Brokerage firms such as Jefferies, Nuvama, and Kotak have increased their price targets (PT) for Zomato stock following the foodtech giant’s announcement of a consolidated profit after tax (PAT) of INR 138 Cr in the December quarter (Q3) of the financial year 2023-24 (FY24). This surge was attributed to a significant expansion in its quick commerce business.
A large majority of brokerage firms have assigned a “buy” rating to the stock, anticipating a total return of 15% or higher within the span of a year.
Continue Exploring: Zomato reports third consecutive profitable quarter with INR 138 Cr PAT in Q3 FY24
While JM Financial, an investment banking firm, maintained its price target (PT) for the stock at INR 200, Jefferies revised its forecast upward to INR 205 from its earlier INR 190.
Similarly, Nuvama institutional equities raised its previous price target forecast of INR 140 to INR 180. Conversely, Kotak increased the number to INR 190 from INR 160.
Zomato’s shares closed at INR 149.45 on Friday, marking a 3.78% increase from the previous day’s closing price.
“Zomato continues to be one of our preferred picks in the listed Internet space as we believe it is well positioned to benefit from robust industry tailwinds for the hyperlocal delivery businesses. Its balance sheet also remains strong with net cash of INR 120 Bn as of December 2023,” JM Financials said.
The brokerage’s response follows the foodtech major’s third consecutive profitable quarter. Its net profit soared by 283% from INR 36 Cr in Q2 FY24. The startup earned INR 3,288 Cr from its operations during the quarter, marking a 69% increase from INR 1,948 Cr in the corresponding quarter of last year.
The company’s rapid growth has been driven by its quick commerce vertical, Blinkit. Due to increased festive demand, its revenue surged to INR 644 Cr, more than doubling from the INR 301 Cr it made in Q3 FY23.
Continue Exploring: Blinkit continues growth trajectory with second consecutive quarter of positive contribution
“Blinkit is the market leader in the fast-growing quick-commerce space and is set to see sharp margin improvements,” Jefferies said.
Zomato has indicated that it is on track to achieve adjusted EBITDA break-even for Blinkit on or before the June quarter of the financial year 2025. JM Financial identifies take-rate expansion, store operating leverage, and corporate-level operating leverage as key drivers for near-term margin expansion to reach break-even for Blinkit.
Furthermore, Kotak’s upgrade primarily stems from the strong indication of revenue growth in the Blinkit business.
“We believe that the margins of the business can also improve in tandem with the core business,” the brokerage said.
Nevertheless, the lion’s share of the total operating revenue was still generated by its food delivery vertical. Although the vertical’s revenue increased by 29% year-over-year to INR 2,205 Cr, the sequential growth failed to meet the company’s expectations.
According to Kotak, the demand environment was subdued during the quarter, resulting in lower-than-expected growth of 6.3% quarter-on-quarter in food delivery gross order value (GOV). Nevertheless, it highlighted that this growth surpassed that of some other players in the restaurant industry space.
Nuvama anticipates that the expansion of Zomato’s food delivery vertical will be fueled by enhancements in order frequency, the addition of restaurants, and a boost in market share.
“Based on SOTP [sum of the parts valuation], we are valuing the food delivery business at 60x Q4FY26 EBITDA deriving value of INR122/share ($ 12.1 Bn),” the brokerage said.
Another notable surge in the company’s operations came from its B2B arm, Hyperpure, which saw its revenue double to INR 859 Cr from INR 421 Cr a year earlier. The company is currently in the midst of establishing a plant to process value-added food supplies, aiming to further expand this vertical.
Continue Exploring: Zomato’s B2B vertical Hyperpure sees exponential growth in Q3 FY24, revenue inches closer to INR 1,000 Cr
Kotal anticipates that the capital expenditure incurred by Zomato will not significantly impact the overall size of the business. Consequently, the expected payback on this investment is deemed attractive. The brokerage also stated that Zomato intends to start with one facility and may consider expansion in the future.
