Breaking Down The Zepto Ipo Ais Memory Race The Daily Brief 485

TITLE: Breaking down the Zepto IPO | AI’s memory race | The Daily Brief #485 CHANNEL: Markets by Zerodha DATE: 2026-06-12 ---TRANSCRIPT--- In today’s episode, we’ll break down two important stories. First, we’ll talk about Zepto’s IPO, and then we talk about what’s been happening with memory chips. Welcome back to the daily brief show by Zeroda, where we cut through the noise to help you understand what’s actually happening in the most important stories from business and markets. I’m your host Krishna and today is Friday, 12th June. Now you see the quick commerce race in India has really narrowed down to three players. Blinket, Sugi’s Instamart and Zeppto. Of the three only Zeppto wasn’t a public company. Zeppto has now officially filed its IPO papers and of course we had to cover it. Now the quickcommerce industry has evolved in interesting ways to get here. It was Swiggy that actually first experimented with instant deliveries back when the idea felt novel. When it launched in 2021, Zeppto went further by making the 10-minute promise the entire product and branding itself around that. But Blinkit, which started as growers and completely reinvented itself, ran away with the market. Now, nobody has been able to close the gap with them since. In the last quarter of FI26, Blinkit processed almost 274 million orders from around 2200 dark stores across more than 200 cities. Zeppto processed 210 million from around 1100 stores across 66 cities while Instamart did 112 million orders. Now that puts Blinkit at around 46% of all Quickcommerce orders, Zeppto at around 35% and Instamart at around 19%. Now the market that these three are competing over is worth about 11 billion. That’s still less than 2% of India’s total grocery spend. and Zeppto’s bet and essentially all the other players in the ecosystem is that there is more room to grow. Now let’s get into the numbers in Zeppto’s IPO filing. Zipto’s revenue went from almost 4500 crores in FI24 to roughly 11,000 crores in FI25 to about 22,600 crores in FI26. Losses meanwhile went from 1,215 crores to 4700 crores to about 6,000 crores. Now the revenue numbers come with a bit of a caveat though. That impressive jump from FI24 to FI25 includes an accounting change. You see in January 2025, Zepto shifted from a marketplace model to a principal model. Now what does that mean? You see before that when you ordered 500 rupees of groceries the company only counted its service fee in its revenue which is 50 rupees it earned for storing and delivering your order. Now after the shift it started counting the full 500 rupees because as per accounting rules when a company physically controls a good it sells it has to book the whole transaction. Now this is also why rather than merely revenue Zeppto measures its business using a measure called net receivable value or NRV. Now NRV includes the actual value of all orders on the platform plus advertising income and subscription fees all with taxes included. Now in comparison, Blinket uses net order value or NOV while Sugi uses gross order value or GOV. Both track the value of orders placed and are calculated differently from each other. It’s worth keeping in mind though that they are not the same metric. So comparisons between all the three firms must be done with a little bit of caution. Now, how does money change hands with each delivery? See, when you place an order, you pay Zeppto the full amount. Zepto then pays the merchant partners who are the suppliers of these goods. Now, that leaves Zepto with a gross margin of about 72 rupees then has to cover getting the order to your door. About 46 rupees goes to the delivery partner as pay. Around 34 rupees goes to the cost of running the dark store which includes rent and paying the pickers and packers. Now combined all of this that easily exceeds 72 rupees in one order. Just the act of delivering the goods which is their business loses money. Now Zepto tries to make up the difference by ad placements. Every time you see a sponsored listing or a banner on the app, a brand is paying Zepto for that placement. Now the IPO papers show us what this business looks like for the first time. Zeppto earned 49 crores in FI24, 651 crores in FI25 and 1636 crores in FI26. In FI26, Zeppto earned more from advertising than it spent on its own advertising. Now add this all up and Zeppto lost about 79 rupees per order in FI26. In FI25, that number was 136 rupees. Now a structural challenge that any quickcommerce player faces is that the unit economics of the delivery are immune to the order size. As per the ark, Zeppto’s average order value is worth about 330 rupees. Blinkets is 525 rupees and Instamarts is 700 rupees. But getting a 330 rupees basket to your door cost the delivery partner roughly the same as the 525 rupees one. Now the last mile expense doesn’t shrink just because the order is smaller. Blinket earns 59% more per order to cover the same cost. That of course is why each player has a minimum order value requirement. Now, interestingly though, Zeppto’s answer isn’t to get customers to spend more per order. The bet is wholly on volume, pushing more orders through each dark store. The more orders a store processes, the thinner the fixed cost gets per delivery. Now, the idea is to go deeper in the 40 cities they are already present in. add more dark stores in the same neighborhood and watch the per order cost fall. In Q4 of FI26, Zeppto was averaging about 2140 orders per dark store per day, up from 1325 in FI24. Now, Instamart, in comparison, has almost exactly the same number of dark stores as Zeppto, but processes barely half the orders from them. Now, Zeppto is running its stores