Zomato tanks 14% in 2 days post Q3; analysts cut earnings, target estimates

Zomato Q3 results: Zomato, on Monday, reported a 57 per cent Y-o-Y fall in net profit at Rs 59 crore for the October-December quarter

Zomato share price: Investors heavily dumped Zomato shares on Tuesday, disappointed with a surprisingly weak December quarter (Q3FY25) performance. The stock crashed 11 per cent on the BSE to end at Rs 214.65 per share, marginally off the day's low of Rs 210.15 (down 12.78 per cent). 

 

The stock has plummeted 13.7 per cent in two sessions as analysts cut their earnings estimates and share price targets. By comparison, the BSE Sensex index ended 1,235 points, or 1.6 per cent, lower on Tuesday.

 

Zomato, on Monday, reported a 57 per cent year-on-year (Y-o-Y) fall in net profit at Rs 59 crore for the October-December quarter. Sequentially, profit was down 66.5 per cent.

 

 

Operationally, while revenue surged 64 per cent Y-o-Y/12.6 per cent quarter-on-quarter (Q-o-Q) to Rs 5,405 crore, Zomato’s adjusted Ebitda grew 128 per cent on year, but was down 14 per cent on quarter, to Rs 285 crore.

 

The drawdown in Zomato's Q3 profit was largely due to a muted food delivery (FD) segment. The adjusted revenue for the vertical increased 17 per cent Y-o-Y and 3 per cent Q-o-Q to Rs 2,413 crore in Q3FY25. The segmental gross over value (GOV) increased 16.8 per cent Y-o-Y and 2.3 per cent Q-o-Q to Rs 9,913 crore.

 

The management, on its part, said the company was going through a broad-based slowdown in demand, which started during the second half of November. It, however, remains positive about a recovey and is confident in the long-term outlook of over 20 per cent yearly GOV growth in the business.

 

"While food delivery segment growth was sub-par in Q3, it is not the first time when the growth has disappointed. In Q3FY23, GOV growth had slowed to 0.7 per cent Q-o-Q due to macro slowdown. We expect the FD segment to deliver 17-20 per cent Y-o-Y growth in GOV in FY25F-26, with contribution margin of 8-9 per cent," Nomura said with a lower target price of Rs 290 from Rs 320.

 

Contribution Margin (CM), which is a profitability measure highlighting the revenue that the company earns from selling each additional unit of its product, was 6.9 per cent in FY24.

 

In Q3, Food delivery's contribution margin rose to 8.5 per cent from 7.6 per cent in Q2FY25, whereas adjusted Ebitda margin as a percentage of GOV rose 80bps Q-o-Q to 4.3 per cent.

 

By comparison, the BSE Sensex index was up 0.06 per cent at 11:50 AM.

 

Focus on Blinkit

Blinkit’s revenue increased 21 per cent Q-o-Q to Rs 1,399 crore with the segmental GOV up 27 per cent Q-o-Q to Rs 7,798 crore.

 

Furthermore, Blinkit’s average order value (AOV) increased to Rs 707 from Rs 660 in Q2FY25, while the dark stores increased Q-o-Q from 791 to 1,007. Blinkit’s average monthly transacting users also inched up to 10.6 million in Q3 from 8.9 million in Q2FY25.

 

That said, Blinkit’s contribution margin fell 80bps Q-o-Q to 3 per cent in Q3 while adjusted Ebitda margin as a percentage of GOV dipped 120bps Q-o-Q to -1.3 per cent due to accelerated dark store addition and higher marketing expenditure.

 

Going ahead, the management has advanced its store count target of 2,000 from December 2026 to December 2025 given the scale-up of its store addition capability and higher competition in the space.

 

“Blinkit dark store additions are outpacing expectations, driving faster growth. We believe this bunching up of cost for dark store addition shall hurt profitability in the short-term, but shall ultimately lead to bunching up of profitability in future quarters as these stores mature,” said analysts at Nuvama Institutional Equities.

 

Meanwhile, Motilal Oswal Financial Services estimates that the company may have to add a cumulative 4,000 stores between FY25 and FY30 to improve order volumes. 

 

"We believe this could meaningfully increase capex/fixed costs for the company. Our estimates suggest fixed costs for Blinkit could grow at a CAGR of 25 per cent over FY25-30, testing the company's execution prowess in delivering meaningful profitability gains," it cautioned.

 

Zomato earnings cut

Nuvama Institutional Equities has cut its FY25, FY26, and FY27 Ebitda estimates by 28 per cent, 49 per cent, and 18 per cent, respectively. It has cut its Zomato share price target to Rs 300 from Rs 325.

 

Nomura, too, has cut its target price to Rs 290 from Rs 320, while Emkay Global has cut FY25-27 earnings per share (EPS) estimates by 46-83 per cent with an unchanged target price of Rs 310. 

“We note near-term challenges to profitability from quick commerce expansion. However, we believe Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce. Overall, Zomato is well-positioned to capitalise on this growth," said Motilal Oswal.

 

The brokerage has cut estimates for FY25, FY26, and FY27 by around 30 per cent, and target price to Rs 270. All the brokerages have maintained their ‘Buy’ ratings.