Eternal (Zomato) reported revenue growth of 7.9% QoQ (our estimate: 6.5%) at Rs 58.3 billion, driven by Blinkit and HyperPure biz, which grew 22%/10% QoQ. F.D biz. growth declined 1% QoQ due to sluggish demand. Ebitda margin at 1.2% was below estimate (our estimate: 3.5%), due to higher opex stemming from Blinkit's aggressive store expansion as well as higher growth investments in the Going out segments. Additionally, the Other segment, which consolidates new initiatives saw loss of Rs 160 million. Multiple moving parts and expansion plans create uncertainty around margin improvement.
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Dolat Capital Report
Eternal Ltd. (Zomato) is aggressively expanding its Quick commerce segment in India and maintains its leadership in food delivery, while the Going-out business is set to benefit from the integration of Paytm's Insider business and investment plans.
We expect growth in all of the variables (orders, annual order value, monthly transacting user, new user acquisition), but believe the path to profitability would be volatile, at least for the near term.
We have currently factored in revenue CAGR of ~32.3% over FY25-30E and expect it to be ~15% over FY30-40E in the second growth stage with an average Ebit margin of ~7% over FY26-FY40E, cost of capital of ~11% and terminal growth rate of ~3%. Taking these assumptions and noting expensive valuations, we maintain our ‘Sell' rating on Zomato with target price of Rs 170 (implies ~4x on FY27E Sales or 70x of FY27E earnings).
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