Morgan Stanley, CLSA bullish on Zomato after solid Q4, check target prices

A slew of international brokerages including CLSA, Bernstein, Morgan Stanley, Jefferies, Nomura, and CITI have reiterated their bullish outlook on Zomato, with target prices revised upwards after the food delivery and quick commerce giant maintained its profitability in the March quarter of Fy24 (Q4FY24). These brokerages see an upside potential of up to 28 per cent in Zomato's stock over the next one year.

CLSA has upgraded its rating to a 'Buy' call, with the target price raised to Rs 248. The firm highlighted Zomato's strong guidance for Blinkit and steady performance in food delivery, despite Employee Stock Ownership Plan (ESOP) costs impacting profits in Q4.

Bernstein also maintained an 'Outperform' call, with the target price increased to Rs 230. They stressed upon Zomato's achievement of breakeven for Blinkit and plans to prioritise growth while maintaining long-term Ebitda targets.

Meanwhile, MS maintained an 'Overweight' call, setting the target at Rs 180. They commended Zomato's steady performance and expansion efforts in quick commerce, despite the impact of ESOP costs in Q4.

Jefferies reiterated a 'Buy' call, with the target raised to Rs 230. They highlighted Zomato's robust performance over the past year, particularly in quick commerce, and stressed a shift towards aggressive growth.

Nomura echoed a 'Buy' call, with the target at Rs 225, stressing steady growth in the food delivery segment and prioritised growth in quick commerce. They also highlighted the introduction of a new ESOP pool to incentivise employees.

Lastly, CITI maintained a 'Buy' rating with the target price raised to Rs 235. They noted Zomato's largely in-line performance in Q4 and its acceleration in dark-store footprint, expecting to maintain Ebitda breakeven in quick commerce through FY25.

On the bourses, Zomato was trading 1.39 per cent lower at Rs 191 per share, at 9:42 AM. By comparison, S&P BSE Sensex was up 0.11 per cent at 72,853.25 levels.

Zomato Q4FY24 financial performance

Overall, the food delivery giant continued its streak of profitability, marking the fourth consecutive quarter of net profit. In Q4FY24, it reported a net profit of Rs 175 crore, a major turnaround from the loss of Rs 188 crore in the same quarter last year (Q4FY23).

The company’s topline surged 73 per cent year-on-year (Y-o-Y) to Rs 3,562 crore, compared to Rs 2,056 crore in the corresponding quarter of the previous year.

The quick commerce segment, spearheaded by Blinkit, maintained its strong performance, with the gross order value (GOV) at Rs 4,027 crore, reflecting a robust 97 per cent Y-o-Y growth and a 14 per cent increase quarter-on-quarter.

Blinkit achieved a notable milestone by attaining positive adjusted earnings before interest, tax, depreciation, and amortisation (Adj. Ebitda) in March 2024. 

However, the adjusted Ebitda for the quarter saw a marginal decline of 0.9 per cent compared to the previous quarter, where it stood at negative 2.5 percent.

“In Q4FY24, we added 75 net new stores, taking our total store count to 526. For comparison, this is more than the number of stores we added in the three preceding quarters cumulatively,” said Albinder Dhindsa, founder and chief executive officer of Blinkit.

Dhindsa anticipates an intensified store expansion plan, nearly doubling the store count within 12 months. He foresees the overall adjusted Ebitda to hover around zero for the upcoming quarters due to this aggressive expansion strategy.