Zomato Ltd.'s stock jumped during Friday's trading session to reach a new 52-week high of Rs 151.45 following the company's announcement of better-than-expected results for the December 2023 quarter. Following the announcement of its results, which were made available after market hours on Thursday, brokerage firms are largely optimistic.
Zomato's net profit for the December 2023 quarter was Rs 138 crore, up 283% on a quarter-over-quarter (QoQ) basis from the same period the previous year when it was Rs 36 crore. The meal delivery company had a loss of Rs 347 crore at the same time last year.
Although growth in this area may have been stronger given the decline in other consumption categories, Q3FY24 was nevertheless a great quarter with remarkable performance in Q/C and clever margin gains in food delivery. A 'buy' rating on the company has been maintained by Jefferies, which stated that it has raised adjusted Ebitda by 4–10%.
GMV growth overall continued to be robust and exceeded projections. Zomato has been adding restaurant partners, and the management thinks that as the macroeconomic situation becomes better, the company's growth could pick up speed. "Zomato is a play on the rising food services industry in India and increasing adoption of digital commerce and Blinkit is the market leader in the fast-growing quick-commerce space."
The income generated by Zomato's operations in the third quarter climbed by 69% YoY to Rs 3,288 crore in Q3FY24. For the third consecutive quarter, its adjusted EBITDA—which includes its quick-commerce company Blinkit—was positive at Rs 125 crore, up from Rs 41 crore in Q2FY24.
"For FY23–26E, we project a 25% CAGR in delivery revenue according to our base scenario. With a target price of Rs 205, Jefferies continued, "unit economics to steadily improve with scale as Zomato unlocks cost efficiencies and as customer willingness to pay for convenience increases."
For FY23–26E, Jefferies projects a 30% CAGR in delivery revenue in its bull scenario. After valuing Zomato's rapid commerce at 10 times FY26E sales and delivery business at an exit multiple of 60 times FY26E adjusted Ebitda, we arrive at a price target of Rs 240, indicating a 67% increase from the previous closing.
During the quarter, the gross order value (GOV) of the food delivery company increased by 27% year over year. The management of Blinkit anticipates that the company will reach adjusted EBITDA break-even on or before Q1FY25, as its losses continue to decrease. Revenues from quick commerce increased 114% year over year to Rs 644 crore.
Zomato's food delivery GOV growth was less than expected, coming in at 27% YoY, with management citing sluggish demand. According to Kotak Institutional Equities, higher take rates contributed to a better-than-expected food delivery CM of 7.1%, which also caused a sequential increase in the EBITDA margin to 3%.
YoY growth for Blinkit GOV was a robust 102%, with improvements in CM and loss reduction also occurring. It stated that the management's projected 40% revenue growth over the next two to three years translates into a 60–70% YoY revenue growth for Blinkit. With a buy and fair value of Rs 190, it stated, "We upgrade Blinkit's revenue and margin estimates, driving a 35-41 per cent EPS upgrade for Zomato over FY2025-26E."
As per Motilal Oswal Financial Services (MOSL), the meal delivery industry in India is still in its early stages and has a considerable potential for expansion. "With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 38 per cent adjusted revenue CAGR over FY 24-26," it stated.
After turning positive at the margin level in Q3, it estimates Zomato to deliver 4.5 per cent and 10 per cent Ebitda margin in FY25E and FY26E, respectively, said MOSL. "We value the business using a DCF methodology, assuming a 5.0 per cent terminal growth rate and 11.5 per cent cost of capital," it added, maintaining a buy rating with a target price of Rs 170 on the stock.
