Zomato rallies 7% on inclusion in BSE Sensex from Dec 23; JSW Steel down 2%

Thus far in the calendar year 2024, Zomato stock price has zoomed 125 per cent, as compared to the 11 per cent rise in the BSE Sensex

Shares of food aggregator Zomato rallied 7 per cent to Rs 282.85 on the BSE in Monday’s intra-day trade after the stock exchange announced that it will replace JSW Steel with Zomato in the BSE Sensex index, starting December 23. This change is a part of the index’s regular constituent rebalancing.

 

The changes will take effect on December 23, 2024, Asia Index Pvt Ltd, a subsidiary of the BSE, announced on Friday. Zomato's inclusion in the 30-stock index marks a significant milestone for the company, which has seen an impressive rally over the past year. Apart from that, Zomato will also be available for trading in the future & option (F&O) segment from November 29.

 

 

Thus far in the calendar year 2024 (CY24), the stock price of the online food delivery giant has zoomed 125 per cent, as compared to the 11 per cent rise in the BSE Sensex. The stock had hit a record high of Rs 298.20 on September 24. On the flip side, shares of JSW Steel were down 2 per cent to Rs 958.25 at 09:27 AM. The stock of the metal company has gained 9 per cent so far in CY24.

 

In its September quarter (Q2) results, Zomato had reported a net profit of Rs 176 crore for the July-September period, higher by 388 per cent from the year-ago period's net profit of Rs 36 crore, but down 30 per cent sequentially from a net profit of Rs 253 crore in Q1FY25.

 

In Q2FY25, revenue surged 68.5 per cent year-on-year (YoY) to reach Rs 4,799 crore, driven by strong performance in key segments. Earnings before interest, tax, depreciation and amortisation (ebitda) stood at Rs 226 crore, largely driven by platform fees and higher ad revenue, and might only witness a stable rise in the near term.

 

The company's ebitda margin increased to 4.7 per cent from 1.7 per cent in Q2FY24, primarily driven by revenue increases that were partly offset by elevated operating expenses, which included wage increases and expenditures associated with the expansion of Blinkit.

 

Zomato's food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce.

 

According to Geojit Financials, Zomato's management expects the going-out segment's gross order value (GOV) to grow more than 3x moving forward, reaching upwards of Rs 1,000 crore from Rs 323 crore in FY24. Moreover, there is further potential for growth contingent upon the company's ability to introduce additional use cases to the platform, including shopping and staycations.  "With the current performance metrics showing improvement, we believe that growth in all key areas — orders, AOV, and new user acquisition — should enhance the profitability going forward," stated Geojit Financials.

 

Zomato’s management believes that going-out experiences will continue to see strong growth, with overall growth in lifestyle and consumption. In terms of profitability, in the near-term, the management expects the going-out business to continue to remain near break-even on adjusted ebitda-basis (as has been the case so far), it added.

 

The Hyperpure and Going Out segments saw a respite in profitability. Better execution and potential qualified institutional placement (QIP) inflows have placed Zomato in a dominant position, said analysts at Elara Capital, while reiterating the company's ‘buy’ rating with a target price of Rs 320 per share.  Meanwhile, the exclusion of JSW Steel from the BSE Sensex is expected to result in fund outflows in the interim period as some passive funds as well as ETFs align their portfolios to this index change. This may put some downward bias on JSW Steel stock price in the near term.  "However, over the long-term perspective, we remain optimistic on the stock given the company’s ambitious expansion plans to reach 50 MTPA by 2030, superior product portfolio, and healthy profitability guidance," ICICI Securities said in a note.