Zomato Q4 Results Spark Target Price Hikes, 26% Upside

by | May 14, 2024 | 0 comments

According to Nuvama, Zomato’s journey towards profitability might accelerate due to rising contribution margins. Brokerages predict that the stock could see up to a 26 percent increase from its last closing price.

Zomato has been given a “buy” by Nomura with a target price of Rs 225 per share. Zomato’s stock declined by 9%, to Rs 182 per share on May 14, over the past two days, despite positive statements made by many brokerage houses following its Q4FY24 result. Because orders will become more frequent and the customer base larger, Zomato can count on strong growth soon.

Improved contribution margins may mean that brokers believe that Zomato will reach profitability faster than anticipated implying an upward move of up to 26% from yesterday’s close of Rs 196 per share.

Zomato informed that net profit for the quarter ended March 2021 was at Rs 175 crore, making it four consecutive quarters of profits for the company since listing. A significant turnaround from a loss of INR 188 crore in same period last year.

Despite high inflation and subdued demand across e-commerce industry as whole, revenues jumped to INR35.62 billion. Margins are still expanding as food delivery and quick commerce segments grow bigger for Zomato. Blinkit operationalized an adjusted EBITDA breakeven point in March FY24.

The number of dark stores would be increased from Q4FY24’s tally of five hundred twenty-five (525) to one thousand (1000) by yearend thus reaffirming leadership in Quick Commerce although there may be some temporary impact on short-term profitability.

Although Bernstein acknowledges that the rapid rollout of dark stores may temporarily limit Blinkit’s margin upliftment; but all-in-all there is a projected significant increase in margins between now through till FY26. It changed its “buy” rating to a new target price of Rs 245 compared with previous one set at Rs180 according to Nuvama Institutional Equities research note on April 22nd ,2022.

In terms of both growth and profitability, reaching the target of 1,000 dark stores by FY25 end will be difficult according to Nuvama analysts. However, given the management’s proven track record, there is confidence in its ability to achieve these ambitious targets. Also, it offered 2% of diluted share capital as new ESOP pool amounting to Rs 12.24 billion for better performance among employees.

Despite the ESOP impact on Q4 profits, CLSA remains constructive on Blinkit and Zomato’s overall outlook. The company retained a “buy” rating with an increased target price at INR248 per share. Bernstein also supported this view, highlighting Blinkit’s breakeven and positive EBITDA in March as significant achievements. They anticipate Zomato prioritizing growth while aiming for a long-term adjusted EBITDA target of 4-5%.

Bernstein has maintained “outperform” on the stock but raised its TP to INR230 citing disappointing Q4 EBITDA margin at 2.4%. Morgan Stanley continues to have an overweight rating on Zomato and a target price of Rs180 per share due to steady performance and expansion in quick commerce.

Likewise, Jefferies increased its TP to Rs 230 from Rs 200 because it has seen strong momentum for Zomato over last year along with some normalisation going forward although this was rated hold now by them based upon factors like valuations etc.

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