Zepto's Quick-Commerce Model Faces Profitability Test as it Prepares for IPO
Quick commerce has made shopping feel effortless. Customers place an order and receive groceries and daily essentials within minutes. But behind this speed is a costly network of dark stores, warehouses, delivery partners and technology. The key question is whether rising orders can eventually make this model profitable. Zepto is preparing an IPO comprising a fresh issue of up to Rs. 8,010 crore and an offer for sale of up to 11.35 crore shares. Revenue from operations more than doubled to Rs. 22,623.58 crore in FY26. However, its 690-page DRHP reveals a more complicated picture involving IPO spending, promoter ownership, customer growth, cash burn and competition with Blinkit and Swiggy Instamart. Zepto plans to use up to Rs. 1,734.94 crore from the IPO proceeds to pay lease rentals for 1,121 existing dark stores between FY27 and FY30. In comparison, it has allocated Rs. 1,628.98 crore to the fit-outs and installations required to open approximately 1,904 new dark stores. Zepto is allocating more identified IPO money to current rent than to the setup expenditure for a much larger proposed network. The amount for new stores also does not include their future lease payments. Zepto says the existing-rent estimates assume that leases are renewed on similar terms and include contractual escalations. This shows how dependent quick commerce remains on physical properties despite being viewed as an asset-light business. Zepto increased its dark-store network from 337 stores at the end of FY24 to 1,139 at the end of FY26. Its densification strategy says that more stores in the same neighbourhood should reduce delivery distances, improve delivery time and lower costs. The recent numbers moved in the opposite direction. Median delivery time improved from 11.47 minutes in FY24 to 10.57 minutes in FY25, but increased to 11.40 minutes in FY26 and 12.35 minutes in Q4FY26. Average delivery distance also rose from 1.73 kilometres in FY25 to 1.78 kilometres in FY26 and 1.83 kilometres in Q4FY26. This reversal is harder to ignore because Zepto’s store expansion slowed sharply in FY26. It opened only 169 stores and closed 59, compared with 699 openings and just seven closures in FY25. With far fewer new stores to integrate, Zepto should have had more room to improve its existing network, shorten delivery distances and make orders faster. Instead, both delivery time and distance increased, suggesting the company may not have focused enough on improving store locations and operations before planning another major expansion. The Central Consumer Protection Authority issued a notice alleging that Zepto Marketplace used “basket sneaking” and “drip pricing”. The regulator alleged that a membership pass was pre-selected and that some handling charges appeared later in the purchase journey. In December 2025, the authority directed the subsidiary to discontinue dark patterns, conduct regular self-audits, publish declarations and pay a penalty of Rs. 7 lakh. Zepto appealed, and the National Consumer Disputes Redressal Commission granted an interim stay in January 2026. A separate matter involving alleged drip pricing, disguised advertising and products being listed above the maximum retail price also remained pending. The penalty itself is small, but the wider risk is much bigger. Tighter rules on memberships, platform fees, advertisements and checkout design could hurt customer conversion and reduce the money Zepto earns from each order. Such allegations can also damage its reputation in the quick-commerce market, where customers can easily switch between apps based on prices, discounts, fees and delivery experience. This becomes even more important because Zepto is already showing signs of slower new-user addition, with annual transacting users falling from 49.54 million in Q3FY26 to 47.97 million in Q4FY26 despite orders continuing to rise. Zepto’s promoters hold 18.47 percent of its fully diluted pre-offer capital. Their percentage will fall further after new shares are issued through the IPO. However, shares equal to 20 percent of the fully diluted post-offer capital must be provided as minimum promoter contribution and locked in for 18 months. Since the promoters cannot meet the requirement independently, Nexus Ventures VI, Glade Brook and StepStone will contribute some of their shares as “PC Shortfall Shares”. They retain ownership and do not become promoters, but the relevant shares cannot be sold during the lock-in period. Zepto had earlier shifted its ownership structure back from Singapore to India through a process known as a reverse flip. As part of this restructuring, its founders and investors received shares directly in the Indian company. Zepto later asked SEBI to relax the rules so that certain shares received through this process could be sold in the IPO’s offer-for-sale portion, but SEBI did not approve the request. Zepto’s annual transacting users increased from 38.38 million in FY25 to 47.97 million in FY26. However, the quarterly movement tells a different story. The figure fell from 49.54 