BackZomato stock top pick in listed new-age firms; brokerages upgrade target price after Q4 results
Zomato's net loss squeezed meaninfully in Q4FY23, as the company's core business turned profitable. The online food delivery giant is optimistic in becoming a profit-making company by end of FY24. Brokerages have upgraded their estimates on Zomato and raised their target price on the stock.
PremiumZomato's last quarter of FY23 was sweeter with profitability in the food delivery business improving, hypercure continuing on a steady growth, alongside a meaningful reduction in losses of Blinkit business. The icing on the cake was that Zomato remains committed to turning both adjusted EBITDA and PAT positive by Q4 of FY24 on a consolidated basis. This has made brokerages upgrade their growth estimates in Zomato while raising their target prices on this new-age company's stock.
On Monday, Zomato's share price closed at ₹63.57 apiece down by 1.50% on BSE.
It needs to be noted that Zomato's Q4 numbers were a positive ladder for the company in its vision to turn profitable.
During Q4 of FY23, Zomato's net loss narrowed by nearly a half to ₹188.2 crore as against ₹359.7 crore a year ago same quarter and ₹346.6 crore in Q3FY23. The losses were squeezed lower due to strong growth in the top-line front. Operating revenue stood at ₹2,056 crore in Q4FY23, rising by 70% from ₹1,211.8 crore in Q4 of the previous fiscal.
Read here: Zomato’s consolidated loss narrows in Q4; eyes profitability in next four quarters
Zomato's performance was primarily driven by the company’s food delivery segment, which delivered an adjusted Ebitda of ₹78 crore in the quarter. Also, the difference between adjusted Ebitda and net profit has narrowed significantly.
Deepinder Goyal, founder and chief executive officer (CEO) of Zomato last week said, in the food delivery business, the company will continue with the same mindset as it looks to further expand the adjusted Ebitda margin (from the current 1.2%) its stated goal of +4-5% of GOV (which would translate to ~ ₹1,000 to ₹1,300 crores of annual cash operating profit at the current scale of the food delivery business).
What do brokerages say about Zomato?
According to ICICI Securities' note, in Q4FY23, Zomato's GOV declined QoQ due to adverse seasonality and a muted demand environment. However, in April and May 2023, GOV for the food delivery business grew in the high single digits according to management, which raises hopes of an imminent recovery. Also, the superior execution of cost control has resulted in the Zomato business (ex- Blinkit) turning profitable on an adjusted EBITDA level 2 quarters before guidance.
Further, it explained that Zomato sustained improvement in profitability of the food delivery business and meaningful reduction in losses in the hyperpure and quick commerce businesses.
This in the brokerage's view has significantly improved the visibility of profitability in the medium term.
Going forward, ICICI Securities upgraded its Revenue, EBITDA and PAT estimates on Zomato for FY25E by 21%, 139%, and 100%. It said, "We now think Zomato consolidated (including Blinkit) could turn profitable on an Adjusted EBITDA basis (Rs179mn) as early as FY24E."
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On stock price, ICICI Securities note said, "We maintain BUY rating on Zomato and increase our DCF-based target price to Rs83 from Rs65 led by earnings upgrades, given improved visibility of profitability and sustained improvement in the underlying operating metrics. Risk: Further slowdown in discretionary spend."
Meanwhile, Zomato is JM Financial's top pick in the listed Internet space due to its conviction in its long-term growth prospects and the management’s strong execution capabilities.
In its note, JM Financial said, "We continue to remain bullish on the company’s long-term growth prospects in the hyperlocal delivery space as we believe it is well positioned to benefit from robust industry tailwinds such as improving tech penetration and rising income share of digitally native millennials / GenZ. Balance sheet remains strong with net cash of ₹113 billion as of Mar’23."
Adding JM's note said, "We continue to value the consolidated business using a 15-year DCF (WACC of 13% and Tg of 6%) to arrive at a Jun’24 FV for Zomato of ₹105 (vs. ₹100 earlier). Implied FY26 PER on our TP works out to ~63x while the stock currently trades at c.39x."
However, Kotak Institutional Equities analysts in their note said, "We cut food delivery FY2024-25E revenue estimates by 5-11% driven by slow industry growth, ~2% yoy growth in AOV every year and higher CM. Overall, higher profitability broadly offsets the lower revenue growth resulting in an unchanged FV of Rs82, roll-forward to March 2024E notwithstanding."
In a month, Zomato's share price has rallied by nearly 14% on BSE. However, year-to-date, the stock's gain is a little over 5.5%.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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