at nearly double the productivity. Now there is another important factor in Zeppto’s business that affects its economics and that has to do with its ownership structure. But the problem doesn’t start from there. Bear with us for a bit for this explanation. See, Quickcommerce platforms have mostly worked as marketplaces. Merchant partners own the goods in the dark stores and the platform connects them to the customers. Blinkit has moved away from this by directly buying and owning all stock in its dark stores. Now when you own the inventory, you buy directly from the brands in bulk. You plan supply for all your stores across the country in one order. Now that buying power means cheaper prices from brands. It also gives you more control over what’s on the shelf. You might even think owning all that inventory would require a lot of cash up front. But in quick commerce, inventory moves so fast that the cash doesn’t stay tied up for that long. Now, a packet of biscuits that arrives at a dark store in the morning is typically sold and delivered by evening. Compare that to a regular retailer where goods might sit on a shelf for a few weeks. The faster the inventory turns, the less working capital gets stuck in it. However, Zeppto cannot do this because of India’s FDI rules. Our law states that a company that is majority foreignowned cannot hold inventory for direct retail. Zeppto is classified as a foreignowned and controlled company. This is why investor like Motil have been steadily buying higher stakes in Zeppto. The more domestic ownership it builds, the closer it gets to running an inventory-led model like Blinket and the better its economics improve. Now, Zeppto has about 5600 crores in cash and liquid investments as of March of 2026. It has no debt and has been funded entirely by investors who have put in over 20,000 crores since the company started. The reported loss of about 5,900 crores is not the same as the cash Zeppto actually burned. Some of it exists only on paper. And when Zepto fits out a dark store, it spends the money once. But the accounting rules spread that cost over several years. And stock options given to employees are recorded as expenses even though no cash leaves the bank. Now if you strip those out and the actual cash Zeppto earned was closer to 4,300 crores. There is also a working capital dynamic worth understanding. See, when you order on Zepto, you pay immediately. But Zeppto does not have to pay its suppliers straight away. It settles those bills over 30 to 60 days. As of March of 2026, Zeppto owed its merchant partners and suppliers about 3,700 crores that it had collected but not yet paid out. On the other side, brands and partners owed Zepto roughly 2400 crores in unpaid fees. Now, the fact that what Zeppto owes is larger than what it is owed weirdly works in its favor. Customers pay first, suppliers get paid later, and in that gap, Zeppto is always sitting on more cash than it technically needs at that moment. Now, at its core, Quick Commerce is a logistic business dressed up in a retail interface. The margins are thin, the costs are operationally intensive, and it’s hard to say if the advertising income, while growing fast, will make up a meaningful share of the business. There is probably a ceiling on how much brands will pay to reach a grocery hab where exactly that ceiling sits is an open question. All of the real economics come from order density and scale which means every metric is loadbearing. If volume softens in a city or a competitor runs a discount campaign or delivery cost tick up the per order math moves very quickly in the wrong direction. We will be watching how these economics evolve as another young quick commerce company hosts a historic listing. Now coming to the second story. If you have ever wondered why Jensen Huang, the CEO of Nvidia is seen spending so much time in South Korea, you’re not alone. Last week, he was seen eating Korean barbecue with executives from LG Group, Skhinx and Neighbor. At Skhinix Computex booth, he signed a wafer of next generation memory chips. On it, he wrote three simple words. Please make more. Samsung, SKH Highix, and Micron, the big three of the memory industry, are doing numbers like never before. SKH Highix posted a 72% operating margin in Q1 2026, higher than Nvidia 65%. Samsung became only the second Asian company after TSMC to be worth a trillion dollars. Micron’s revenue more than tripled yearon year. The results of Samsung and Skhinx propelled South Korea over India as the world’s sixth largest stock market. Now all the while all of them are struggling to fulfill demand. There is an acute shortage of the AI memory chips that drove these numbers. It’s why Jensen Huang wrote those words. Meanwhile, China CXMT, a company that barely registered on global rankings a few years ago, has climbed to 8% of the global RAM market. YMTC, another Chinese firm, increased its share in the NAND market from 8% to 13% in a year. Now, there’s a lot happening. The world’s most powerful tech CEO is flying to East Asia to personally lobby for more chips, and two Chinese firms are climbing the ranks by picking up for the leaders left behind. Now, in our memory primer from last year, we saw how the industry has been scarred by decades of boom and bust cycles that incumbents couldn’t predict on time. Every memory super cycle of the past ended the same way. Manufacturers built too much capacity in response to a consumer technological revolution. Supply overwhelmed demand and prices collapsed. But now the industry’s biggest players are saying the cycle may not follow the old script. Let’s look at what’s materially changed this time and how different the tune they are singing truly is. We highly