Zomato surges 36% in two months on improved operational performance

Shares of Zomato hit five-month high of Rs 68.10, soaring 6 per cent on the BSE in Thursday’s intra-day trade. In past two months, the stock price of food delivery platform company has surged 36 per cent on improved operational performance. It was trading at its highest level in current calendar 2023.  The stock has bounced back 68 per cent from its record low level of Rs 40.55, touched on July 27, 2022.

Zomato reported better-than-expected operating performance in the March quarter (Q4FY23) - while it registered muted gross order value (GOV) growth quarter-on-quarter (QoQ), contribution margin across segments beat estimates.

The company had reported narrowing of losses both on a year-on-year (YoY) and sequential basis in the March quarter (Q4FY23). The food aggregator’s consolidated loss narrowed to Rs 187.6 crore in Q4FY23 from Rs 346.6 crore in the December quarter (Q3FY23), and Rs 359.7 crore in the corresponding quarter last fiscal (Q4FY22).

Revenue from operations for the company stood at Rs 2,056 crore for the quarter, up from Rs 1,948.2 crore in Q3, and Rs 1,211.8 in the corresponding period a year ago.

Zomato’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) loss narrowed to Rs 175 crore in Q4 from Rs 265 crore in Q3. Excluding its quick commerce, however, the food aggregator turned adjusted EBITDA positive in the March quarter.

Management expects sequential GOV growth to be in a high single digit in Q1FY24, on the back of green shoots of recovery since February, 2023. Management guides for positive adjusted EBITDA and PAT on a consolidated basis (incl. quick commerce) within the next four quarters, and plans to achieve this via: 1) profit growth in the food delivery (FD) business; 2) loss reduction in Blinkit. It aims to expand FD EBITDAM to 4-5 per cent of the GOV from the current 1.2 per cent.

“The superior Q4 performance bolsters our belief in Zomato’s ability to execute & deliver profitable growth. Improvement in consumer sentiment is expected to drive GOV/MTU growth,” analysts at Emkay Global Financial Services said in result update. The brokerage firm maintains BUY on Zomato with target price of Rs 90 per share.

Analysts at Motilal Oswal Financial Services (MOFSL) now expect Zomato to breakeven on consolidated adjusted EBITDA level in Q3FY24 and on reported PAT by Q4FY24 (70bp PAT margin). Improving profitability should help it deliver FY25E adjusted EBITDA of Rs 420 crore before turning reported EBITDA positive in FY26E.

The brokerage firm’s estimates imply FY23-25 revenue CAGR of 36 per cent and 13.1 per cent improvement in adjusted EBITDA margin, leading to a PAT turnaround over the period (FY25 PAT of Rs 260 crore v/s FY23 loss of Rs 960 crore).

“We remain positive on the long-term growth opportunity for Zomato, and do not expect competition to intensify further despite the entry of ONDC in the space,” MOFSL said with reiterates its BUY rating on the stock and target price of Rs 80 per share.