Zomato experienced a remarkable uptick in its share price, surging by over 4% during early Friday trading sessions, marking a fresh 52-week peak. This surge was propelled by robust Q3 results, largely fueled by the exponential growth in food delivery services. The online food delivery platform witnessed a substantial increase in both net profit and revenue, indicating promising prospects for sustained growth in gross order value. Analysts at Emkay Global Financial Services commended Zomato’s performance across various segments, with a special mention of the significant improvement in food delivery contribution margins and the positive trajectory of Blinkit. Over the past year, Zomato’s shares have witnessed an impressive surge of over 121%, further bolstering investor confidence, and were observed trading higher on the BSE.
In the wake of the earnings report, HSBC and Nuvama have both issued buy recommendations and raised their price targets for the stock. Conversely, Macquarie maintained its Underperform rating, indicating a lack of enthusiasm following the results.
In the third quarter of FY24, Zomato, the online food delivery platform, reported a net profit of ₹138 crore, a significant increase from the loss of ₹347 crore recorded in the corresponding period of the previous year. This represents a remarkable 283% quarter-on-quarter (QoQ) growth in net profit for Zomato.
Zomato’s revenue from operations in Q3FY24 came in at ₹3,288 crore, registering a growth of 69%, compared to ₹1,948 crore, YoY.
The food delivery gross order value (GOV) for Zomato, representing the total value of all orders placed, saw a notable 25% year-on-year (YoY) growth. The company anticipates this growth momentum to persist, projecting a continued expansion of 20% or more YoY, with the potential for acceleration should it secure greater-than-expected market share gains and witness a revival in macro consumer demand.
Zomato’s shares closed 2.42% higher on Thursday following the announcement of its Q3 results.
According to foreign brokerage firm Jefferies, Zomato’s performance in Q3FY24 was robust, marked by exceptional performance in Quarter-on-Quarter (Q/C) metrics and smart margin gains in the food delivery segment. While acknowledging that growth could have been stronger, Jefferies contextualizes the results within the broader weakness observed across consumption categories. The firm has raised its adjusted EBITDA estimates by 4-10%. In its base case scenario, Jefferies predicts a ~25% Compound Annual Growth Rate (CAGR) in delivery revenue over the period spanning FY23 to FY26. It anticipates a gradual improvement in unit economics as Zomato capitalizes on scale, unlocking cost efficiencies, and as customer willingness to pay for convenience rises.
With a ‘Buy’ rating on the stock, Jefferies has increased the target price for Zomato to ₹205 per share, up from ₹190 previously.
Analysts at Emkay Global Financial Services have noted Zomato’s consistent execution, highlighting growth across its various segments. Despite a 6.3% quarter-on-quarter (QoQ) increase in food delivery gross order value (GOV), it fell short of both analyst and company expectations due to a subdued demand environment. However, there was a notable improvement in the food delivery contribution margin, which reached 7.1%, supported by ad-monetization and platform fees. Additionally, Blinkit, another segment of Zomato, continued its impressive performance with a 28% QoQ growth in GOV and further reduction in losses.
Zomato now expects consolidated adjusted revenue to grow at 50%+ YoY in the next few quarters, with Blinkit doing the heavy lifting.
Emkay Global has revised its estimates for Zomato’s earnings per share (EPS) for FY25-26E, increasing them by 1-2% to account for the Q3 performance and changes in revenue mix. The brokerage firm also adjusted its valuation approach for Blinkit, now valuing it at 1x the FY26 gross order value (GOV), compared to its previous valuation based on book value.
Emkay Global reaffirmed its ‘Buy’ rating on Zomato and raised the target price to ₹170 per share from ₹140, utilizing a sum-of-the-parts (SOTP) basis. This valuation breaks down as follows: the food delivery business valued at ₹119 per share through discounted cash flow (DCF) analysis, Blinkit valued at ₹36 per share at 1x FY26 estimated GOV, and cash and other investments valued at ₹15 per share based on book value.
Zomato’s shares have experienced significant growth, surging over 121% in the past year. As of 9:20 am, Zomato shares were trading 3.75% higher at ₹149.40 apiece on the BSE.
