Zomato’s strong results for the June quarter, announced on Thursday, drove up the stock price by 12% in Friday’s trade. The shares hit a high of Rs 98.40 and closed at Rs 95.43, up 10.68% over Thursday’s close. Most analysts expect the growth momentum to sustain.
Analysts at Motilal Oswal are positive on the long-term growth opportunity for Zomato and do not expect competition to intensify further despite the entry of ONDC in the space. “With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 43% adjusted compounded annual growth in revenue over FY23-25,” they observed.
Analysts at ICICI Securities believe that Blinkit, on a stand-alone basis, could turn profitable on an adjusted Ebitda basis as early as Q4FY24. They have upgraded their revenue and operating profit forecasts for both FY24 and FY25.
“While we acknowledge that Zomato is likely to achieve its target of 4-5% Ebitda margin, as a percentage of the gross order value, earlier than our expectation, we continue to believe that it will be a challenge to achieve double-digit contribution margin, with high growth in the long term,” they opined.
The Zomato management said a letter to shareholders that the recovery in demand for its food delivery business, growing adoption of its loyalty programme Zomato Gold and growth of its B2B business Hyperpure fuelled by a move to increase minimum order value on the platform are some of the reasons behind this quick turnaround.
“We see the strong all-round performance from Zomato as an indicator of an accommodative competitive environment in both food delivery and quick commerce verticals,” said analysts at Motilal Oswal.
The Street was, however, not unanimous on the growth momentum at Zomato.
Analysts at Nomura observed the growth was led by seasonal factors like the summer holiday season for schools and IPL cricket tournament. Monthly transacting users (MTUs) increased by about 5.4% q-q to 17.5mn users (+4% y-y) aided by the marketing push of Zomato Gold. However, they believe that sustaining high growth in the gross order value and strong contributing margin improvement of the core food delivery, business for an extended period will remain challenging. The brokerage maintained its ‘Reduce’ call on the stock while raising its target price for the stock to Rs 60.