Zomato shares rise 4% to hit new 52-week high; analysts see more steam left in the stock

Shares of Zomato jumped about 4 per cent during the trading session on Monday and hit a new 52-week high as the stock was seen above Rs 80-mark during the trading session. The stock has surpassed its issue price more than one year after, giving relief to investors.

Shares of Zomato were listed on July 23, 2021 when the company raised Rs 9,375 crore via its primary offering selling its shares at Rs 76 apiece. After making a record high of Rs 161 in November 2021, the stock has been hammered severely after lower profitability and liquidity tightening. The stock crashed about 75 per cent to Rs 40.55 on July 27, 2022.

However, the stock has been in the momentum recently after strong quarterly results, the path to profitability on operational levels and a positive outlook by the brokerage firms. The stock has gained more than 25 per cent in the last one month, while it has gained about 35 per cent in the year 2023 so far.

Shares of Zomato rose about 4 per cent on Monday to Rs 80.30, its new 52-week high and the total market capitalization of the company was slightly shy of Rs 70,000 crore mark. The scrip had settled at Rs 77.57 on Friday.

Zomato reported better-than-expected operating performance in the March 2023 quarter, while it registered muted gross order value (GOV) growth quarter-on-quarter (QoQ), contribution margin across segments beat estimates. Zomato's business, excluding quick commerce, turned positive adjusted Ebitda, in the March quarter.

Zomato reported a narrowing of losses at Rs 188.20 crore for the March 2023 quarter compared with Rs 346.60 crore in the December quarter and Rs 359.70 crore in the same quarter last year. Revenue for the quarter rose 69.66 per cent to Rs 2,056 crore for the quarter compared with Rs 1,211.80 crore in the corresponding quarter last year.

Zomato has introduced differential pricing to their food delivery subscription packages, in a bid to improve contribution margin (CM) from such customers. The differential pricing seems targeted and aims to better monetize higher-frequency customers while incentivizing low-frequency customers to join the subscription program, said Kotak Institutional Equities.

Also, Blinkit is fast scaling down losses, and the weakening competitive intensity should aid CM breakeven in FY2024 for the business. We now ascribe an Rs 80 billion valuation to this business. We bake in higher take rates for Zomato over FY2024-26E, while broadly retaining medium-term estimates, resulting in a 14-65 per cent increase in FY2025-26E EBITDA, it added.

Kotak Institutional Equities has maintained its 'buy' tag on the stock with a revised target price of Rs 95, suggesting another 23 per cent upside in the stock. Similarly, Nuvama Institutional Equities had revised target price on the stock to Rs 94 (from Rs 85 earlier) in May 2023.

"We expect Zomato to maintain its market leadership in the food delivery segment. Zomato’s relaunch of its Gold membership plan should bring back growth. Meanwhile, improved profitability is a clear demonstration of operating efficiencies playing out. Our note reflects our positive stance backed by improved profitability," said Nuvama.

Another brokerage firm JM Financial had given a buy call on Zomato with a target price of Rs 105 in May 2023 and remains one of the top picks from the Indian internet sector, while Emkay Financial had a buy rating on the stock with a target price of Rs 90.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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