Zomato hits fresh 52-week high; surpasses its IPO price after a year

Shares of Zomato hit a fresh 52-week high of Rs 77.35, gaining 2 per cent on the BSE in Friday’s intra-day trade. The stock price of the food delivery platform company rose above their initial public offering price of Rs 76 per share on Thursday after more than a year. Zomato made its stock market debut on July 23, 2021.

In the past one month, the stock has rallied 27 per cent on improved operational performance. It was trading at its highest level since June 2022, and has bounced back 91 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).

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.

"With a sustained improvement in profitability of the food delivery business and meaningful reduction in losses in the hyperpure and quick commerce businesses, has significantly improved visibility of profitability in the medium term," said analysts at ICICI Securities in a recent note.

The brokerage firm has upgraded its revenue, EBITDA and PAT estimates for FY25 by 21 per cent, 139 per cent and 100 per cent. “We now think Zomato consolidated (including Blinkit) could turn profitable on an Adjusted EBITDA basis (Rs 179 million) as early as FY24E,” their analysts said in the Q4 result update note.

In Q4FY23, GOV declined QoQ due to adverse seasonality and a muted demand environment. However, in April and May 2023, GOV for the food delivery business grew in the high single digits according to management, which analysts believe raises hopes of an imminent recovery.

"Superior execution of cost control has resulted in the Zomato business (ex- Blinkit) turning profitable on an adjusted EBITDA level, two quarters before guidance. Given the current trends, we believe that both the hyperpure business and the Blinkit business can turn profitable (on an Adjusted EBITDA basis) by FY27E," the brokerage firm said, with a ‘buy’ rating on the stock and a target price of Rs 83 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.

Their 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,” the MOFSL note said while reiterating its BUY rating on the stock with a target price of Rs 80 per share.