Zomato Q4 results preview: Strong revenue growth to lead faster-than-expected profitability

Food Delivery platform Zomato is likely to report its earnings for the period ended on March 31, 2023 on Friday and analysts expect the company to move faster on its way to profitability. They see sharp revenue growth on a year-on-year (YoY) basis, while sequential growth (QoQ) may be muted. Net loss is likely to remain almost flat on both YoY and QoQ basis.

With continued interest rate hikes and heightened inflation, discretionary spending remained subdued in 4QFY23. This impacted our coverage companies in the form of reduced demand. However, seasonality would play a significant role and analysts expect that Zomato could see weaker sequential performance post the festive quarter.

ICICI Securities estimated food delivery GOV to remain flat sequentially, but up 14.2 per cent YoY in Q4FY23E despite the activation of Zomato Gold membership, given a seasonally weaker quarter and online consumption fatigue trends as noted above. It also sees 1 per cent QoQ decline in food ordering AOV as delivery fees have been waived off for Gold members.

"We estimate food ordering contribution margin to remain stable QoQ as restaurant take rate improvements may offset delivery subsidy increases. We estimate Hyperpure business (B2B) to grow 26 per cent QoQ and Blinkit to grow 30 per cent QoQ led by an increase in geographical reach. Overall, we estimate adjusted revenue growth of 9.5 per cent QoQ and 68 per cent YoY and flattish consolidated EBITDA QoQ in Q4FY23E, indicating sustainable growth in new businesses," it said.

According to ICICI Securities, Zomato may clock a revenue of Rs 2,154.6 crore, up 11% QoQ and 78% YoY, while its EBITDA loss is seen at Rs 351.2 crore, down on both basis. The company may report a net loss of Rs 345.6 crore for the quarter, slightly lower QoQ and YoY. It has a buy rating on Zomato with a target price of Rs 65.

We are building a 4.3 per cent sequential decline in Food Delivery GOV in 4Q as we factor-in adverse impact of inflationary pressures on discretionary spends, increase in dine-in consumption and company’s focus on profitability. For Blinkit, we forecast sequential GOV growth of 10 per cent to be driven by volumes, as AOVs are likely to shrink due to focus on enhancing customer experience and expanding transaction base, said JM Financial.

Hyperpure, should report 16 per cent QoQ growth while dining-out business is likely to report sequential weakness. Food Delivery contribution margin is likely to remain stable at 5.1 per cent in Q4. Blinkit contribution margin can see sequential improvement of 50bps to -4.0 per cent. Ex-Blinkit, adjusted EBITDA could be very close to break-even, it said.

JM Financial expects Zomato to report a net loss of Rs 343 crore, improvement of 1 per cent QoQ and 4.7 per cent QoQ. The brokerage firm sees Zomato to clock adjusted net profit in FY25. It has a buy rating on the stock with a target price of Rs 100 on the stock.

Another brokerage firm Nuvama Institutional Equities expects Zomato to clock a revenue of Rs 11,033.1 crore with a EBITDA loss oF Rs 681 crore and adjusted net loss of Rs 537.1 crore for the entire financial year 2022-23. Some of the profitability is eating into revenue growth. A slowing in QSR and shift towards dining out is adding pressure, it said.

India’s food delivery market is on track to taste profitability earlier than-expected. In a duopoly, with Zomato as one of the participants, reducing cash burn is now the prime agenda for both players. The recent scaling back of headcount and tweaking of delivery incentives are key ingredients in the profitability recipe, said the brokerage firm.

"Recent cost-cutting measures have improved the profitability outlook, and we raise our target price to Rs 85 (from Rs 74 earlier) and retain 'buy' rating on the back of faster-than-expected improvement in profitability.," Nuvama said.

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