Shares of Zomato Ltd. rose to an over-two-year high on Friday as brokerages maintained positive calls on the company after its third-quarter profit jumped nearly fourfold, beating analysts' estimates.
The Deepinder Goyal-led company's profit increased to Rs 138 crore in the quarter ended December, according to an exchange filing on Thursday. Analysts polled by Bloomberg had projected a consensus estimate of Rs 86.1 crore.
Zomato Q3 FY24 Earnings Highlights (Consolidated, QoQ)
Revenue up 15.4% at Rs 3,288 crore. (Bloomberg estimate: Rs 3,099.7 crore).
Ebitda at Rs 51 crore vs loss of Rs 47 crore (Bloomberg estimate: Rs 22.3 crore).
Net profit up 383.33% at Rs 138 crore. (Bloomberg estimate: Rs 86.1 crore).
Shares of Zomato rose as much as 5.07%, the highest level since Dec. 3, 2021, before paring gains to trade 1.25% higher at 10:54 a.m. This compares to a 0.16% decline in the NSE Nifty 50.
The stock has risen 172.52% in the last 12 months. Total traded volume so far in the day stood at 2.30 times its 30-day average. The relative strength index was at 65.55.
Of the 29 analysts tracking the company, 26 maintain a 'buy' rating and three suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 11.2%.
Here's what brokerages made of Zomato's Q3 earnings:
Nomura
Upgraded rating from 'reduce' to 'add' and hiked target price to Rs 180 apiece from Rs 75, implying a potential upside of 25% from current levels.
Zomato is likely to balance its growth and margin ambitions in this business, it said. Expects food delivery to deliver 18-25% year-on-year growth in gross order value in FY25-26F, with a contribution margin of 7.5%.
Strong growth with improving profitability, along with weakening competition (with funding concerns emerging in Dunzo), may mean that quick-commerce business is on a similar trajectory as seen in the food delivery business, Nomura said.
Zomato’s high growth path with improving profitability has significant room to go in both the food delivery and quick-commerce businesses.
Our increased target price implies a 25% premium to the current trading multiples of high growth consumer companies like DMart, Trent and Titan, which we believe is justified given the nascent stage of the business and huge growth potential.
Key risks include capital allocation of Rs 1,500 crore cash, slowing growth of both the food delivery and quick-commerce businesses.
HSBC
Maintained 'buy' and raised the target price to Rs 163 apiece from Rs 150, implying a potential upside of 16% from current levels.
Food delivery and quick-commerce businesses performed better than expected, though HSBC sees normalisation in food delivery growth going forward.
For the medium term, growth will continue to be driven by top-10 cities, as quick-commerce penetration improves and there is a market share shift from mom and pop stores to quick-commerce, the brokerage said. Consistent growth in average order value is a positive surprise and helps drive profitability as well.
HSBC increased its FY24/FY25/FY26 revenue estimates by 2.5/9.4/8.9% as the brokerage builds in sustained revenue growth momentum across food delivery, but mainly quick commerce.
Motilal Oswal Financial Services Ltd.
Maintained its 'buy' rating, with a raised target price of Rs 170, implying a potential upside of 18% from current levels.
Expects Zomato to deliver a strong 70%/41% year-on-year growth in FY24/FY25, with Blinkit outpacing the food delivery business because of geographical expansion, improvement in order frequency, and moderation in competitive environment in the quick commerce industry.
Remains positive on the long-term growth opportunity for Zomato and does not expect competition to intensify further, despite the entry of ONDC in the space.
Food delivery business is still in a nascent stage in India, with a long runway for growth. With a dominant market share and strong growth in the food delivery business and Hyperpure, Motilal Oswal expects Zomato to report a strong 38% adjusted revenue CAGR over FY24-26.
BofA Securities
Maintained its 'buy' rating, raises target price from Rs 145 to Rs 172, implying a potential upside of 19% from current levels.
Revenue beat ours and consensus estimates by 3%; big beat on profitability, led by strong execution at Blinkit.
Headroom for take rate increase on restaurant side will be on account of ad monetization coming from restaurants and a function of platform fee.
Morgan Stanley
Maintains 'overweight' rating, hikes target price to Rs 150 from Rs 140, implying a potential upside of 7%.
Food delivery Ebitda rose on the back of contribution margins
Core business Ebitda was in-line with estimates.
Lower losses in quick commerce though volumes were lower than expectations.
Expects margin expansion and top-line growth to drive growth in absolute profits.
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