, Zomato currently delivers 1.8 million orders per day on a standalone basis. However, the industry-wide figure across multiple categories (relevant for ONDC) would be several times greater than this.

The stock came under pressure after ONDC, the government-owned platform, recently entered the food delivery service. ONDC stands for Open Network for Digital Commerce. It is the government's initiative to help small retailers and reduce the dominance of e-commerce giants. It was opened to the public in certain parts of Bengaluru, in October last year, as part of its beta testing process.ONDC received its certificate of incorporation as a private sector-led non-profit company on December 31, 2021. 

While there is no dedicated app of ONDC available all over India, one can access the platform through the ONDC network such as Paytm, Meesho, and PhonePe, among others. Through this platform, consumers can potentially discover any seller, product or service by using any ONDC-compatible application or platform, thus increasing freedom of choice for consumers.

Motilal Oswal further said that the delivery on ONDC apps is only free for the first order. In the case of a discounted /free delivery, this cost has to be borne by the restaurant (possibly to increase competitive advantage against incumbent duopoly) and is not sustainable. 

Further, the brokerage says that several issues such as customer grievance redressal mechanism, remain unresolved in ONDC. Disaggregated platforms (separate for sellers, buyers, and delivery) are also likely to add to issues in returns and quality of service, which remain unresolved. "A walled garden (Zomato) on the other hand controls the experience," Motilal Oswal notes.