Zomato shares at Rs 45 or Rs 90? Here are new stock price targets post Q4 results

Zomato Ltd's progress on profitability and continued traction in Blinkit impressed analysts in the March quarter, but the second straight quarter of volume decline for the food delivery vertical and a drop in average monthly transacting users (MTU) disappointed a bit. A few analysts expect Zomato to breakeven on adjusted Ebitda level by December quarter but target prices on the stock suggests a mixed view on the Street, even as the ONDC entry is not expected to intensify competition for now.

Nomura India finds the stock worth Rs 45, as it feels achieving high gross order value (GOV) growth and strong contribution margin improvement in core food delivery business remain challenging. Zomato’s relaunch of its Gold membership plan should bring back growth, said Nuvama Institutional Equities while suggesting a target of Rs 94 on the stock. Motilal Oswal Securities sees the stock at Rs 80. It said Zomato’s food delivery performance has been underwhelming in recent quarters, but the company has delivered a strong turnaround in profitability over the period.

"We expect the good pick-up in Gold membership (c11 per cent of 4Q MTU) to help in FY24 (14 per cent YoY GOV growth), although it would slightly hurt contribution margin led by an increase in availability fee," the brokerage said. Emkay finds the stock at Rs 90.

Zomato reported a narrowing of losses at Rs 188.20 crore for the March quarter compared with Rs 346.60 crore in the December quarter and Rs 359.70 crore in the same quarter last year. Zomato said its business, excluding quick commerce, turned positive adjusted Ebitda, in the March quarter. It said it is aiming to be positive adjusted Ebitda (and also PAT) including quick commerce within the next four quarters.

On Monday, the stock was trading 1.1 per cent higher at Rs 65.25 on BSE.

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"Zomato’s road to profitability has grown even more promising. Zomato’s adjusted Ebitda ex-quick commerce has hit the profitability milestone earlier than our and Street’s expectations We expect management to achieve their goal to clock adjusted EBITDA for the consolidated business by Q4FY24, considering their strong execution, growth momentum in Blinkit and tapering ESOP expenses. Post recent exits, the company has renewed leadership – CEO and COO for food delivery and CEO for Hyperpure. These leaders have been with Zomato/Blinkit for more than five years," said Nuvama Institutional Equities.

Nomura India said Zomato's contribution margin is unlikely to fall from the current level, unless Zomato goes aggressive on discounting again. Overall, it has lowered its growth assumptions for food delivery's GOV growth, from 20% to 17 per cent, but raised ots FY24F contribution margin estimate from 5.8 per cent to 6.5 per cent.

"We believe to achieve its target of 4-5 per cent Ebitda margin (as percentage of GOV), Zomato will need 7-8 per cent CM margin, and we think this will take at least 2-3 years. We continue to believe Zomato will find it difficult to achieve double-digit CM, with high growth in the long term."

Motilal Oswal Securities, meanwhile, expects Zomato to breakeven on adjusted Ebitda level in 3QFY24 and on reported PAT by 4QFY24 (70 bps PAT margin).

"Improving profitability should help it deliver FY25E adjusted Ebitda of Rs 42 crore before turning reported Ebitda positive in FY26E. Our estimates imply FY23-25 revenue CAGR of 36 per cent and 13.1 per cent improvement in adjusted Ebitda margin, leading to a PAT turnaround over the period." it said.

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