Zomato’s stocks surged by as much as 6.4% during intraday trading on the BSE on Monday, hitting a new 52-week high of INR 123.9. This rise was propelled by the company’s strong Q2 FY24 earnings and a favorable outlook from the Street on the stock.
On Friday, the prominent foodtech company marked its second back-to-back profitable quarter, with its Q2 profits after tax (PAT) surging to INR 36 Cr from the INR 2 Cr recorded in Q1 FY24. Zomato experienced significant expansion across various business sectors, notably its quick commerce platform Blinkit, during the quarter under evaluation.
Read More: Zomato reports remarkable surge in profit, achieving second consecutive profitable quarter in FY24
After the results were disclosed, a minimum of nine brokerage firms increased their price targets (PTs) for Zomato.
Bernstein elevated its stock price target for Zomato to INR 145 from its previous INR 120, stating that the Zomato flywheel is not just in motion but gaining momentum, propelling it to become a leading platform in both food delivery and commerce.
The brokerage raised its price target due to Zomato’s surpassing growth in the quarter, optimistic projections, and enhanced market conditions, resulting in a notable increase in monthly transacting users (MTUs). Additionally, it raised Zomato’s estimated food delivery revenue for FY24 and FY25 by 3% and 4%, respectively.
Conversely, Kotak Institutional Equities raised its fair value estimate for the stock to INR 130 from the previous INR 125, suggesting a 5.4% potential upside to the stock’s most recent closing price of INR 123.3 on the BSE today.
The brokerage also enhanced its revenue projections for FY2024-26 by 10-11%, attributing the growth to all three segments of Zomato’s business. Nevertheless, Kotak foresees increased ESOP costs for FY25.
JM Financial indicated that Zomato’s shares are likely to remain robust due to its Q2 results and the optimistic growth projection for key businesses, especially in terms of gross order value (GOV).
“With food delivery EBITDA margin gradually moving towards steady state levels and Blinkit business turning contribution level profitable, we now use a lower WACC (Weighted Average Cost of Capital) assumption of 12% versus 13% earlier,” said the brokerage as it raised its PT on Zomato to INR 155 from INR 115 earlier.
It’s worth mentioning that Q2 FY24 marked Blinkit’s first full-contribution positive quarter.
Read More: Blinkit records first positive contribution, anchoring Zomato’s quick commerce success
JM Financial noted that Zomato’s gold subscribers played a more significant role, accounting for approximately 40% of Zomato’s food delivery Gross Order Value (GOV), compared to 33% in Q1 FY24 and 19% in Q4 FY23. This shift is seen as a positive sign for the business, as subscriptions generally lead to increased customer loyalty and ordering frequency.
Read More: Zomato Gold Loyalty program sees remarkable success with 38 Lakh members in just three quarters
While the introduction of the government-supported ONDC in the food delivery sector has prompted concerns regarding its effect on Zomato’s operations, Motilal Oswal reaffirmed its stance that it does not anticipate heightened competition for the company led by Deepinder Goyal.
Furthermore, it maintained its optimistic outlook on the long-term growth potential for Zomato and raised the price target to INR 135, signifying a 9.5% potential increase over the stock’s most recent closing price.
Elara Capital raised its price target for Zomato to INR 150 from the previous INR 140, indicating a potential increase of more than 21% over its most recent closing price.
“We believe Zomato’s clout in the food business (duopoly nature) and scalability prospects in Blinkit may drive share price performance,” the brokerage said.
Jefferies raised its price target for the stock to INR 165 from INR 130.
It’s worth mentioning that Zomato’s shares have surged by 107.7% year-to-date, driven by robust growth and the company’s return to profitability. Additionally, its market capitalization has surpassed the $12 billion mark, up from $6 billion at the end of the previous year.
Among the 27 brokerages covering Zomato, 23 have assigned a ‘buy’ or higher rating to the stock, while the remaining four rate it as ‘sell’ or lower.