Zomato up 6%, hits new high on improved results; zooms 91% from June lows

Zomato expects adjusted EBITDA margin of food delivery and quick commerce business to increase to 4-5 per cent over the medium term.

Shares of food aggregator Zomato hit a new high of Rs 280, as they rallied 6 per cent on the BSE in Monday’s intra-day trade after analysts said that consistent delivery on growth and strong execution on profitability across Food Delivery and Quick Commerce (QC) would support elevated valuations.

The stock has surpassed its previous high of Rs 278.45 touched on August 2, 2024. It has bounced back 91 per cent from its June month low of Rs 146.85 on the BSE.

Thus far in August, the stock has surged 22 per cent after Zomato reported a net profit of Rs 253 crore for June 2024 quarter (Q1FY25), jumping sharply from the Rs 2-crore net profit reported last year. Revenue for the restaurant aggregator rose by nearly 74 per cent year-on-year (YoY) to Rs 4,206 crore.

 

All verticals of Zomato saw sequential growth with Food Delivery growing 11.7 per cent, Hyperpure 27.4 per cent, Quick Commerce 22.5 per cent, and Going Out 2.2 per cent.

Within these, Food Delivery (FD) segment's gross order value (GOV) grew 10 per cent quarter-on-quarter (Q-o-Q) and 27 per cent Y-o-Y to around Rs 9,260 crore. Its average monthly transacting users (MTU) grew 6.8 per cent Q-o-Q to 20.3 million.

Quick commerce segment Blinkit's GOV, meanwhile, grew 22.2 per cent Q-o-Q to Rs 4,920 crore, with adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) sustaining at breakeven levels. Further, while contribution margin for FD declined by 20 bps Q-o-Q to 7.3 per cent, it inched up by 10 bps Q-o-Q to 4 per cent for Blinkit.

In Q1FY25, FD business achieved adjusted Ebitda margin of 3.4 per cent (as a per cent of GOV). The company expects this to increase to 4-5 per cent adjusted Ebitda margin over the medium term.

The quick commerce business achieved Adjusted Ebitda break-even in the month of March 2024 and the company expects margins to increase to 4-5 per cent in stable state. 

”Our Going-out and B2B supplies business (Hyperpure) are still in nascent stages of market penetration and growth. We expect to achieve similar Adjusted Ebitda margin in these businesses as well over the long term,” Zomato said in its FY24 annual report. The Company is profitable from FY24 onwards. The company continues to build its four key businesses with a focus on both growth and overall profitability, it added.

Zomato announced the launch of a new app and brand “District” (in line with its house of brands philosophy) aimed at catering to ‘going-out’ businesses or local activities such as movies, sports ticketing, live performances, shopping, staycations etc. including Dining-out. Hyperpure continues to scale well (+27 per cent Q-o-Q) and sees more penetration opportunity in restaurants while keeping minimum losses. Zomato noted no change to its capital allocation despite free cash flow generation given competitive dynamics in the market.

Analysts at Noumra post Q1 results, note that Zomato’s high growth path with improving profitability has significant room to go in both the FD and Q-commerce businesses.  The brokerage firm has raised FY25-26F Ebitda by 26-60 per cent. Key risks, analsyts said, include capital allocation of approximately $ 1.5 billion cash, slowing growth in FD and Q-commerce businesses, it said. The stock, however, achieved the brokerage firm’s target price of Rs 280 per share in intra-day trade today.

Meanwhile, according to CNBC TV18 report today, UBS has given a ‘Buy’ call on Zomato, saying Q1 surprised positively with not only stronger quick commerce GMV growth (+130 per cent YoY), but also a solid 27 per cent growth in food delivery, both ahead of estimates as well as margin expansion in both segments.

Zomato operates a B2C technology platform that provides customers with a seamless, on-demand solution to search and discover local restaurants, order food, and have it delivered reliably and quickly. Blinkit is a quick commerce marketplace providing on-demand delivery of thousands of products across multiple categories in less than 15 minutes.