million in Q3FY26 to 47.97 million in Q4FY26. At the same time, quarterly orders rose sharply from 166.91 million to 210.01 million, while daily orders increased by 28.62 percent. The user figure is measured over the previous 12 months, so the decline does not mean 1.57 million people suddenly left Zepto. It simply means some older users had not placed an order recently enough to remain in the latest 12-month count, while the users who stayed were ordering more frequently. This may mean existing customers are becoming more loyal and ordering more frequently. It may also suggest customer acquisition is slowing and growth is becoming increasingly dependent on regular users. Zepto reported negative free cash flow of Rs. 4,329.54 crore in FY26, an improvement from Rs. 5,332.49 crore in FY25. Free cash flow per order also improved from negative Rs. 160.56 to negative Rs. 67.63. However, Zepto adds income earned from investing its existing cash. The FY26 calculation includes Rs. 392.86 crore of interest income, Rs. 79.20 crore of gains from mutual funds and bonds, and Rs. 2.70 crore of fair-value gains. Together, these contributed Rs. 474.76 crore. Without those items, the corresponding outflow would have been roughly Rs. 4,804 crore. The calculation is clearly disclosed and is not an accounting error. Still, part of the improvement came from returns earned on previously raised capital rather than entirely from better quick-commerce operations. Delivery partners are essential to Zepto’s promise of completing orders within minutes. The Social Security Code introduces formal recognition and registration of gig and platform workers and allows welfare schemes to be funded through contributions from aggregators. The filing says aggregators could be required to contribute between 1 percent and 2 percent of annual turnover, capped at 5 percent of the amount paid or payable to gig workers. Rajasthan has also passed legislation aimed at providing social-security benefits to platform-based gig workers. The final cost is uncertain, but even a small contribution becomes meaningful across hundreds of millions of orders. Welfare contributions, insurance requirements or higher rider payouts could raise delivery costs while Zepto is trying to reduce losses per order. Revenue from operations rose 103.63 percent to Rs. 22,623.58 crore in FY26, while total orders increased 92.76 percent to 640.18 million. Despite this scale, the company’s loss widened from Rs. 4,699.71 crore in FY25 to Rs. 5,905.19 crore in FY26. Zepto used Rs. 3,462.44 crore of cash in operating activities and recorded free cash outflow of Rs. 4,329.54 crore during the year. Its closing cash balance, including investments, fell from Rs. 7,440.77 crore to Rs. 5,680.53 crore. There is visible improvement underneath these large numbers. Q4FY26 free cash outflow per order declined to Rs. 42.01 from Rs. 176.59 a year earlier. However, the absolute burn remains large, meaning the IPO is not merely funding growth. It is also financing Zepto’s journey towards sustainable cash generation. Zepto and Swiggy Instamart ended Q4FY26 with almost identical networks. Zepto had 1,139 dark stores, while Instamart had 1,143. Yet Zepto processed 210.01 million quarterly orders, compared with Instamart’s 112.60 million. Zepto’s stores handled 2,140 orders per day on average, nearly twice Instamart’s 1,093. Based on the annual order numbers disclosed for the three major platforms, Zepto’s share of their combined orders increased from around 26 percent in FY24 to 33 percent in FY26. Blinkit’s share also rose from around 40 percent to 47 percent, while Instamart’s fell sharply from approximately 34 percent to 21 percent. These are calculations from the filing, and the companies define orders differently. Therefore, it would be too strong to say Zepto took share only from Instamart. Still, the trend suggests Zepto has pushed Instamart into a distant third rather than weakening Blinkit’s leadership. Zepto processed 210.01 million orders in Q4FY26, equal to nearly 77 percent of Blinkit’s 273.90 million orders. It achieved this with 1,139 dark stores, almost half of Blinkit’s 2,243 store network. That looks like a major productivity advantage. However, the profitability comparison changes the picture completely. Blinkit reported positive adjusted EBITDA of Rs. 1.35 per order in Q4FY26. Zepto lost Rs. 59.40 per order, while Instamart lost Rs. 76.20. These comparisons are not completely like-for-like because each company counts orders differently, and Blinkit also includes cancelled orders. Even then, the contrast is hard to ignore. Zepto generates far more orders from each store than Instamart, but it still loses money on every order while Blinkit has already turned profitable at the order level. This is the biggest question surrounding Zepto’s IPO. The company has built scale quickly, but it still depends on leased stores, fresh capital and better unit economics. Investors now need to see whether its strong order growth can finally translate into steady cash flow and sustainable profits.
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