Zomato share price touched its 52-week high level and reached IPO price of ₹76. The online food aggregator, Zomato shares opened at ₹74.80 apiece on BSE on Thursday’s trade and hit a intraday high of ₹76 and low of ₹73.69 apiece. Since March 28, the company’s shares have been trending in the direction of their IPO price of ₹76, and during this time, they have risen by nearly 48%.
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Analysts claim that Zomato has been on a roller coaster ride in the last two years, one with a lot of volatility. However, there is finally some positive news as the company has managed to regain its IPO price, signalling a potential turnaround. The remarkable performance of Zomato in FY23 has played a crucial role in supporting the recovery of its stock price.
In comparison to the December quarter’s losses of ₹346.60 crore and the same period last year, the company losses narrowed for the quarter ended March, at ₹188.20 crore. Additionally, its revenue increased 70% to ₹2,056 crore in Q4FY23 from ₹1,211.80 crore in the same period last year.
The company claimed that, excluding quick commerce, it achieved positive adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the March quarter and further stated that it aimed to achieve positive adjusted EBITDA (and PAT) incorporating quick commerce within the following four quarters.
On the backdrop of overall positive earning results, brokerages have kept a favourable outlook on the food delivery aggregator.
With a ‘overweight’ rating and a target price of ₹85 per share, global brokerage Morgan Stanley is optimistic on the company and sees a potential upside of 12% from the current market price. Given that Zomato’s near-term visibility of better growth combined with new app launches augur favourably for the stock, the brokerage has a ‘overweight’ rating on Zomato.
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What do analysts think?
Mohit Gulati, CIO & Managing Partner of ITI Growth Opportunities Fund
Although I have been a big critic of Zomato, I have noticed over the past quarter or two that both the company and the stock are watering storms together. From what I can tell, they appear to have regained their mojo. Zomato, in my opinion, is the first technology company to genuinely achieve this from the standpoint of the companies that have been beaten down and faced difficult questions about their revenues and profitability.
The entire integration of Blinkit into Zomato, which I believe was the turning point in the transaction, increases average order values, time spent on platform, and take rates. As a result, I believe you will see that path to positive EBITDA and profit after tax (PAT) coming in, and it is obvious that order traction and delivery fleet optimisation are sort of working in their favour. Overall, it appears to be a reasonable price to enter right now at ₹76. The acquisitions Zomato makes from this point on should not be counter-intuitive; instead, they should focus on supporting and organically growing their business.
Vinit Bolinjkar, Head of Research, Ventura Securities
During Q2, Q3, and Q4 of FY23, Zomato reported positive adjusted EBITDA (excluding ESOPs) in its food business. This impressive achievement resulted in a reduced adjusted EBITDA loss of ₹10 crore for FY23, a significant improvement compared to the ₹670 crore loss incurred in FY22. Encouragingly, the management is optimistic about sustaining positive EBITDA in the years to come, further enhancing the company’s financial performance.
In addition to its food business, Zomato is also aiming to achieve positive adj EBITDA for its quick commerce business in FY24. This goal is particularly noteworthy as it follows a loss of ₹562 crore in FY23. By demonstrating a commitment to profitability and growth, Zomato aims to consolidate its position and instil confidence among investors.
Considering all these favourable factors, the overall sentiment surrounding Zomato appears to be positive. This improved outlook could potentially translate into an upward trajectory for the company’s stock price, further rewarding its investors.
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Sachin Shah, Fund Manager, Emkay Investment Managers Ltd
We believe Zomato is a perfect play on a new age tech company and rising consumerism in India. In the Indian context, among the listed companies we believe one of the companies, which has the potential to thrive over the next decade is Zomato. The company is a disruptor in the food business, albeit offering a win (consumer)-win (restaurant)-win (zomato) solution.
Zomato offers a solution by being the bridge between the needs of the consumer and offering scalability/distribution to manufacturers (restaurants). As we all understand the gross margins (ex-raw material cost) are very high in food business, but it is the fixed overheads cost for the restaurant owners, which is heavy. Therefore, for every incremental revenue if the restaurant has to share a certain percentage with the distribution partner like Zomato, it is still a very high margin/contribution on marginal costing. And, from consumers’ perspective access to variety, ease of ordering and delivery are great value propositions for a minimal cost compared to time and logistics cost/hassle that the consumer will benefit from.
