Zomato Ltd saw its shares falling 6 per cent in Tuesday's trade, as the guidance of 500 new store addition in FY25 was deemed aggressive and is seen weighing on its near-term profitability. Analysts though continue to like the stock and have price targets in 225-300 range.
Kotak has upgraded revenue estimates but baked in higher ESOP costs and lower near-term profitability in Blinkit, as it cut EPS estimates by 5-22 per cent for FY25-27. This brokerage believes the FY2025 store addition guidance was aggressive and should hurt profitability in the near-term.
On Tuesday, the Zomato stock fell 5.98 per cent to hit a low of Rs 182.10 on BSE.
ICICI Securities said Blinkit's store addition is a strategic move to gain market share in quick commerce through geographical expansion while competitors are still focused on profit improvement.
"We have cut our Blinkit adjusted Ebitda estimate for FY25E by 68 per cent; however, FY26 Blinkit adjusted Ebitda estimate is revised up by 11.4 per cent. In food delivery, we think the recent innovations in bulk ordering and veg only fleet should boost revenue growth; while gold plan optimisation and priority delivery should aid further profit improvement," ICICI Securities said while maintaining a 'Buy' on the stock with a target of Rs 300.
UBS said Zomato's Q4 was in line with UBS estimates at gross order value (GOV) and revenue levels, but missed Ebitda estimates due to higher employee costs.
The brokerage said the guidance of 40 per cent-plus YoY growth in adjusted revenues for next couple of years holds good and Zomato plans to 'double down' on quick commerce with plans to add 100 stores (526 as of end-March) in Q1FY25, and reach 1,000 stores by end-FY25. UBS maintained its 'Buy' on Zomato with a price target of Rs 250. Despite rapid expansion for Blinkit, adjusted Ebitda margin is expected to "hover around zero level" for next few quarters, with 4-5 oer cent medium-term target.
Nomura India said Zomato’s high growth path with improving profitability has significant room to go in both the food delivery and quick commerce businesses. It has upped its target price on the stock to Rs 225 from Rs 180, factoring in higher long-term growth in both the key businesses.
"We believe Zomato is likely to balance its growth and margin ambitions in this business in the near term. We expect FD to deliver 20-22 per cent y-y growth in GOV in FY25F-26F, with contribution margin of 7.5 per cent (+60bp vs FY24F)," it said.
Zomato is targeting to increase quick-commerce penetration in top 8 cities (after Delhi NCR) to Delhi's levels which could lead to 4 times increase in GOV in those cities. Meanwhile, ESOP costs went up in Q4FY24 due to the grant of ESOPs to Blinkit leadership team and senior employees; this is expected to go up further, but overall employee costs as per centof revenue will continue to trend down, UBS said.