Zomato hits new high in subdued market; stock zooms 55% thus far in CY24

In the past one year, Zomato's stock price has appreciated nearly four-times or 270 per cent from a level of Rs 51.75.

Shares of Zomato hit a new high of Rs 191.25, gaining 2 per cent on the BSE in Friday's intra-day trade in an otherwise subdued market on expectations of healthy earnings. In comparison, the S&P BSE Sensex was down 0.2 per cent at 74,070 at 09:34 am.

In the past 15 trading days, the stock price of food aggregator platform company has rallied 29 per cent. In the past one year, Zomato appreciated nearly four-times or 270 per cent from a level of Rs 51.75. Thus far in the calendar year 2024 (CY24), the stock has surged 55 per cent, as against a 2.5 per cent rise in the benchmark index.

Zomato is expected to report overall revenue of Rs 3,170 crore in March 2024 quarter (Q4FY24), up 54 per cent year-on-year (YoY), as growth trajectory continues. The company continues to have a competitive advantage in delivery compared to quick service restaurants (QSR) platforms due to the presence of a higher number of restaurants and cuisine, according to analysts Elara Capital.

The brokerage firm expects gross order value (GOV) growth of 19 per cent YoY and 80 per cent YoY in the food delivery segment and Blinkit (qCommerce segment), respectively. “We expect revenue growth of 35.8 per cent YoY in food delivery, 84.8 per cent YoY for Blinkit and 80 per cent YoY in Hyperpure,” Elara Capital said in its quarterly preview.

Analysts expect better YoY growth in food delivery revenue, led by higher take rate expansion of 250bp YoY, due to introduction of platform fee of Rs 4 in major markets from 1 January, and higher ad revenue (food & non-food verticals); the brokerage firm do not see any negative impact due to the introduction of food delivery in ONDC for now, due to a below par user experience and lack of scale.

Analysts expect the overall earnings before interest, tax, depreciation, and amortisation (ebitda) margin to expand to 2.0 per cent, up 40bp QoQ, due to margin expansion in the food delivery segment whereas cost control measures are underway in Blinkit.

The turnaround in the food delivery business underway with improving monthly transacting user base and higher order frequency leading to better contribution and Ebitda margins. Improving transacting customer base for the quick commerce business too with increased visibility on contribution breakeven and profitability, leading to higher valuation for the business, said analysts at CLSA in February report.

The brokerage firm maintains its BUY rating but lifts target price from Rs 181 to Rs 227.

The food delivery margin rose despite an increase in the active restaurant base and a weak demand environment. Quick commerce saw a better contribution margin, despite an accelerated increase in dark stores. According to CLSA view, the adjusted Ebitda margin for food should gradually move to Zomato’s medium term guidance of 5 per cent-6 per cent while quick commerce remains on track to hit adjusted Ebitda breakeven in FY25.