Zomato Logs Best Day Since Debut As Analysts Bet On Better Unit Economics After Q4
Here's what analysts have to say about Zomato's Q4 FY22 results.
Shares of Zomato Ltd. logged their best day since debut on the bourses in July last year as analysts expect its efforts to lower delivery cost through better fleet utilisation and decline in marketing expenses to aid margin.
That even as the online food ordering platform saw its loss widen year-on-year in the quarter ended March. Its average monthly transacting customers, however, stood at 1.57 crore versus 98 lakh a year ago.
Better unit economics in food delivery business and tight control over overhead costs, analysts said, have cushioned its operating loss.
Of the 18 analysts tracking Zomato, 15 maintain a 'buy', two suggest a 'hold' and one recommends a 'sell', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 64.2%.
Shares of the company rose over 18% in intraday trade but closed 14% higher on Tuesday. The stock's trading volume was more than six times the 30-day average at market close.
Here's what analysts have to say about Zomato's Q4 FY22 results.
Morgan Stanley
Reiterates 'overweight/in line' on the stock with a target price of Rs 135, an implied upside of 136.63%.
Quarterly numbers were in line, transparency on segment disclosures as well as outlook for Q1 FY23 have improved.
The company is moving in the right direction although consistency in execution has to be maintained.
New customer acquisition remains stable, while marketing expenses have reduced QoQ.
Better unit economics in food delivery business, stable losses in other segments and tight control over overhead costs have led to narrowing of operating loss.
Firm expects adjusted revenue growth to accelerate to double digits in Q1 FY23.
Lower delivery cost is the most crucial lever of growth for the company.
The company's decision to not plan for any more minority equity investments, to maintain commitment to build quick commerce business at $400 million over calendar year 2022/2023 provide comfort on capital allocation.
The company's statement dispelling concerns over governance issues related to conflict of interest between founder's personal investments and Zomato's investments and dismissing rumours of potential senior management exits is a positive.
Jefferies
Reiterates 'buy' with a target price of Rs 100, an implied return of 75.28%.
The strong results coupled with improved disclosures is a positive.
Financial discipline is evident with focus on cash conservation, growth along with loss reduction.
Suspense continues on the acquisition of Blinkit.
The contribution margin will likely get to double digit in the long term.
The company's plans to lower delivery cost through better fleet utilisation would aid margins.
Dolat Capital (First-Cut)
Maintains 'sell' with a target price of Rs 75, but may review estimate post earnings call on Tuesday.
The operating metrics are giving mixed signals on unit economics performance.
The business is performing well in top cities but robust city expansion strategy is resulting in an 'elongated' path to profitability.
Improvement in operating margin was led by leveraging several costs within the unit economics as well as marketing costs.
