What led Zomato to slip 5% despite 5x rise in Q2 PAT? CLSA ups target price

Zomato reported a 388 per cent year-on-year rise in second quarter net profit at Rs 176 crore, from Rs 36 crore in the year ago period

Zomato shares lost 5.3 per cent in Wednesday, October 23's trade and registered an intraday low of Rs 242.45 per share on the BSE. The selling pressure in the stock came after the company reported robust growth in its second quarter (Q2FY25) results, although on certain parameters, it missed estimates. 

At around 9:32 AM, Zomato shares were down 4.18 per cent at Rs 245.5 per share. In comparison, the BSE Sensex was up 0.10 per cent at 80,298.86 around the same time. The market capitalisation of the company around the time stood at Rs 2,16,883.91 crore. 

In its Q2 results, Zomato reported a net profit of Rs 176 crore for the July-September period, higher by 388 per cent from the year-ago period's net profit at Rs 36 crore, but down 30 per cent sequentially from a net profit of Rs 253 crore in Q2FY25.

However, the second quarter figure was lower compared to Jefferies' estimates of Rs 245.3 crore, as per reports.

Additionally, Zomato's food delivery gross order value (GOV) came in at Rs 970 crore, slightly below Motilal Oswal's estimate of Rs 1,010 crore. 

That apart, Zomato’s revenue from operations rose 69 per cent year-on-year (Y-o-Y) to Rs 4,799 crore in Q2, up from Rs 2,848 crore a year ago. It had reported a revenue of Rs 4,206 in the previous quarter.

The company has also received approval from its board of directors to raise up to Rs 8,500 crore via a qualified institutional placement (QIP) of equity shares in a bid to strengthen its balance sheet.

This will be the company’s first fundraise since its stock market debut. Zomato will “decide the structure, form of issuance, price, discounts, terms and conditions” in due course, it said in an exchange filing.

Zomato’s cash balance was reduced sequentially by Rs 1,726 crore in the September quarter, due to its recent acquisition of Paytm’s entertainment ticketing business for Rs 2,014 crore.

What should investors do with Zomato?

CLSA has raised its target price on Zomato to Rs 370, from Rs 353 per share, with an 'Outperform' rating.

"Zomato remains our top pick, primarily due to the large opportunity for quick commerce," said CLSA.

Brokerage firm Motilal Oswal has retained its 'Buy' rating on Zomato with a target price of Rs 330 per share. The brokerage said that Zomato’s food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce.

In the past one year, Zomato shares have gained 135.2 per cent, compared to the BSE Sensex's rise of 24 per cent during the same period.