After Zomato reported its first profitable quarter in Q1 FY24, brokerage firm Bernstein has indicated that the foodtech leader is setting higher standards for profitability. Consequently, they have increased the stock’s price target (PT) from INR 100 to INR 120.
In a research report published on Tuesday, September 12, Bernstein expressed its confidence that Zomato has the potential to achieve sustained, robust growth in food delivery over the long term, driven by ongoing enhancements in contribution margins.
“The company’s strong execution (market leader, 55% share) & ‘profit beats’ has reinforced investor confidence,” said the analysts at the brokerage analyst in the research note.
“Zomato stock has graduated from ‘GMV multiple’ to ‘profit multiple’ as medium term EV (Enterprise Value)/ EBITDA multiple look reasonable. We shift to a profitability approach for valuing food delivery,” the report said.
Bernstein’s price target (PT) suggests a 21.7% potential increase from Zomato’s closing price of INR 98.63 today on the BSE.
It’s important to highlight that amidst the growing focus of both retail and institutional investors on profitability, Zomato recorded a net profit of INR 2 crore in the June quarter of FY24, with operating revenue amounting to INR 2,416 crore.
Read More: Zomato turns profitable in Q1 FY24, reports INR 2 Cr consolidated PAT
The adjusted revenue of the food delivery business increased by 18.5% year-on-year (YoY) and nearly 14% sequentially, reaching INR 1,742 crore in Q1.
In an attempt to further strengthen its food delivery business, Zomato has implemented a platform fee of INR 2 and INR 3 for most customers. Kotak Institutional Equities recently indicated that this fee adjustment is poised to enhance the business’s customer take rate and contribution margin.
Read More: Zomato extends platform fee to wider user base, implements INR 3 charge in select cities
Following the release of the June quarter results, Zomato’s shares have experienced a 14% surge, contributing to a remarkable year-to-date (YTD) increase of over 70%.
Read More: Zomato’s profitable quarter ignites bullish outlook; brokerages raise target prices
Bernstein anticipates that Zomato’s consolidated adjusted revenue will exhibit a Compound Annual Growth Rate (CAGR) of 27% between FY24 and FY30.
Meanwhile, Equirus Securities, a brokerage firm, initiated coverage on Zomato yesterday, giving it a ‘long’ rating and setting a price target (PT) of INR 135. This PT suggests an upside potential of almost 37% from the stock’s last closing price. It’s important to note that ‘long’ is the highest rating assigned by Equirus Securities.
“Its (Zomato’s) dominance in the underpenetrated food delivery space should drive a robust 31% sales CAGR over FY23-FY28, making it one of the fastest growing players in India’s internet landscape,” said Equirus.
The brokerage holds the belief that Zomato is strengthening both customer and restaurant loyalty to its platform by offering a comprehensive range of products. This strategy is seen as consolidating its status as a prominent player within the industry.
Regarding Zomato’s quick commerce business, it was stated that Blinkit is expected to achieve contribution-level breakeven (after accounting for all variable costs) by FY24 and reach a contribution profit of INR 51 per order by FY28.
In its Q1 results, Zomato forecasted that Blinkit would attain breakeven on an adjusted EBITDA basis within the upcoming four quarters.
“Blinkit’s success has stemmed from its understanding of product-supply chains, enabling seamless coordination between warehouses and dark stores… Its proprietary tech stack, tailored for supply chain operations, is the backbone of its efficient operations,” said the brokerage.
Shares of Zomato ended today’s session 2.7% lower at the BSE.