Zomato stock up 5% on strong Q2, turns multibagger; share price targets & more

Shares of Zomato Ltd climbed 5 per cent in Monday's trade to hit a 52-week high after the online food delivery platform beat Street's Q2 expectations on most fronts. Analysts said the food delivery segment bounced back after two quarters of tapered growth. The revenue growth, they said, was led by Blinkit and noted that adjusted Ebitda margin as percentage of gross order value (GOV) of food delivery was stable. Zomato continues to expect a breakeven in Blinkit in Q1FY25 despite maintaining a high pace of new store addition, they added. A few analysts are largely positive on the company's prospects, though their target prices vary quite a bit.

The stock rose 4.76 per cent to hit a fresh one-year high of Rs 121.95. The scrip is now up 102 per cent year-to-date. Zomato, with its last two results, has clearly shown that growth remains its top priority, said Nuvama Institutional Equities. "Strong growth across business gives us confidence in Zomato’s ability to maintain its lead in food delivery as well as gain market share in quick commerce," it said.

The brokerage values Zomato's food delivery business at Rs 93 per share while it finds quick commerce business worth Rs 27 per share, as it upped its target on the stock to Rs 140 from Rs 110 earlier.

"Zomato’s revenue growth was much stronger than expected as all businesses continued to grow at full throttle. We are increasing our revenue growth estimates, as we believe management is aiming at higher-than-anticipated growth while we are lowering our profitability expectation, as management will invest to drive growth," it said.

Motilal Oswal said it remained positive about Zomato's long-term growth opportunity and does not expect competition to intensify further despite the entry of ONDC in the space.

"We now estimate Zomato to turn positive on reported EBITDA by Q4FY24 (earlier Q4FY24) and deliver 4.1 per cent Ebitda margin in FY25," it said.

Kotak Institutional Equities said the food delivery GOV growth guidance of 25-30 per cent YoY in Q3FY24 indicates some consumption recovery and market share gain. The brokerage has upgraded its FY2024 26 per cent revenue estimates by 10-11 per cent, driven by all three segments.

“Adjusted Ebitda remains relatively unchanged, as we also model higher fixed costs. We assume higher ESOP costs for FY2024-25, which drove bulk of the EPS cut for FY2024- 25. Higher revenue forecasts, especially for Blinkit, led to a revised SoTP-based fair value of Rs 130 from Rs125 earlier,” Kotak said.

Nomura India said it is factoring in stronger growth for the core food delivery and quick commerce businesses over FY24-25F. But its food delivery long-term adjusted Ebitda margin estimates remained broadly unchanged at 5.4 per cent of GOV. "We raise our DCF-based target from Rs 60 to Rs 75. We continue to believe that sustaining high GOV growth and strong CM improvement of the core FD business for an extended period will remain a challenge," it said.

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