Zomato shares jump 5% to hit new 52-week high; brokerages see up to 67% upside

Shares of Zomato Ltd surged during the trading session on Friday to hit a new 52-week high at Rs 151.45 after the company announced a better-than-expected performance in the December 2023 quarter. Brokerage firms are mostly positive on the counter following its results, which came after market hours on Thursday.

Zomato reported a 283 per cent rise on a quarter-on-quarter (QoQ) basis in the net profit at Rs 138 crore in the December 2023 quarter, while its net profit came in at Rs 36 crore in the year ago period. The food delivery player had clocked a loss of Rs 347 crore in the year-ago period.

Q3FY24 was another strong quarter with exceptional performance in Q/C and smart margin gains in food delivery; growth here could have been better, but the result is understandable in the context of weakness across consumption categories. We raise adjusted Ebitda by 4-10 per cent, said Jefferies, which has maintained its 'buy' rating on the stock.

Overall GMV growth remained strong, ahead of estimates. Zomato continued to add restaurant partners and management believes growth could accelerate ahead as and when macro improves, it said. "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."

Zomato's revenue from operations in the third quarter increased 69 per cent year-on-year (YoY) to Rs 3,288 crore in Q3FY24. Its adjusted Ebitda, including its quick-commerce business Blinkit, was positive for the third quarter in a row at Rs 125 crore, compared to Rs 41 crore in Q2FY24.

"In our base case, we expect a 25 per cent CAGR in delivery revenue over FY23-26E. Unit economics to steadily improve with scale as Zomato unlocks cost efficiencies and as customer willingness to pay for convenience increases," Jefferies added with a target price of Rs 205.

In its bull case, Jefferies expects a 30 per cent CAGR in delivery revenue over FY23-26E. We value Zomato's delivery business at an exit multiple of 60 times FY26E adjusted Ebitda and quick commerce at 10 times FY26E sales, to arrive at a price target of Rs 240, suggesting an upside of 67 per cent from its previous close.

Also read: Zomato shares rally 3% as Q3 profit at Rs 138 crore beats Street estimates; key takeaways

The food delivery business GOV (gross order value) grew 27 per cent YoY in the given quarter. Blinkit's losses continue to decline and the company management expect it to meet the guidance of Adjusted EBITDA break-even on or before Q1FY25. Quick commerce revenues jumped 114 per cent YoY to Rs 644 crore.

Zomato’s food delivery GOV growth came in at 27 per cent YoY, below estimates as management called out weak demand. Higher take rates drove a better-than-expected food delivery CM of 7.1 per cent, which also resulted in a sequential EBITDA margin expansion to 3 per cent, said Kotak Institutional Equities.

Blinkit GOV grew by a solid 102 per cent YoY, accompanied by CM improvement and loss reduction. Management guidance of 40% revenue growth for the next 2-3 years implies 60-70 per cent YoY revenue growth for Blinkit, it said. "We upgrade Blinkit’s revenue and margin estimates, driving a 35-41 per cent EPS upgrade for Zomato over FY2025-26E," it said with a buy and fair value of Rs 190.

The food delivery business is still in a nascent stage in India, with a long runway for growth, said Motilal Oswal Financial Services (MOSL). "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 said.
 
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.

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