Zomato shares hit all-time high, turn multibagger in 1 year: What’s driving its success?

Zomato share price has surged approximately 270 per cent over the last year, and the rally of the stock can continue as experts believe the food-delivery company may report healthy Q4FY24 performance, further boosting investors' sentiment about the stock.

The stock has witnessed a solid bull run over the past year as on a monthly scale, Zomato share price has been in the green since April last year.

On Friday, April 5, Zomato share price climbed about 3 per cent to hit its all-time high of ₹191.90 on BSE. The stock, however, cooled off and ended 1.90 per cent higher at ₹190.50.

What has worked for the new-age tech stock?

Zomato's stable quarterly performance appears to have captured investors' attention. Furthermore, the impressive performance of its quick commerce arm—Blinkit—has instilled even more confidence in investors.

In Q3, Blinkit’s gross order value (GOV) grew 28 per cent sequentially. The Blinkit business continues to expand, propelled by the addition of new stores and enhanced customer engagement efforts.

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India's growing food delivery market implies Zomato's GOV will continue to rise even though the company does not see a material market share gain.

Brokerage firm ICICI Securities, which has a buy call on the stock with a target price of ₹300, believes that the food delivery market can grow at a CAGR of more than 20 per cent year-on-year to reach $40 billion in FY33E. This implies, as the brokerage firm highlighted, that Zomato food business GOV can grow more than 20 per cent year-on-year till FY33E even if there is no material gain in market share.

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According to the estimates of Kotak Institutional Equities, Blinkit may post a whopping 99 per cent year-on-year growth in GMV (gross merchandise value) and 102 per cent year-on-year growth in revenues.

"Despite the very high 28 per cent quarter-on-quarter GMV growth in Q3FY24, we expect 15 per cent quarter-on-quarter growth in Q4FY24, driven by new store addition and ramp-up in throughput of existing stores," said Kotak.

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"Overall, we expect Blinkit to report CM (contribution margin) of 3.3 per cent, as a percentage of GMV, up from 2.4 per cent reported in Q3. This results in an EBITDA loss of ₹45.6 crore, lower than the loss of ₹89 crore (pre-Ind AS 116) reported in Q3," Kotak said.

Kotak has retained a buy call on the stock, raising the target price to ₹210 from ₹190 as it believes Zomato is well-positioned to gain market share in the near term amid benign competitive intensity even as momentum on the food delivery business remains healthy.

Parth Shah, a research analyst at StoxBox pointed out that Zomato’s food delivery segment continued to be on a strong footing, with Blinkit's business recovery contributing to further traction.

He expects Blinkit to lead the next phase of growth for the overall business owing to new store additions, higher efficiency from existing stores, growing customer adoption of 10-minute delivery in groceries, growing order sizes and a wider assortment of product offerings.

"Zomato is expected to garner market share amid the addition of more supplier restaurants, growing acceptance of the 'Zomato Gold' loyalty program and increasing consumer preference for online food ordering. The company is also expected to benefit from the monetisation of the technology platform through platform fees," said Shah.

Technical Outlook

KKunal V Parar, VP of technical research and algo at Choice Broking underscored that on a weekly chart, the stock has recently broken out from a rounding bottom formation's neckline, indicating strong potential for an upward move. This breakout occurred with above-average volume, signalling further bullish momentum.

Furthermore, the stock has been consistently trading in uncharted territory, which suggests that there may be additional room for upside movement.

"Analyzing the daily chart, we observe that the stock has been following an upward rising channel formation, reinforcing the expectation for continued upward momentum. Additionally, the stock is trading above all its long-term moving averages, indicating a positive trend and supporting the likelihood of further upward movement. Considering these technical indicators, we anticipate a significant upside potential for the stock, with a target range of ₹220-250. On the downside, support is expected around ₹165," said Parar.

Milan Vaishnav, CMT, MSTA, Founder and Technical Analyst of Gemstone Equity Research and ChartWizard FZE said Zomato found resistance in the ₹165-170 zone.

If we zoom out on the weekly timeframe chart, this zone turns out to be a classical double top resistance; this level was first tested in November 2021. Following a brief consolidation, the stock staged a breakout and remains in a continuing uptrend, Vaishnav pointed out.

"As the stock is in uncharted territory, the best one can do is to stay invested until there are any definite signs of reversal. A new entry can be made and the existing investors can continue to stay invested by trailing the stop loss higher to ₹164," said Vaishnav.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.