Bernstein Ups Zomato’s Price Target To INR 120, Says Foodtech Raising The Profitability Bar

Following Zomato’s first ever profitable quarter in Q1 FY24, brokerage Bernstein has said the foodtech major is “raising the profitability bar” and increased the price target (PT) for the stock to INR 120 from INR 100 earlier.

In a research note on Tuesday (September 12), Bernstein said it believes Zomato can deliver long-term, high-teens growth in food delivery with continued improvement to contribution margins. 

“The company’s strong execution (market leader, 55% share) & ‘profit beats’ has reinforced investor confidence,” said the analysts at the brokerage analyst in the research note.

“Zomato stock has graduated from ‘GMV multiple’ to ‘profit multiple’ as medium term EV (Enterprise Value)/ EBITDA multiple look reasonable. We shift to a profitability approach for valuing food delivery,” the report said.

Bernstein’s PT implies a 21.7% upside to Zomato’s close at INR 98.63 today on the BSE.

It must be noted that amid the increasing emphasis of retail and institutional investors on profitability, Zomato reported a net profit of INR 2 Cr in June quarter of FY24. Operating revenue stood at INR 2,416 Cr.

Food delivery business’ adjusted revenue grew 18.5% year-on-year (YoY) and almost 14% sequentially to INR 1,742 Cr in Q1.

In an attempt to further strengthen its food delivery business, Zomato has started charging a platform fee of INR 2 and INR 3 from most customers. Kotak Institutional Equities recently said this fee would increase the business’ customer take rate and contribution margin.

Since the June quarter results, shares of Zomato have surged 14%. The shares are up over 70% year to date (YTD).

Bernstein expects Zomato’s consolidated adjusted revenue to grow at a CAGR of 27% during FY24-FY30. 

Meanwhile, brokerage Equirus Securities also initiated its coverage on Zomato yesterday with a ‘long’ rating and a PT of INR 135, which implies an upside of almost 37% to the stock’s last close. ‘Long’ is the highest rating of Equirus.

“Its (Zomato’s) dominance in the underpenetrated food delivery space should drive a robust 31% sales CAGR over FY23-FY28, making it one of the fastest growing players in India’s internet landscape,” said Equirus.

The brokerage believes that Zomato is enhancing customer and restaurant loyalty to its platform through its comprehensive suite of products, further solidifying its position as a key industry player.

Speaking on Zomato’s quick commerce business, the brokerage said it expects Blinkit to break even at the contribution level (post all variable costs) by FY24 and reach a contribution profit of INR 51 per order by FY28.

During its Q1 results, Zomato projected Blinkit to achieve breakeven on an adjusted EBITDA basis in the next four quarters.

“Blinkit’s success has stemmed from its understanding of product-supply chains, enabling seamless coordination between warehouses and dark stores… Its proprietary tech stack, tailored for supply chain operations, is the backbone of its efficient operations,” said the brokerage.

Shares of Zomato ended today’s session 2.7% lower at the BSE.