Zomato Q1 Results Review: Brokerages Raise Target Price On Surprise Profit, Revenue Visibility

Analysts largely turned bullish on Zomato Ltd.'s prospects as the company posted a surprise profit in Q1 and also guided for its adjusted revenue to grow at over 40% for at least the next couple of years.

The food delivery major reported a profit of Rs 2 crore against losses of Rs 188.2 crore in the fourth quarter of the previous fiscal, according to an exchange filing on Thursday. That compares with a Bloomberg forecast of Rs 166.4 crore in losses.

Zomato Q1 FY24 Highlights (Consolidated, QoQ)

• Revenue is up 18% at Rs 2,416 crore. (Bloomberg estimate: Rs 2,261.1 crore).

• Ebitda loss at Rs 48 crore vs Rs 225.4 crore. (Bloomberg estimate: Rs 208.4 crore).

Zomato received a deferred tax credit of Rs 17 crore during the quarter, which helped it report a profit.

Shares of the company jumped as much as 13% to Rs 98.4 apiece, a fresh 52-week high, in early trade. That compares with a 0.43% rise in the benchmark S&P BSE Sensex.

Separately, Zomato had 2.6 crore shares worth about 0.3% equity change hands in 11 bunch trades as well.

Here's what brokerages made of Zomato's Q1 performance:

• Maintains 'buy', raises target price to Rs 130 from Rs 100, implying a potential upside of 53%.

• Zomato's profit puts to rest all the concerns around its ability to make 'respectable' profits. Results also give more credibility to the management and its execution prowess, which is particularly positive for Blinkit which most investors ascribe zero (or negative) value.

• Management guides for a 40% topline CAGR over the next two-years. Food gross order volume growth in Q1 was muted at 14% YoY, but there is a steady recovery in the recent months and the worst is behind.

• Raise our gross merchandise volume estimates slightly, but sharply raise profitability estimates.

• Maintains 'reduce' and raises the target price from Rs 45 to Rs 60, implying a potential downside of 31%.

• While we acknowledge that Zomato is likely to achieve its target of 4-5% Ebitda margin (as a percentage of GOV) earlier than expectations, we continue to believe that it will be a challenge to achieve a double-digit contribution margin with high growth in the long term.

• Blinkit remains focused on increasing store density in existing areas of operations and plans to open 100 dark stores in FY24. We note that competitive intensity has slightly slowed in quick commerce with funding concerns emerging in Dunzo, leaving four well funded players in the market now (Blinkit, Swiggy, BigBasket and Zepto).

• We factor in stronger growth and margin estimates for the core food delivery and quick-commerce businesses over FY24 and FY25. However, our food delivery long-term adjusted Ebitda margin estimates are broadly unchanged at around 5.1% of GOV.

• Key risks: stronger-than-expected GOV growth of the food delivery business and quicker break-even in quick-commerce.

• Maintains 'buy' and raises the target price to Rs 110 from Rs 90, implying a potential upside of 27.6%.

• Zomato delivered a stellar operating performance, well ahead of expectations.

• After muted growth in the last couple of quarters, food delivery GOV jumped sharply, by 11.4% QoQ, led by demand recovery, growing adoption of the Gold programme that drove higher frequency of ordering, seasonality, and strong execution.

• Considering the Q1 beat and strong outlook, we have increased FY24–26 revenue by 13-22%, with a better margin trajectory.

• Maintains 'buy' and raises the target price to Rs 110, implying a potential upside of 28%.

• We see the strong all-round performance from Zomato as an indicator of an accommodating competitive environment in both food delivery and quick commerce verticals.

• Moreover, the sharp 80bp QoQ increase in take rate in food delivery highlights its success in cross-selling ads to restaurants, which is a more sustainable revenue stream than depending on an increase in take rate.

• Expect Zomato to deliver 25%/107% revenue CAGR in food delivery/quick commerce verticals over FY23-25, helping it grow its consolidated adjusted revenue by 43% over the same period.

• Strong revenue growth should drive significant margin leverage, given the fact that competitive pressure in quick commerce has eased considerably over the last few months due to a funding crunch for smaller peers.

• Estimate Zomato to turn positive on reported Ebitda by Q4FY24.As a result, Zomato should report a profit after tax of Rs 130 crore/Rs 830 crore in FY24/FY25.

• Maintains 'sell' at a target price of Rs 65, implying a potential downside of 25%.

• Robust performance and commentary in Q1 have led to a significant uptick in our forecasts, but nevertheless, we continue to mark the growth way below the guided rate given past volatility and would rather wait to see current traction sustain.

• Strong recovery in Q1 and improving metrics in food delivery business. has led to increasing our overall revenue estimates by 5.7%/5.2% for FY24/FY25. Improving unit economics leads us to lower operating margins materially. Overall, expect profit after tax to turn positive in FY24 and to clock Rs 500 crore profit in FY25.