Thursday, February 15, saw Zomato's share price surge by nearly 5% to reach a new 52-week high during intraday trading on the BSE. Zomato's share price surged 4.6 percent to reach a new 52-week high of ₹159.20 on the BSE, having opened at ₹156.75 against the previous close of ₹152.20.
Over the course of the last year, Zomato's share price has increased by 200%, while the Sensex equity index has gained just 17%. The stock fell to ₹49 on March 28 of last year, its 52-week low. Since hitting its 52-week low, the stock has increased by 225% to its current market price of ₹159.20.
Numerous brokerage houses have favorable opinions of the stock. Global brokerage CLSA kept a buy call in place but increased its target price from ₹181 to ₹227.
Despite the company's modest size, CLSA claimed that it is becoming an increasingly important component of the profit margin. The latest Q3 results, in CLSA's opinion, demonstrate the way towards steady profitability. Even in the unlikely event that the food delivery business does not succeed, the brokerage company projects a 45% increase in the stock price.
“Even in a scenario where meal delivery growth is slower and Zomato Everyday is not launched, we predict FY26 EPS of ₹5.36, which is 9% below our base case but still represents a 45% increase above our PE-based valuation," said CLSA.
"We believe food delivery and fast commerce are now on a steady profitability path, so we convert our blended valuation to DCF and an FY26 based PE to correspond with our consumer/QSR methodology," said CLSA.
"Because its growth drivers and profit pool are comparable to those of Indian QSRs, we think it makes more sense to measure its valuation with our consumer coverage. It is more difficult to compare with worldwide counterparts because of the various factors and wide valuation fluctuations within a small collection of," said CLSA.
"To account for changes in our other income, tax, and EBITDA assumptions, we reduce our FY24 PAT estimate to ₹430 crore but not our FY25–26 forecasts by more than 1%," said CLSA.
Zomato had a consolidated net profit of ₹138 crore for Q3FY24, up from a net loss of ₹347 crore for the same time the previous year. In comparison to ₹1,948 crore in the same period last year, its operating revenue in the third quarter of the current fiscal came in at ₹3,288 crore, a growth of 69%.
Following the company's December quarter earnings, domestic brokerage Geojit Financial Services reaffirmed a buy rating on the stock, with a rolled-forward target price of ₹174, based on 7 times FY26E price/sales.
"The food delivery industry saw strong growth in Q3FY24, despite a decline in consumer discretionary spending. Even with weak customer demand, the meal delivery industry saw robust growth. Superior performance is anticipated to be bolstered by a leading market position, a good margin, and robust growth momentum within the segments," said Geojit.
After Zomato's Q3 earnings, Motilal Oswal Financial Services kept its buy call on the food delivery company, with a target price of ₹170.
"In India, the meal delivery industry is still in its infancy but has a lot of room to grow. We anticipate Zomato to generate a strong 38 percent adjusted revenue CAGR over FY24–26 due to its dominant market dominance and robust growth in the food delivery industry and Hyperpure," Motilal said.
"We now project Zomato to generate 4.5 percent and 10 percent EBITDA margin in FY25E and FY26E, respectively, after turning positive at the margin level in Q3. We use the DCF approach to value the company, assuming a terminal growth rate of 5% and a cost of capital of 11.5%," said Motilal Oswal.
