Zomato stock price can jump 33% from here, say analysts. Check key reasons

Zomato share price today: Zomato share price surged 19 per cent to a fresh record high of Rs 278.45 per shar intraday. Nearly 418.73 million shares changed hands on the counter on NSE & BSE on Friday

Zomato share target price: Zomato's consistent "overdelivery" on earnings growth front, highlighted yet again in the June quarter (Q1) results, has prompted analysts to raise their target prices on the stock. They, now, see up to 49.5 per cent upside in Zomato stock over the next one year.

Zomato, they believe, is on a high growth path with its profitability having significant room for expansion.

TRACK OUR LIVE MARKET BLOG

"Zomato has shown stellar growth in the last few years driven by low penetration. Going ahead, we expect Zomato to deliver strong growth over the next few years as well, driven by order frequency and increase in customer base. Zomato's path to profitability could be quicker than anticipated with improving contribution margins as the management is not dialling down on growth ambition," said Nikhil Choudhary and Parth Ghiya of Nuvama Institutional Equities.

The duo has assigned a 'Buy' rating to the stock with a higher target price of Rs 285 (from Rs 245).

On the bourses, Zomato surged 19 per cent to a record high of Rs 278.45 per share in the intraday trade. The stock settled 12.11 per cent higher at Rs 262.45 per share. Nearly 418.73 million shares changed hands on the counter on NSE and BSE on Friday. By comparison, the benchmark BSE Sensex ended 886 points (1.08 per cent) lower at 80,982 level.

On Thursday, August 1, Zomato reported a net profit of Rs 253 crore for Q1FY25, jumping sharply from the Rs 2-crore net profit reported last year. Revenue for the restaurant aggregator rose by nearly 74 per cent year-on-year (Y-o-Y) to Rs 4,206 crore.

It also announced a 'District' app with an eye on the broader going-out space, including movies, sports, ticketing, live performances, and staycations.

All verticals of Zomato saw sequential growth with Food Delivery growing 11.7 per cent, Hyperpure 27.4 per cent, Quick Commerce 22.5 per cent, and Going Out 2.2 per cent.

Within these, Food Delivery segment's gross order value (GOV) grew 10 per cent quarter-on-quarter (QoQ) and 27 per cent Y-o-Y to around Rs 9,260 crore. Its average monthly transacting users (MTU) grew 6.8 per cent Q-o-Q to 20.3 million.

Quick commerce segment Blinkit's GOV, meanwhile, grew 22.2 per cent Q-o-Q to Rs 4,920 crore, with adjusted Ebitda sustaining at breakeven levels.

Further, while contribution margin for FD declined by 20bps Q-o-Q to 7.3 per cent, it inched up by 10bps Q-o-Q to 4 per cent for Blinkit.

Analysts believe Zomato's food delivery business is on a firm footing with the GOV CAGR of 25 per cent Y-o-Y likely continuing for the next two-three years, largely driven by increasing ordering frequency from its more mature cohort, as well as a steady conversion of its monthly "active" users to monthly transacting users.

The segment's profit levers, however, are juiced out as platform fees could eventually reach a ceiling in a price sensitive market such as India, they said.

Blinkit: The Dark Horse

Given the low penetration levels, the management is focussed on increasing Blinkit's store density in existing areas of operations as well as new locations. It announced plans to raise store count by roughly 4x to 2,000 by financial year 2025-26 (FY26) as against 524 in FY24 and targeted 1,000 for FY25.

Given this, Abhishek Bhandari and Krish Beriwal of Nomura expect Zomato's quick commerce vertical to clock 100-110 per cent Y-o-Y growth in GOV in FY25-26 led by strong store additions. They have a 'Buy' rating with a higher target price of Rs 280 (from Rs 225).

Those at Motilal Oswal Financial Services, meanwhile, believe Blinkit GOV will remain the most important factor driving Zomato's fair value.

"With GOV growth assumed at 75 per cent CAGR over FY24-FY28, Zomato's target price is seen at Rs 300 (with Blinkit's contribution of Rs 171). However, if the GOV growth moderates to 50 per cent, the target price would drop to Rs 180 (with Blinkit contribution at Rs 100)," the brokerage said.

For now, it has assigned Rs 300 as the target price, assuming upside risks to these GOV estimates, potentially unlocking more value.

Zomato new target price 2024-25

Among other notable brokerages that have raised their target prices on Zomato, CLSA has maintained 'Buy' with a target price of Rs 350; UBS (Buy, TP: Rs 260); Citi (Buy, TP: Rs 280); Goldman Sachs (Buy, TP: Rs 280); Bernstein (Outperform, TP: Rs 275); Morgan Stanley (Overweight; TP: Rs 278).