Zomato shares at Rs 60 or Rs 130? What Nomura, other brokerages say

Zomato's food delivery platform turned profitable in the June quarter, much ahead of Street expectations. Contribution margin expanded and adjusted Ebitda margin of both the food delivery and quick commerce segments came in better-than-expected. Zomato even delivered on gross order value (GOV) growth for the quarter. That said, Blinkit business had a muted show, with GOV slowing down due to a temporary business disruption in April on change in the delivery partner pay-out structure.

Post its quarterly results, analysts largely have price targets for the stock in the Rs 60-130 range, with most targets near the upper limit of the target band. 

JM Financial said while Zomato shares are up 35 per cent since March quarter results, it expects the momentum to sustain, as the market is largely capturing value attributable to food delivery business, whereas a significant value unlocking is waiting to happen in Blinkit.

JM Financial said Zomato is its top pick within our listed internet coverage with a revised target price of Rs 115.

"The management shied away from giving any growth guidance over the last few quarters due to growth uncertainty. Strong GOV/revenue growth in Q1FY24 along with guidance of more than 40 per cent YoY growth in adjusted revenue for the next two years underscores management’s confidence and provides much-needed visibility. With first profitability on books, the focus will turn to FCF generation," Nuvama said while suggesting a target of Rs 110 for the stock.

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Zomato's food delivery GOV, after being flat over the last two quarters, jumped 11 per cent sequentially. The management has guided for 40 per cent-plus adjusted revenue growth each in FY24 and FY25. Besides, the company is targeting Ebitda profitability in coming quarters. Zomato also said it is targeting to turn adjusted EBITDA-profitable in all three businesses during FY25.

Motilal Oswal Securities estimates Zomato to turn positive on reported Ebitda by March quarter, and sees it delivering 5 per cent Ebitda margin in FY25. It values the business using a DCF methodology, assuming 4 per cent terminal growth rate and 12.5 per cent cost of capital.

"We maintain our BUY rating with a target of Rs 110, implying 28 per cent potential upside," it said. Jefferies finds the stock Rs 130 worthy.

Nomura India said Zomato's growth was aided by seasonal factors like the summer holiday season for schools and IPL cricket tournament. Monthly transacting users (MTUs) increased 5.4 per cent QoQ to 1.75 crore users aided by the marketing push of Zomato Gold, it said.

"We factor in stronger growth and margin estimates for the core Food Delivery and Q-commerce

businesses over FY24F and FY25. However, our FD long-term adjusted Ebitda margin estimates are broadly unchanged at 5.1 per cent of GOV. Our DCF-based target price rises from Rs 45 to Rs 60. We continue to believe that sustaining high GOV growth and strong CM improvement of the core FD business for an extended period will remain challenging," Nomura said.

 

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