Zomato Shares Reach New Highs
Zomato shares rose 2% on Thursday, reaching a record 52-week high of Rs 234 per share and a total market valuation of Rs 2.05 lakh billion. The stock’s value has increased thrice since its 52-week low.
Zomato, a food delivery company, is slated to disclose its quarterly results for the three months ending June 30, 2024. The brokerages anticipate a significant topline growth with a multifold increase in net profit for the quarter. The stock reached new highs as investors anticipated a good Q1 performance.
Analysts watching the stock feel that EBITDA performance on a quarterly (QoQ) basis will be a key element for the company. They feel that Blinkit’s operational performance and profitability, an increase in food delivery platform charges, and management’s comments for future quarters will be critical to the stock.
Brokerage consensus anticipates Zomato to post revenue of roughly Rs 3,800-4,000 crore, up 40% year on year and 8-10% sequentially. Ebitda may be approximately Rs 150 crore, with EBITDA margins ranging from Rs 3.9 to 4.3 percent for the quarter. According to brokerage projections, the net profit will increase dramatically every year to between Rs 175-240 crore.
Kotak Institutional Equities anticipates Q1FY25 revenue growth of 59% YoY, driven by 35% YoY growth in food delivery revenues, 65% YoY growth in Hyperpure revenues, and 125% YoY growth in Blinkit sales. The stock is rated Buy by the trading firm.
EBITDA and Profitability Perspectives
“We expect a 20 basis point improvement in the food delivery contribution margin to 7.7% in Q1, resulting in a 3.7% EBITDA margin. While Blinkit losses are likely to be slightly reduced, the addition of over 100 dark storefronts may prevent EBITDA break-even from being achieved, according to the research.
“We project a 20 basis point quarter-on-quarter improvement in the food delivery contribution margin to 7.7% in Q1, which, combined with an increase in gross merchandise value (GMV), will lead to a 3.7% EBITDA margin. While we anticipate a slight reduction in losses for the Blinkit business, we don’t expect to reach EBITDA break-even yet, as the addition of over 100 dark stores could negatively impact profitability,” the report stated.
Zomato Ltd’s shares increased around 2% during Thursday’s trading session to a new 52-week high of Rs 234 per share. The company’s overall market capitalization has risen to Rs 2.05 lakh crore. Since its 52-week lows, the stock has risen and tripled in value.
Food delivery may see 6% QoQ GOV growth, whereas Blinkit will experience a significant 14% QoQ GOV growth. According to Equirus Securities, we expect sequential Adjusted Ebitda margin improvements in food delivery and Blinkit to be 29bps/99bps, compared to 29bps/159bps sequential improvement in 4QFY24.
Equirus, which has a ‘long’ rating on Zomato with a target price of Rs 240, highlighted that key areas to monitor include market share changes in the food delivery sector, quarter-on-quarter growth in monthly transacting users (MTUs) and order volumes, the expansion of customer delivery charges, and the net addition of dark stores for Blinkit.
While Blinkit is expected to reach Adjusted EBITDA break-even by 1QFY25, as per management guidance, we believe Zomato would prioritize growth expenditures in the next years due to increasing competitive intensity. JM Financial believes that Zomato’s management’s guidance for adjusted EBITDA to linger around zero for the next several quarters is also reflective of this changing business climate.
The brokerage firm believes that Blinkit is well-positioned to tackle rising competition due to its strong track record in food delivery and quick commerce, along with a solid balance sheet.
Another domestic broker, Axis Securities, has begun coverage of Zomato, with a ‘buy’ recommendation and a target price of Rs 280. We are convinced that Zomato’s development into the Quick Commerce sector will be supported by consistent increases in profitability and significant reductions in losses in the hyperpure and quick commerce domains, the company stated.
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