Zomato Shares Jump 13% As Street Cheers Q2 Results

Shares of foodtech giant Zomato jumped over 13% to day’s high of INR 72.55 on the BSE on Friday (November 11) following the declaration of its Q2 FY23 results on Thursday in which the startup reported a narrowed year-on-year (YoY) loss of INR 250.8 Cr.

As a result of acquisition of quick-commerce startup Blinkit, which was completed in August this year, Zomato’s loss widened nearly 35% sequentially from INR 186 Cr in Q1 FY23. However, the street seems to be cherishing the overall growth across business verticals, including Blinkit.

Zomato’s operating revenue grew 62% YoY to INR 1,661.3 Cr during Q2 and sequentially it was up over 17% from INR 1,413.9 Cr reported in Q1. The food delivery business contributed the majority portion to operating revenue.

Blinkit’s revenue also grew 43% sequentially to INR 236 Cr, while its adjusted EBITDA loss narrowed over 20% quarter-on-quarter (QoQ) to INR 259 Cr in Q2 FY23.

On the other hand, though Zomato’s B2B business Hyperpure earned a revenue of INR 334.1 Cr during the quarter, up both YoY and QoQ, its adjusted EBITDA loss widened both sequentially and YoY to INR 53 Cr in Q2.

While more updates on the business are still awaited and would be discussed during Zomato’s earnings call today, analysts seem to be bullish about the stock so far.

Goldman Sachs, with a ‘buy’ rating and target price (TP) of INR 100, said that the results are a strong beat on profitability, while BofA Global Research, which has a ‘neutral’ rating and INR 67 TP, opined that Zomato is balancing growth with profitability.

Meanwhile, Jefferies maintained its ‘buy’ rating and INR 100 TP on Zomato and said that Blinkit’s growth was impressive. “Management shows urgency to reduce losses, as adj. Ebitda (ex-Blinkit) is down to Rs0.6bn – this is better than the most bullish estimate and addresses investor scepticism on break-even guidance,” the brokerage said.

Brokerage Bernstein also maintained an ‘outperform’ rating in Zomato and said that the company remains its top pick in its internet coverage as it continues to “drive the flywheel” delivering growth and expanding margins.

In fact, Zomato’s food delivery business’s contribution margin as a percentage of its gross order value (GOV) showed rapid growth. It stood at 4.5% during the reported quarter as against 1.2% in Q2 FY22.

However, it is pertinent to note that Zomato’s GOV growth was slower compared to the previous few quarters. Noting this issue, ICICI Securities said that Zomato’s food delivery GOV grew 3.1% QoQ and 22.6% YoY, which was meaningfully lower than the GOV trajectory over the last four quarters.

Besides, Zomato also said that the pace of growth in its contribution margin would slow down from here on. ICICI Securities believes that perhaps Zomato’s profitability is coming at the cost of growth.

The Indian brokerage maintained a ‘hold’ rating on the stock and a TP of INR 65. “We think the management’s guidance towards attaining EBITDA-breakeven for Zomato business by Q1FY24 would require careful calibration of employee expenses and marketing spends,” it added.

Shares of Zomato were trading 12.4% higher at INR 71.90 on the BSE at 02:10 PM. 

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.