Is Zomato a Good Buy? Or Still Unsure

Zomato's stock witnessed a notable surge of over 4% in early trading on Friday, reaching a fresh 52-week high, following the company's impressive performance in the quarter ending December 2023. The surge was primarily attributed to the robust growth in its food delivery segment. Zomato shares peaked at ₹150.25 apiece on the BSE.

For the third quarter of FY24, Zomato reported a remarkable net profit of ₹138 crore, marking a significant turnaround from the ₹347 crore loss incurred in the same period the previous year. This reflects a substantial 283% quarter-on-quarter (QoQ) growth in net profit.

Zomato's revenue from operations during Q3FY24 stood at ₹3,288 crore, exhibiting a robust 69% YoY growth compared to ₹1,948 crore in the corresponding period. The gross order value (GOV) for food delivery, representing the total value of all orders, experienced a 25% YoY increase. Zomato anticipates sustained growth in GOV at 20% or more YoY, with the potential for acceleration contingent on market share gains and a rebound in macro consumer demand.

The company's shares concluded 2.42% higher on Thursday, driven by the positive Q3 results. Emkay Global Financial Services analysts acknowledged Zomato's impressive execution and growth across various segments. They highlighted the 6.3% QoQ growth in food delivery GOV, despite falling slightly short of expectations due to a subdued demand environment. The food delivery contribution margin improved to 7.1%, aided by ad-monetization and platform fees.

Zomato now forecasts consolidated adjusted revenue to grow at a rate of 50% or more YoY in the coming quarters, with Blinkit playing a significant role. Emkay Global increased its FY25-26E EPS estimates, retaining a 'Buy' rating on Zomato and raising the target price to ₹170 per share.

The brokerage values the food delivery business at ₹119 per share on a discounted cash flow (DCF) basis, Blinkit at ₹36 per share at 1x FY26E GOV, and cash and other investments at ₹15 per share at book value. Zomato shares have demonstrated substantial growth, surging more than 121% in the past year.

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