Shares of Zomato Ltd extended its gains during the trading session on Friday to scale new highs. The stock increased another 2 per cent to Rs 221.30 on Friday, with its total market capitalisation hitting Rs 1.95 lakh crore mark. Brokerage firms continue to remain positive on the stock.
On the other hand, analysts are awaiting the company's quarterly earnings as it recently turned profitable. Market participants shall be keenly watching its performance in the quick commerce business, to turn profitable, or at least operationally profitable. Despite the majority of them having 'buy' ratings, the target prices for Zomato have seen some rejigs.
Global brokerage firm UBS has maintained its 'buy' rating on Zomato, increasing its target price to Rs 260 from Rs 250 earlier. "Industry volume growth was 1 per cent MoM in June, adjusted for the number of days. It said that the quarter gone by saw a push and pull between Zomato and its rival Swiggy. It estimates Zomato's GMV QoQ growth for Q1FY25E at 9 per cent," it said.
Zomato is likely to report an overall revenue of Rs 39,600 crore in Q1FY25E, up 63.9 per cent YoY, as traction in food delivery and quick commerce business continues, said Elara Capital, in Q1 preview expectations, and keeping Zomato among its top buys from the internet sector.
"However, May 2024 was slightly muted, given the impact of heat waves; low availability of delivery partners in Tier I markets; and the General Elections, which hit order volume. But volume started to pick up pace in June and momentum may sustain in the near term," it added.
Zomato’s shareholders have approved employee stock option plan 2024 (ESOP 2024) that would enable grant of 183 million stock options to its group employees. The dilution impact for existing shareholders on a fully diluted basis would be 2 per cent, said JM Financial with a 'buy' rating in its recent report, launched about a week ago.
"However, the formulation of a new policy suggests ESOP costs should be treated as a regular business expense as they are likely to recur in future. So we changed our valuation methodology for Zomato to PER from the multiples-driven SOTP approach earlier to better capture the impact of ESOP cost on valuations" it added, trimming its target price of Rs 230 apiece from Rs 250.
After a significant increase of 364 per cent from its all-time low, the price action has entered a consolidation phase, potentially gaining further bullish strength. This accumulation phase follows the breakout of a long IPO base. The stock shows improving EPS strength and buyer demand, as well as relatively strong price strength compared to the market, said StoxBox.
"The daily and higher timeframe Relative Strength Index (RSI) is well above their median, indicating the potential for further momentum in the price," added the brokerage firm, on a technical basis has suggested to buy Zomato near Rs 206 apiece with a target price of Rs 225.
"Zomato’s quick commerce segment, Blinkit, is expecting aggressive expansion, with the management intending to double its store count in the year and hoping to increase its GOV by 4x in the coming fiscal years. The management also plans to keep reinvesting into its quick commerce business to grow as fast as possible and target EBITDA neutrality soon," StoxBox added.
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