In India's burgeoning quick commerce market, investors are being urged to shift their focus from headline growth to fundamental profitability, cash flows, and return ratios. This advice comes from Devang Mehta, Deputy MD and CIO-Equity at Spark Capital Private Wealth, who highlights a more orthodox market approach, especially as expectations build around a potential Zepto IPO.
Profitability Over Aggressive Spending
Mehta emphasized that Indian markets primarily value listed companies based on their earnings per share (EPS) and their ability to generate operating and free cash flows. He stressed that this framework is particularly crucial in sectors where companies achieve scale through aggressive spending. "Companies which are sort of burning cash, companies which are just turning profitable or there is no roadmap to become profitable, are companies which probably you should avoid at this point," Mehta stated.
Quick Commerce Faces Scrutiny on Capital Efficiency
The quick commerce theme, known for rapid delivery and high customer engagement, has attracted significant attention. However, Mehta's comments suggest that public market investors may be less willing to tolerate prolonged cash burn than private capital did during the sector's initial expansion. He underlined the importance of capital efficiency, noting, "Every penny should go to generate that incremental ROE for the company." Growth without a clear path to returns may struggle to command premium valuations in the long run.
Rising Competition and Margin Pressure
Mehta also flagged the intensifying competition within the quick commerce segment. Beyond existing listed players like Zomato and Swiggy and upcoming IPO candidates such as Zepto, he warned of potential strong competition from larger business houses. This increased rivalry could further squeeze margins in a business model already heavily reliant on efficient execution, logistics density, and strong customer retention strategies.
Seeking Alternatives in Cash-Generative Sectors
For investors, Mehta suggested looking towards other market sectors that demonstrate robust cash flows, consistent EPS growth, and margin expansion. He concluded that while quick commerce remains an exciting theme, successful stock selection will hinge on a critical question: which companies can effectively convert their growth into durable and sustainable profits.