Uber, the ride-hailing app giant that has also been aggressively expanding into the restaurant and takeaway food delivery sector, is to withdraw from the Indian market. Uber Eats, the food delivery unit, has agreed to sell its Indian business to rival Zomato, which is backed by Chinese e-commerce giant Alibaba. Uber Eats will also receive a minority 9.99% equity stake in Zomato as part of the deal.

Uber Eats declined to offer any specific information on the financials around the agreement. However, individuals close to the deal are reported in the Financial Times as estimating its value as somewhere around $400 million, plus the minority equity stake in Zomato. Uber is under pressure from its shareholders to stem losses and the Uber Eats business in India has been operating at a significant loss. Losses sustained in Uber Eats India accounted for 25% of the unit’s total losses over the first three quarters of 2019, while contributing just 3% to revenues.

Another motivation behind pulling the plug is Uber’s strategy of demanding that it is the number one or two holder of market share in every market in which it operates. In India, both Zomato and Swiggy were ahead of Uber Eats. The latter is backed by Naspers, the South African technology group that recently lost out to Takeaway.com in a bidding war for Just Eat, the London-listed food delivery company. The success of the two local peers has also defeated Food Panda, one of the largest European companies in the sector.

Uber CEO Dara Khosrowshahi commented on the decision to sell the Uber Eats India business to Zomato:

“Our Uber Eats team in India has achieved an incredible amount over the past two years. We have been very impressed by Zomato’s ability to grow rapidly in a capital-efficient manner and we wish them continued success.”

Commenting on behalf of Zomato was its chief executive Deepinder Goyal, who stated:

“This acquisition significantly strengthens our position in the category.”

Part of the funding for the acquisition will presumably come from the $150 million investment injection secured from Chinese payments company Ant Financial. That funding was confirmed just days before the announcement of the Uber Eats deal and valued Zomato at around $3 billion. The money forms part of a larger, ongoing funding round that could see the Indian company raise up to $600 million.

Despite managing to vanquish both Uber Eats and Food Panda from the Indian food delivery app market, Zomata has also yet to reach profitability – a milestone notoriously difficult to pass in the low margin and intensely competitive food delivery market. The company reported losses of $141 million in the year that ended March 2019 – ten times higher than over the previous year. However, Gaurav Gupta, Zomato’s chief financial officer, recently told the Financial Times that losses had dropped to around 30% of their levels in March 2019 and that the company is targeting profitability by the end of 2020.

Analysts have commented that the deal makes sense for both companies. Technology advisory firm Greyhound Research’s chief analyst Sanchit Vir Gogia commented:

“These two companies stand to win in a big way. Uber has had its fair share of issues in south-east Asia being pushed out by rivals. Having a strategic partner in India is what it needs.”

Uber’s core ride-hailing business will not be affected by the decision to sell the Uber Eats unit to a local rival. It is expanding the service from the 50 cities in India it currently operates in to around 200 by the end of the year. Uber rides taken in India account for 11% of the company’s global total. The company also employs significant numbers of staff in Hyderdad and Bangalore, mainly in engineering and product roles. It is planned to double their headcount by the end of the year.

The sale of Uber Eats India to Zomato mirrors the decisions to sell Uber’s ride-hailing business in south-east Asia to local rival Grab. Part of the deal saw Uber take a 27.5% stake in Grab and a seat on the company’s board. In 2017, a withdrawal from Russia saw Uber take a 38% stake in Yandex and pulling out of China was sweetened by a 19% cut of local peer Didi Chuxing.

The strategy, it is hoped, will accelerate Uber’s attempts to move towards profitability, while retaining significant interests in the geographies it has decided to, at least temporarily, give up on in favour of more cost-efficient local peers.