Zomato Stock Up 14%, Nears Rs 100 Mark After Earning First-Ever Profit In Q1; Buy?

Zomato's share price traded at high spirits on Friday, rising by more than 14% to even hit a new 52-week high. Riding on the back of bulls, Zomato is just a few rupees away from crossing the Rs 100 mark. Its market cap has also climbed by more than Rs 10,400 crore in a single day. The reason behind the impressive surge in Zomato's shares is that this online food delivery firm has turned profitable for the first time.

At the time of writing, Zomato shares traded at Rs 95.54 apiece, soaring by Rs 9.32 or 10.81% on BSE. The stock has hit a new 52-week high of Rs 98.39 apiece. Overall, the stock is up by 14.11% on the exchange.

At the current market price, the company's market value is Rs 81,896.92 crore. However, considering the upside of 14.11%, the market cap has climbed by Rs 10,437.13 crore to at least Rs 84,406.88 crore in the overall day.

On the previous day, Zomato shares stood at Rs 86.22 apiece with a market cap of Rs 73,969.75 crore.

Just a profit of Rs 2 crore in the quarter ending June 30, 2023, period has skyrocketed investors enthusiasm in Zomato shares.

In Q1 of FY24, Zomato earned a net profit for the first time to the tune of Rs 2 crore. The company posted a net loss of Rs 189 crore in the March 2023 quarter and Rs 186 crore in the June 2022 quarter.

Profitability was driven by strong growth in the topline. Zomato registered a whopping 70.86% growth in revenue from operations to Rs 2,416 crore, from Rs 1,414 crore in Q1 of the previous fiscal. Sequentially, the growth was 17.51% from Rs 2,056 crore in Q4FY23.

Talking about the Q1 results, Akshant Goyal, Chief Financial Officer of Zomato on August 3rd said, "Realistically speaking, we were expecting to hit this milestone in the September quarter (Q2FY24), and we were being conservative in our earlier guidance. However, some critical parts of the team across our businesses out-executed our expectations/plans, and some of our initiatives delivered better outcomes than we had expected."

Akshant believes that Zomato's business will remain profitable going forward, and from the latest financial results in Q1FY24, he believes Zomato will continue to deliver 40%+ YoY topline (Adjusted Revenue) growth for at least the
next couple of years.

Should you still buy Zomato shares?

Brokerages find Zomato shares attractive to buy.

In its post-Q1 results review report, JM Financial on Zomato said, "To say that Zomato's 1QFY24 results were 'stellar' would be a gross understatement. While we strongly believed that the Street estimates were depressed, the quantum of the beat was just unfathomable."

According to Kotak Institutional Equities report, Zomato's food delivery business GMV growth came in at 14%/11% yoy/qoq, 3% ahead of estimates. Marginally higher AOVs and superior take rates drove a better-than-expected CM of 6.4% (versus 5.8% in 4QFY23). EBITDA profitability in the core business and lower losses in Blinkit drove a significant reduction in consolidated EBITDA loss to Rs480 mn from Rs2.25 bn in 4QFY23. The ambitious revenue growth target of 40% yoy may be hard to achieve, though profitability may continue to surprise.

On the valuation ahead, Kotak's note said, "We raise FY2024-26 food delivery revenue estimates by 8-9%, driven primarily by higher take rates. Our EBITDA/EPS estimates witness sharp upgrades as we bake in higher CM with the resultant operating leverage benefits. Blinkit business can drive further upsides to estimates as well as FV. Our SoTP-based FV moves up to Rs105 (from Rs95); retain BUY."

Also recommending a 'Buy' and raising the target price, JM Financial's note said, "We continue to be 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. The balance sheet remains strong with net cash of Rs 115.7 billion as of Jun'23. We continue to value the consolidated business using a 15-year DCF (WACC of 13% and Tg of 6%) to arrive at a Sep'24 FV for Zomato of Rs 115 (vs. Rs 105 earlier). Implied FY26 EV/EBIT on our TP works out to 39x while the stock currently trades at 28x.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.