Zomato stock up over 10% after reporting PAT at Rs 2 Cr, but is the company truly profitable?

Food aggregator platform Zomato’s shares are on a hot streak on Friday morning after the company reported a Profit After Tax (PAT) of Rs 2 crore in its Q1 FY 23-24 results, thereby turning profitable for the first time. Before this, Zomato had reported a loss of Rs 188 crore in Q4 FY23.

But a close look at Zomato’s statement of consolidated unaudited financial results for the quarter ended June 30, 2023 shows that the company booked a ‘Loss before Taxes’ of Rs 15 crore. The next items on the profit and loss statements are ‘Current Tax’, which stands at 0 and ‘Deferred Tax’ which stands at Rs 17 crore. This brings Zomato’s Profit After Tax to Rs 2 crore.

(15)+17=2

As per Indian Accounting Standard 12, “Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of: (a) deductible temporary differences; (b) the carryforward of unused tax losses; and (c) the carryforward of unused tax credits.”

In simple words, Zomato was able to offset its current loss with previous losses of previous quarters.

Brokerage houses shared a mixed response on Zomato. Nomura maintained the 'Reduce' rating on the company, estimating a 31 per cent downside. Their target for Zomato was at Rs 60.

Analysts at Nomura explained, "While we acknowledge that Zomato is likely to achieve its target of 4-5 per cent EBITDA margin (as a per cent of GOV) earlier than our expectation, we continue to believe that it will be a challenge to achieve double-digit CM, with high growth in the long term (High growth with margin expansion to be a challenge).”

JPMorgan and UBS, on the other hand, shared a positive outlook for the company. JPMorgan maintained its 'overweight' rating on Zomato with a target of Rs 100 per share. UBS has maintained a 'buy' rating on Zomato with a target of Rs 90 per share. UBS noted the positive adjusted EBITDA and net profit after tax ahead of guidance have helped maintain the positive outlook.

Zomato has significantly improved operational efficiencies over the past few quarters. The company's loss for Q4 FY23 was at Rs 188 crore. In the quarter before that, Q2 FY23, the losses stood at Rs 346.6 crore. The Loss Before Taxes of Rs 15 crore in Q1 FY24 is evidence of the operational efficiencies, which were brought about by reducing spends on offers, increasing delivery prices and doubling down on its subscription service Zomato Gold.

Zomato opened at Rs 89.90 and was trading at Rs 95.85, up over 10 per cent on Friday morning.

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