Zomato Shares Dip 4% in Today’s Trade; What Should Investors Do Now?

Shares of online food delivery aggregator Zomato shares fell nearly 4 per cent to Rs 51.45 in Monday’s trade on BSE. This comes after the company announced its Q3 numbers, which were a mixed bag. It posted a consolidated net loss of Rs 347 core compared with a loss of Rs 63 crore a year ago and Rs 251 crore a quarter ago. However, consolidated revenue from operations surged 75 per cent on year to Rs 1,948 crore. However, consolidated revenue from operations surged 75 per cent on year to Rs 1,948 crore.

At the standalone level, however, the online food delivery aggregator’s performance further improved, with the company posting a net profit of Rs 62 crore against a loss of Rs 99.3 crore a year ago. Sequentially, the net profit has risen 5 times.

What Should Investors Do Now?

“Zomato continues to show an urgency to reduce loss with adjusted Ebitda (ex-Blinkit) now < Rs 0.4 bn, a positive. Food GOV stayed near flat QoQ which mgmt. attributed to tough macro. Outlook seems positive as break-even target stays, as early as 4QFY23 – another positive in the context of Zomato Gold. Green-shoots in food delivery are also visible on demand in Jan. Blinkit also sees strong growth with swift reduction in losses. More update post the call on Friday,” said global Jefferies.

Calling the Q3 results a good delivery, with promising outlook, the brokerage has maintained its Buy rating on the stock with a target price of Rs 100 per share.

“Zomato is a play on growing food services industry in India as well as increasing adoption of digital commerce. With only 15mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability. The platform also has an optionality of expanding into other adjacent categories such as grocery, etc,” Jefferies highlighted.

Nuvama said Zomato reported better-than-expected revenues and in line profitability. The gross order value (GOV) in food delivery was flat sequentially because of a decrease in monthly transacting users (MTU) with the closure of the Zomato Pro membership program, increase in dining out and boost in travel. Zomato Gold’s relaunch will be a big boost to growth, it said.

“While growth was impacted, contribution margin improved from 4.5 per cent in Q2FY23 to 5.1 per cent in Q3FY23. Blinkit’s performance was encouraging with 18 per cent QoQ growth in GOV and improvement in profitability,” it said while suggesting a target of Rs 74 on the stock.

Emkay said the operating performance was mixed. It said Zomato registered a disappointing muted GOV, but contribution margin in food delivery and Hyperpure revenue growth beat expectations.

The management indicated that ex-quick commerce business achieved break-even in January and sees a good chance of achieving adjusted Ebitda breakeven ex-quick commerce in Q4.

“It remains confident about achieving adjusted Ebitda margin of 4-5 per cent of GOV, in the food delivery business in the medium term. Q3 performance strengthens our belief in the company’s ability to execute & deliver profitable growth, but growth moderation in MTU/GOV remains a concern,” Emkay said while suggesting a target of Rs 90 for the stock.

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