recommend reading or watching our earlier primer to understand the basics of how memory chips work. But if you don’t have the time for that, the most important thing you should know is that for most of the history, memory chips were a commodity business. There was no big difference between a DRAM chip made by Samsung or that by Micron. PC makers didn’t differentiate significantly between them except on price. Then the most shortsh shortsh short way that memory chip makers could compete was by increasing the density of memory contained in a given two-dimensional surface area. In fact, until the 2000s, RAM density doubled every 18 months. But this horizontal scaling hit a wall. Over the past decade, DRAM density has only doubled once. Now, what was the response to this problem? Well, the industry decided to go vertical. Instead of squeezing more memory bits onto a flat 2D surface, manufacturers began stacking RAM chips on top of each other. That’s what a high bandwidth memory is. A 3D skyscraper of memory dies typically 8 to 16 layers tall. Most importantly, unlike past RAM chips, HPM is not a commodity. That’s primarily because of how complex vertical stacking really is. Now, each die that comes off a silicon wafer has an uneven surface. That was okay as long as the drram contained one dye. But stacking up multiple uneven surfaces with perfect alignment is not easy. Those dyes have to be connected via thousands of microscopic vertical interconnects called through silicon vas. Doing this for eight dies alone is incredibly hard and errorprone. A single bug renders an entire stack useless. That’s why producing 1 GBTE of HPM consumes three to four times the silicon wafer area of standard RAM. There is also the advanced packaging that HBM entails which adds to this complexity. But we won’t get into the details of that here. All of this makes HBM difficult and expensive to make at scale. In fact, SKH Highix built the first HBM device back in 2014, but it was an overkill for even the most powerful computing tasks back then. What changed was AI with models scaled to billions of parameters. Inference required moving vast quantities of data within milliseconds. Traditional TRAM fell short of doing so, but HBM could. Yet supply of HBM is so far behind current demand, primarily because making it at scale with minimal errors is one of the hardest manufacturing processes in the world. What’s more, HBM is only getting more complex and not less. That has to do with how designing an HBM product is a massive collaborative effort that starts with Nvidia. You see, Nvidia doesn’t just make GPUs anymore. It designs entire rag scale AI supercomputers of which GPUs are one part. For example, a single GB200 NV L72 rack contains 72 Nvidia B200 GPUs, 36 Nvidia Grace CPUs, networking hardware, and over 13 tab of HBM. Now these racks are assembled by contract manufacturers like Foxcon while the GPU and CPUs are made by TSMC. Both the CPUs and GPUs need memory made by SK Hinix and Samsung. Now TSMC, Foxcon and memory chip makers all have to work in lock step with Nvidia’s architecture. That means a lot of pressure testing. In fact, Samsung failed Nvidia’s HBM3e qualification repeatedly only passing in late 2025. This level of code designing only entrenches how insurmountable it can be to make HBM right now. Now the second structural change in the AIdriven memory cycle is in how memory is being sold. You see for decades DRAM pricing was negotiated on a quarterly or even monthly basis. suppliers and their customers like PC makers and phone manufacturers would haggle over prices based on whatever the supply demand balance looked like at the moment. A volatile spot market ran alongside setting real-time prices for smaller buyers. HBM when it existed at all followed an annual negotiation cycle. Nobody logged in supply for more than a year. The industry was too volatile for either side to commit beyond that. Now that has changed since late 2025. Just for HBM, all three major memory makers have shifted toward 3 to 5year long-term agreements with their biggest customers. And there are two reasons for this, both of which are interlin. Firstly, remember the industry where the battle scars of the past boom and bus cycles. Those were driven by volatility in the open market. Long-term contracts in contrast give them a visibility over revenue that the industry never had before. If you have committed volumes at fixed prices for 3 years, you can plan Capeex more rationally and avoid the panic overbuilding that caused prior busts. But the shift was partly made possible because of the second reason. The biggest buyers of memory chips have changed. They are no longer consumer brands with volatile shortcycle demand like Lenovo or Xiaomi. They are now hyperscalers like Microsoft, Google, Meta and Amazon making multi-year, multi-billion dollar capital investments in AI infra. Now these companies have long planning horizons and deep pockets. They can commit to long memory procurement contracts because their data center buildouts are also long. But this also means that this memory super cycle is most likely going to be bigger and longer. which makes sense since the AI capex boom which the memory cycle is strongly linked to has turned gigantic. But a bigger longer cycle doesn’t mean the boom and bus cycle goes away. If anything, it could be more pronounced and it doesn’t help that the memory industry’s history is littered with moments like the current one where everyone expects this time to be different. In 2017 to 18, Micron’s operating margin hit 49%. The three-player oligopoly was supposed to guarantee pricing discipline and cloud demand was supposedly ending. Then revenue fell 30% and Micron stock dropped 56%. In 