BackZomato share price extends rebound, up 25% in 3 days. Should you grab a bite?
Zomato has witnessed a rise in investor interest post its Q4 earnings announcement
PremiumAfter hitting a low of ₹50.35 on May 11, shares of Indian food delivery firm Zomato has extended their rebound. Shares rose 5% to ₹75, extending the 3-day gains to 25%. Analysts say that Zomato has witnessed a rise in investor interest post its Q4 earnings announcement.
Last week, Zomato had reported a 75% jump in quarterly revenue, driven by a surge in order volumes. During the quarter through March 31, gross order value - or the total value of all food delivery orders placed on Zomato's online platform - jumped 77% year-on-year to a record high of ₹5,850 crore, while average monthly transacting customers were at an all-time high of 1.57 crore.
But higher expenses widened the company's consolidated net loss to ₹360 crore for the three months ended March 31, up from a loss of ₹130 crore earlier.
“The gross order value has witnessed substantial growth, adjusted EBITDA losses continue to decline and the food delivery business has seen substantial improvement. Investors rejoiced at the management commentary which has emphasized growth without sacrificing profitability. The company is one of the largest online food service platforms and the industry has a long runway of growth. The company’s position has improved due to consolidation in the industry and a reduction of the number of major players to a mere two," said Santosh Meena, Head of Research, Swastika Investmart.
The correction from highs of ₹169, hit last year, has brought the valuation down and the business is witnessing an improvement, he said.
For investors, looking to enter Zomato, Mr Meena has a word of caution: “The company will take significant time to show significant profitability and the current market sentiments are punishing startups that are growing without showing profits. Thus we believe that this company is suitable for investors having a high-risk appetite and long-term view."
Another brokerage JM Financial has a buy rating on Zomato with a target price of ₹115.
“With a dual focus on growth and profitability, management guided for sequential top line growth to accelerate to double digits in 1QFY23 (despite supply side challenges in some cities) while Adj. EBITDA losses are also expected to decline meaningfully. Company mentioned that it was contribution profit positive in 120 cities in FY22 (out of its top 300 cities versus just 5 in FY20)," the brokerage said in a note.
“While we expect Zomato to sustain high-growth momentum in the near term, we moderate our GOV/Revenue estimates over FY23-25E due to growing company focus on profitability and concerns on impact of inflation on demand. Profitability on the other hand should continue to improve due to strong operating leverage. We raise our WACC (weighted cost of capital) to 13% from 12% earlier due to rising yields and market volatility, leading to a revised DCF-based TP of ₹115 (versus ₹140 earlier," the brokerage added.
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