As Zomato turns profitable, brokerages rush to raise their target prices

Zomato Ltd shares have seen a wave of bullish targets among several brokerages after the company turned a profit for the first time, although many brokers kept their ratings on the stock. .
Motilal Oswal Securities expects the stock to target at Rs 110 per share, up 28% from the current market price, JM Financial expects the stock to grow 37% over the next 12 months to Rs 115 per share, Citi increased its price target to Rs 115 from Rs 84 previously, and Morgan Stanely raised its price target to Rs 115 from Rs 85 per share.
Goldman Sachs sees a target price of Rs 100 to Rs 82, while Jefferies India sees a target price of Rs 100 of Rs 130. HSBC has increased its price target by 20% to Rs 102.
On August 3, Zomato recorded a net profit of Rs 2 billion in the first quarter of the current financial year and reported revenue of Rs 2,416 crore, up 70.9 from a year ago, driven by demand. growth thanks to cooling inflation and the strength of food delivery platforms. Loyalty program. Brokerage JM Financial’s use of the term “excellent” to describe Zomato’s earnings fails to capture the true scale of the achievement. Given their earlier belief that Street’s estimates were overly conservative, the extent to which Zomato’s earnings exceeded expectations was truly remarkable and far beyond what anyone could have predicted. It maintains Zomato as the top pick in the listed internet coverage. “Taking into account earnings and guidance, even with a decent margin of safety, suggests that Zomato is a rare game in terms of both growth and profitability. Even though the stock is up 35% since the results of the month’s quarter. 3, but we expect momentum to continue, as at CMP, the market derives most of its value solely from its FD business, while significant value unlocking awaits in Blinkit,” JM Financial said in a note. According to Jefferies, Zomato’s journey since its IPO has been full of notable ups and downs. However, the company hit a major milestone by turning positive for adjusted EBITDA and consolidated NPAT much earlier than expected, beating its own guidance. This success dispels any concerns about Zomato’s ability to generate “remarkable” profits.
In addition, this impressive result strengthens the reputation and execution ability of the management team, which bodes well for Blinkit, a division that many investors previously underestimated or even viewed. negative. Following these positive developments, Jefferies has significantly increased its EBITDA forecasts.

Zomato’s total food delivery order value (GOV) increased by 11.4% to Rs 7,318 crore, the number of average monthly transaction users increased by 5.4% to 17.5 million. Blinkit saw its GOV increase by around 5% sequentially to Rs 2,140, ​​while its average order value (AOV) increased to Rs 582, up 11.5% in the quarter.
“We remain positive and expect 15% government growth (total order value) over the long term for food delivery, although we do see significant growth in business activity.” the fast trade (Blinkit) business, which can be as important as the FD business that comes with a proportional unit economy,” HSBC said in its latest note.
Brokerage firms Nomura Research, Dolat and Macquarie Research cut their price targets. Nomura expects a target price of Rs 60, down 37% from its previous target of Rs 87, Dolat cuts a target price of Rs 65, down 25%, while Macquarie maintains underperformance and maintains target price spend at Rs 55/share. current market price. Zomato offers an upbeat outlook by predicting notable +40% adjusted revenue growth over the next two years, resulting in continued improvement in contribution margin (CM). and adjusted EBITDA margins.
Nomura forecasts a CAGR of around 20% for Zomato’s core food delivery business for 2024-25, accompanied by a contribution margin (CM) ranging from 7% to 7.5 %. While acknowledging that Zomato is on track to hit its 4-5% EBITDA margin target (as a percentage of total order value) ahead of schedule, Nomura remains skeptical of its ability to hit a two-year CM. company’s digits in the context of sustainable growth. strong growth in the long run.
“Trading user growth momentum in both Food Delivery (+0.9M per quarter in a strong seasonal quarter) and Fast Commerce (stable) were lower than estimates. We note that management lacks clarity on the bottom-up growth drivers for the food-based delivery business. Also, if a large portion of the growth forecast is driven by Hyperpure, Going Out or Blinkit, that is unlikely to create value,” Macquarie said in its latest report.