Zomato share price has so far soared 77% from the higher end of IPO price, but the rally could extend further according to analysts at global brokerage and research firm Bernstein.
Zomato share price has so far soared 77% from the higher end of IPO price, but the rally could extend further according to analysts at global brokerage and research firm Bernstein. Analysing Zomato’s quarterly earnings, where it reported a widening of net losses, Bernstein believes the stock could surge another 27% from current levels. “Food delivery business reported the strongest ever performance across all metrics – Gross Order Value (GOV), number of orders, active restaurant partners and active delivery partners. The company passed a cumulative Billion orders with 10% of these orders delivered in the last 3 months,” Bernstein said.
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Zomato’s share price has jumped 5% since the company reported its first-quarter earnings earlier this week, to now trade at Rs 135 per share. The rally in Zomato’s stock price comes despite reporting net losses. In the April-June quarter, Zomato’s net loss came in at Rs 360 crore, up from Rs 99.8 crore in the same period last year.
Back on growth path but contribution margins slip
While net losses were worse than before, the food-tech giant saw GOV growth of 37% on-quarter to reach Rs 45.4 billion compared to Rs 33.1 billion in the January-March quarter. Zomato’s adjusted revenue growth was up 26% from the previous quarter to reach Rs 11.6 billion. The food delivery business was back on growth despite the second wave of covid-19 in April. The dining-out business did see a drop when compared to the preceding quarter.
The company did not share the average order value for the April-June quarter but said that the Food delivery business was contribution positive although the contribution margins reduced slightly compared to the January-March quarter on account of growth investments. Meanwhile, the Hyper pure business (B2B supply business) expanded losses. “We estimate contribution margin to have reduced to Rs 15 in April-June quarter. This was due to the moderation of AOV and higher discounts in the quarter. Zomato’s positive contribution margin per order in recent quarters led by lower discounts spend per order,” the report said. Zomato had a contribution per order of Rs 20.5 in the previous fiscal year.
Target price and valuation
Bernstein analysts value Zomato’s food delivery franchise at 8.0x NTM while the global/regional peer range is ~4.5x-11 EV/sales. Zomato Pro business at 32x EV/EBITDA, while the B2B supply business at 8.0x sales. The brokerage firm has an outperform rating on Zomato with a price target of Rs 170 per share.
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