Shares Of Profitable Zomato Touch New 52-Week High At INR 98.39; Brokerages Raise PTs

Shares of Zomato jumped over 14% to its 52-week high of INR 98.39 during the early trading hours on Friday (August 4) on the BSE, a day after the food delivery major reported its first-ever profitable quarter in Q1 FY24.

The foodtech giant’s market cap soared to INR 82,111.4 Cr as against INR 74,518.82 Cr last Friday.

The sharp rise in shares was on expected lines as the company surprised its stakeholders with a consolidated net profit of INR 2 Cr in the June quarter of the current fiscal, way ahead of its projections and the Street estimates.

Most analysts labelled the financial performance as “stellar”, while a few believe this tag would be a “gross understatement”.

At least eight out of the 26 brokerages covering the stock have raised their price targets (PTs) on Zomato. They are confident that the company will succeed in maintaining its profitability going forward.

“We expect Zomato to evolve into a triple engine profit machine over FY24 as it sees FD (food delivery) transform into a cash cow and sees monetization success across Dine Out and Blinkit,” said JP Morgan in a research note today, raising PT on Zomato to INR 100 from INR 90 earlier. It maintained its ‘overweight’ rating on the stock.

JP Morgan’s current PT implies an upside of almost 16% to the stock’s last close on Thursday. 

Pointing out that Zomato’s dining-out business’ gross order value (GOV) stood at INR 520 Cr (GOV), which was 7% of the company’s total food delivery GOV of INR 7,318 Cr in the quarter, the brokerage said it sees this business as the next big one for the company, after food delivery and Blinkit.

Meanwhile, analysts at Morgan Stanley now see Zomato’s food delivery GOV growing 18% in FY24 and maintaining a sustainable compound annual growth rate (CAGR) of 18%-19% over the next three to four years.

The brokerage raised its PT on Zomato to INR 115 from INR 85 earlier and maintained its ‘overweight’ rating.

The Deepinder Goyal-led foodtech giant reported a 18.5% year-on-year (YoY) jump in the adjusted revenue of its food delivery business to INR 1,742 Cr in Q1 FY24.

While the growth in GOV and topline was driven by increasing order numbers as well as an uptick in average order value in Q1, Zomato also said that the seasonality factor had a role to play in this regard.

Largely helped by its food delivery business, Zomato registered an operating revenue of INR 2,416 Cr in the quarter, almost a 71% jump YoY and a 17.5% increase sequentially.

In fact, Zomato also said that its consolidated business will remain profitable in the coming days and it would deliver over 40% YoY top line growth for at least the next couple of years.

Increasing its fair value on the stock to INR 105 from INR 95 earlier and maintaining a ‘buy’ rating, Kotak Institutional Equities said that the “ambitious” revenue growth target of 40% YoY might be hard to achieve, but Zomato’s profitability might continue to surprise.

It raised FY24-FY26 food delivery revenue estimates by 8%-9%, driven primarily by higher take rates.

However, Japanese brokerage Nomura said, “While we acknowledge that Zomato is likely to achieve its target of 4-5% EBITDA margin (as a % of GOV) earlier than our expectation, we continue to believe that it will be a challenge to achieve double-digit CM (contribution margin), with high growth in the long term.”

The brokerage maintained its ‘reduce’ rating on the stock while raising the PT to INR 60 from INR 45 earlier, implying a downside of over 30% to the stock’s last close.

But the overall market sentiment on Zomato has now become more bullish.

“To say that Zomato’s 1Q FY24 results were ‘stellar’ would be a gross understatement. While we strongly believed that the Street estimates were depressed, the quantum of the beat was just unfathomable,” said domestic brokerage JM Financial as it increased its PT on the stock to INR 115 from INR 105.

The brokerage also said that it expects about 65% YoY GOV growth for Blinkit in FY24 and sees it achieving adjusted EBITDA breakeven by Q4 FY24.

We must note that Zomato’s quick commerce business Blinkit had a rather slow GOV growth in the quarter due to business disruptions but its adjusted EBITDA loss narrowed to INR 133 Cr in Q1. 

Zomato said that it expects Blinkit to achieve breakeven on an adjusted EBITDA basis in the next four quarters.

In fact, Kotak noted that Blinkit can drive further upside to its estimates as well as fair value in the coming days.

On the other hand, Jefferies raised its PT on Zomato to INR 130 from INR 100, maintaining its ‘buy’ rating.

“This (Zomato’s Q1) puts to rest all the concerns around Zomato’s ability to make ‘respectable’ profits. Results also give more credibility to the mgmt & its execution prowess, which is particularly positive for Blinkit which most investors ascribe zero (or negative) value,” the brokerage said.

Zomato shares were trading 10.5% higher at INR 95.3 on the BSE at 3:00 PM IST.