New Delhi: Brokerage firms remain positive on Zomato after upbeat results during the quarter ended June 30, 2022.
The food delivery platform reported a narrowing of consolidated net loss to Rs 186 crore for the June quarter compared with Rs 359.70 crore in the March quarter and Rs 360.70 crore in the year-ago quarter.
The consolidated revenue from operations surged 67.44 per cent YoY to Rs 1,413.90 crore from Rs 844.40 crore in the corresponding quarter last year. Ebitda loss reduced to Rs 150 crore, the company said.
Zomato said its food delivery business grew 15 per cent sequentially and saw adjusted Ebitda break-even, which turned out to be the biggest positive surprise for market participants.
Growth in revenue was driven by 10 per cent sequential growth in gross order value (GOV) to Rs 6,430 crore in the June quarter and growth in revenue per order.
BofA Securities maintained its buy rating on the stock with a target price of Rs 82. It said that had a stable quarter despite headwinds but the overhang from the lock-up expiry remains.
“Q1FY23 revenue/EBITDA was better than expectations and adjusted EBITDA was breakeven in the food delivery segment with the focus on cost control clearly visible. The Zomato-Blinkit deal remains on track,” it said.
Another foreign broker Jefferies, too, has kept its buy tag intact without changing its target price of Rs 100 per share after the upbeat Q1 performance.
“Q1FY23 results suggest that we underestimated the urgency,” it added. “Blinkit is also mirroring the trend with strong growth and an eye on loss.”
As the mandatory lock-in for Zomato expired on July 23, there was a gush of stock supply as more than 613 crore shares or about 78 per cent stake of the company was set free which induced heavy selling, sparking freefall in the stock.
Kotak Institutional Equities said Zomato’s attempts to accelerate growth while simultaneously aiming to improve profitability in the core business are positives, reiterating its buy rating with a revised target price of Rs 80.
“We increase FY2023-25 revenues estimates by 4-6 per cent on account of higher revenues in Hyperpure,” it added. “We tweak our margin assumptions and now assume lower losses in FY2024-25.”
On the contrary, Karan Taurani, Senior Vice President, Elara Capital, said, “Multiple concerns persist for Zomato in the form of regulatory headwinds, sustained unit economics of the food delivery business in the current inflationary environment and higher losses in the new business segments such as quick commerce.”
However, he does not expect any downside for the stock at these valuations, unless unit economics again moves unfavourably for the food business and the risk-reward ratio remains favourable.
Market participants believe that reduced losses in the emerging business – quick commerce and Hyperpure, coupled with improved profitability in the core food business will drive upgrades for the stock.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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