2021, chip makers expected they would have better control over this cycle. But by 2023, they were proven decisively wrong as Samsung had cut production by half. And the pattern is consistent. Demand surges. Manufacturers pour tens of billions into new fabrication plants. The fabs takes year to build. And by the time they’re online, the market has shifted. The long-term agreements with hyperscalers are partly a response to this puzzle. After all, if the demand is logged in with fixed contracts, a sudden burst for memory players becomes harder. But long-term contracts don’t eliminate forecasting errors. They simply move them or shift the risk of procurement to someone else. And in this case, that’s the hyperscalers. The capeex ramp of HBM is mind-boggling. Samsung plans to expand memory capacity by 50% this year. Micron is investing $25 billion in capeex this year alone. New fabs from all three are scheduled to reach volume production by 2027 or 2028. All are building simultaneously based on the same demand signal. But if hyperscalers scale back on data center investments because AI monetization disappoints, memory makers will have tons of excess capacity sitting idle and immense profits could quickly turn into devastating losses. To complicate the cycle further, there’s another variable that’s ramping up the competition against the big three memory players. The current market structure of memory chips is being threatened by two companies that represent China’s bid for memory chip self-sufficiency. CXMT’s first quarter revenue in 2026 was over 700% more than Q1 2025 and the profit earned in Q1 2026 was 10 times that of the profit of all of 2025. It is also preparing for the largest Chinese IPO since 2022. YMTC, China’s leading NAND flash maker, is also heading toward a public listing. Now, while CXMT is closing on Samsung, their memory chips are still two to three generations behind. They only achieve technology parity for HBM3 recently, while the others have moved on to HBM4, and they only expect volume HBM3 production to catch up by the end of this year. Now, part of this gap exists because of the US sanctions on Chinese firms. But China’s angle isn’t at the leading edge either. It’s in the commodity memory that Samsung and Skinix are vacating. As they redirect their old RAM fabs towards HBM, there’s a growing void in mainstream RAM for PCs and phones. CXMT is filling that void, and the profits for a mainstream RARM, as Samsung itself noted, are now higher than that of HPM. What makes this particularly interesting is the partnership between both Chinese giants. Now YMTC has spent years perfecting a technology called hybrid bonding. They expect it to become the next frontier for making HBM. As the stack grows taller, it becomes essential for tighter, more thermally efficient interconnects. YMTC holds a strong patent portfolio here. Although primarily meant for NAND, which serves a completely different purpose from DRAM or HBM, yet Samsung has begun licensing hybrid bonding patents from YMTC for their own NAND products. A sanctioned Chinese company holding a patent that even Korean leaders need is certainly worth noting. The risk China poses isn’t a near-term one. But in commodity drram, the segment that still accounts for around 80% of global memory volume, a well-funded Chinese manufacturer scaling into the gap left by the big three could break pricing discipline at the lower end. Now that’s the classic mechanism by which governmentbacked capacity expansion has disrupted this industry before. Japan did it in the 1980s to the US. Then South Korea wiped out Japan in the next two decades. China may be running the same playbook. Now there’s no doubt that the nature of the current memory super cycle has changed. Unlike other memory chips, HBM is not yet a commodity. The shift to a multi-year contracts is also a significant change. But that doesn’t mean a boom and bus cycle has disappeared. Three companies are building simultaneously on the same demand signal. The void they are moved to HBM has in turn been filled by China. Given their history of ramping up capeex in any industry at blinding speed, they may become a huge catalyst for the cycle to go bust. Willie, a professor at Harvard Business School who studied memory cycles told fortune. Anytime people show me these curves that just go to the sky with no end that never continues forever. This too will pass. Throughout capitalism, every new technology from the railroad to EVs has gone through this trajectory. As the saying goes, the more things change, the more they stay the same. Lest we forget, that may still be true for memory. Now coming to the tidbits. Auto ancillary Bat Force has revealed that it is now working with three of the world’s top five chip makers and is manufacturing components for lithography machines, a critical part of semiconductor equipment. The move aligns with India semiconductor mission which has attracted over 1.65 65 lakh cr rupees in investment commitments. Vietnamese EV maker Winfast is investing 7,000 crores in the second phase of its facility in Tamil Nadu, adding dedicated production lines for electric two-wheelers and buses. The expansion is part of Venfa’s broader $2 billion commitment to Tamil Nadu with eBus production targeted for August of 2026. Ahead of the third round of airport privatization, the Civil Aviation Ministry has recommended limiting bids per operator to prevent monopolization. One option on the table would cap a single entity at two blocks, which is roughly four airports, with the second highest bidder getting a matching ride if the same player tops a third. That’s it for this episode. See you in the next one.

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