Zomato rallies 5% to hit record high; stock has zoomed 127% so far this yr

Last week, JP Morgan maintained an overweight rating on Zomato, with a target price of Rs 340 per share.

Shares of food aggregator Zomato hit a new high of Rs 281.40, as they surged 5 per cent on the BSE in Wednesday’s intra-day trade on expectations of a strong earnings growth.

The company's stock has surpassed its previous high of Rs 280 that it touched on August 19. Thus far in the calendar year, the market price of Zomato has more than doubled or zoomed 127 per cent, as compared to the 13.4 per cent rise in the BSE Sensex.

The company’s guidance has been strong at 20-25 per cent year-on-year (Y-o-Y) gross order value (GOV) growth in the food segment in the next five years and doubling quick commerce outlet count even post FY25, which could translate into a GOV compound annual growth rate (CAGR) of above 70 per cent in FY25-27E.

Meanwhile, traction in other businesses–Hyperpure and Going Out–was healthy (respective revenues grew 96.4 per cent and 105.8 per cent Y-o-Y). 

Zomato’s management believes that going-out experiences will continue to see strong growth, with overall growth in lifestyle and consumption.

In terms of profitability, in the near term, the management expects the going-out business to continue to remain near break-even on adjusted earnings before interest, tax, depreciation and amortisation (Ebitda)-basis, as has been the case for the company so far.

The management too indicated that quick commerce is more of an experience-led business, rather than pure discounting, noted analysts at Elara Capital. Thus, they continue to believe that the threat of new entrants via discounting may not hurt Blinkit’s growth prospects and its scale beyond non-metros is a key monitorable, according to them.

“Zomato’s food business is trading at fair 60x FY26E EV/EBITDA (earnings before interest, taxes, depreciation and amortisation), limiting potential upside in the near term. But strong visibility of EBITDA CAGR (52.2 per cent in FY25E-27E), could drive share price performance. Further, Blinkit is trading at 6x FY26E EV/sales," stated the brokerage firm in its Q1FY25 update, while maintaining its 'Buy' rating and target price of Rs 320 per share.

The brokerage added that the management’s intent to capture market share ahead of peers led by robust expansion plans also augurs well for medium-term growth of the company.

"Expect Blinkit to be a bigger driver for an earnings upgrade in the medium term, once certain scale with better profitability is achieved,” the brokerage stated.

Last week, JP Morgan also maintained an 'Overweight' rating on Zomato, with a target price of Rs 340 per share.  

Zomato is spearheading a rapid retail consumer transformation via its convenience and selection-focused quick commerce business, with ambitious rollout plans across all metros having proven the model in NCR, from where it gets around 50 per cent of its GOV and store count. Scale should help the company drive monetisation from channel margins and ad spending.  

With the bulk of stores now crossing positive DS level thresholds, incremental store economics are likely to turn more positive on Ebitda, giving Blinkit the licence to scale faster than peers and current targets, the brokerage firm said.

“We expect it to lead the disruption of Modern trade and Ecommerce and expand our forecasts over FY25-27 by 15-41 per cent. Food delivery has matured on business model (not growth) that should see continued expansion in profits but is likely to stretch the growth envelope as we take medium term growth to 20 per cent from 15 per cent earlier given consistent supply creation,” analysts at JP Morgan stated.

"Finally, we also build a bigger 'Going out' business combining core dining with new ticketing business adding to the monetisability of its MTU universe," they added.