Kotak Institutional Equities said Zomato Ltd is likely to report a healthy March quarter performance, driven by 25 per cent year-on-year (YoY) growth in food delivery gross merchandise value (GMV) and 99 per cent YoY growth in Blinkit GMV.
It expects both the businesses to report sequential contribution margin (CM) improvement, driven by better take rate and advertising income. With this, the domestic brokerage upgraded its FY2025-26 revenue estimates by 4-6 per cent and EPS by 1-3 per cent, primarily on faster growth in Blinkit.
It has retained 'Buy' rating on the stock with a revised SoTP-based fair value of Rs 210 against Rs 190 earlier, as it believes the momentum on the food delivery business remains reasonably healthy, with Zomato well-positioned to gain share in the near term, amid benign competitive intensity.
The Blinkit business continues to scale, well-driven by new store addition and improving customer engagement, it said adding that it has upgraded food delivery and Blinkit’s GMVs over FY2025-26.
"We expect Zomato to report food delivery GMV of Rs 8,230 crore, up 25 per cent YoY, but down 3 per cent QoQ; Zomato guided for 20 per cent-plus YoY growth in food delivery GMV published in its 3QFY24 shareholder’s letter. 4Q typically witnesses a lull compared with 3Q owing to fewer festive occasions, year-end exams and more," Kotak said.
Zomato had noted an upside risk to the guidance due to possible market share gains and demand revival. Healthy addition of supplier restaurants over the past two quarters will be an added growth driver, Kotak said.
Kotak said it expects 15 bps sequential CM expansion, driven by platform fee
"We expect Zomato to report a contribution margin (CM), as a percentage of GMV, of 7.3 per cent, up 15 bps QoQ and 145 bps YoY. The sharp YoY expansion will be driven primarily by higher restaurant take rate + higher advertising income. The sequential improvement is due to marginal improvement in customer charges, driven by higher platform fee implemented from January 01, 2024," Kotak said.
The brokerage said that the customer charges have declined during FY2024 due to the Zomato Gold impact and that it expects this to rise marginally with time, driven by a higher platform fee.
On Blinkit, it expects 99 per cent YoY growth in GMV and 102 per cent YoY growth in revenues.
"Despite the very high 28 per cent QoQ GMV growth in 3QFY24, we expect 15 per cent QoQ growth in 4QFY24, driven by new store addition and ramp-up in throughput of existing stores. Newer stores of Blinkit are witnessing quicker ramp-up, driven by sharper merchandise assortment and more awareness of quick-commerce services by customers," it said.
On the other hand, older stores should witness better store-level throughputs, driven by better productivity, the brokerage said. Overall, Kotak sees Blinkit to report CM of 3.3 per cent, as a percentage of GMV, up from 2.4 per cent reported in Q3.
"This results in Ebitda loss of Rs 45.60 crore, lower than the loss of Rs 89 crore (pre-Ind AS 116) reported in 3Q," it said.