Why Zomato stock slipped 5% in early trade today

Shares of online food delivery firm Zomato fell nearly 5 per cent today after brokerage Macquarie gave a bearish stance on the stock. Zomato stock slipped 4.97 per cent to Rs 64.05 in early trade against the previous close of Rs 67.40 on BSE. Zomato stock opened with a loss of 3.56 per cent at Rs 65 on BSE.

Total 19.01 lakh shares changed hands amounting to a turnover of Rs 12.92 crore.

Market cap of the food delivery firm stood at Rs 54,603 crore on BSE. The stock hit a 52-week high of Rs 169.10 on November 16, 2021 and a 52-week low of Rs 50.35 on May 11, 2022.

Later, the stock turned green and was trading 2.82 per cent higher at Rs 69.30 on BSE.

In fact, the stock hit an intraday high of Rs 70.7, rising 4.9 per cent. The stock has lost 49.62 per cent in 2022 but gained 22.03 percent in a month.

ALSO READ: 'Aggressive about conserving cash’: Zomato CEO Deepinder Goyal on minority investments

Macquarie initiated coverage on the stock with an underperform rating.  It gave a target price of Rs 55 for the stock.

The brokerage said it expects to maintain dominant position in a potentially large food delivery market. However, it highlighted lack of any momentum in user adds against sharp five times expansion in transacting users based on FY33 consensus forecasts.

"Profitability is a function of scale, and this growth concern is corroborated with ongoing soft Apptopia metrics. Despite 60 per cent share price decline (vs index minus 15 per cent), see further downside," it added.

On May 25 this year, JM Financial gave a buy call on Zomato with a target price of Rs 115 for one year. At that time, the market price of Zomato stood at Rs 63.95.

ALSO READ: Zomato Q4 results: Net loss widens to Rs 360 cr, revenue surges 75%

"Zomato reported significant sequential improvement in all key operating and financial metrics in 4QFY22. What was even more impressive were the disclosures and management willingness to address street concerns both through a shareholders' letter as well as post results conference call. With a dual focus on growth and profitability, management guided for sequential top line growth to accelerate to double digits in 1QFY23 (despite supply side challenges in some cities) while adjusted EBITDA losses are also expected to decline meaningfully. Company mentioned that it was contribution profit positive in 120 cities in FY22 (out of its top 300 cities versus just 5 in FY20) while indicating that group contribution profits could inch towards double-digits in the long term," JM Financial said.

While the brokerage expects Zomato to sustain high-growth momentum in the near term, it moderates GOV/Revenue estimates over FY23-25E due to growing company focus on profitability and concerns on impact of inflation on demand. Profitability on the other hand should continue to improve due to strong operating leverage. It raises WACC to 13 per cent from 12 per cent earlier due to rising yields and market volatility, leading to a revised DCF-based TP of Rs 115 (versus Rs 140 earlier), it added.