Zomato Ltd rose over 3 percent to scale a fresh 52-week high in the early trade on June 12, continuing to go strong following a string of positive brokerage commentaries on the food aggregator's growth prospects. The upbeat sentiment has helped the scrip surge 47.5 percent in the past three months.
The stock hit an intraday high of Rs 80.30 on June 12, its highest level in 52 weeks. At 10.35 am, shares of Zomato were trading at Rs 79.10, up nearly 2 percent from the previous close. With the gain, the stock has also extended its upward streak to the seventh session.
Chris Wood boost
Investors are buying the stock because of a series of positive factors like improvement in earnings and recent addition of the stock by Chris Woods of Jefferies in two of his long-only portfolios, assigning a weight of 4 percent each.
The firm earlier narrowed its losses in the March quarter which analysts viewed positively. Zomato's net loss narrowed to Rs 188 crore from Rs 360 crore a year ago and Rs 345 crore a quarter ago. Consolidated revenue also increased a whopping 70 percent on-year to Rs 2,056 crore.
According to Jefferies, the improvement in profitability will be primarily driven by margin expansion in the food sector and a reduction in losses for Blinkit. Despite challenging macroeconomic conditions that presented growth obstacles, the management demonstrated a sense of urgency in improving profitability, even with the launch of the Gold program.
Green shoots
Jefferies also notes that "green shoots" of positive progress are visible, and in the first quarter, the gross order value is expected to increase by a high single-digit percentage, which is seen as a positive development.
Another brokerage, Kotak Institutional Equities also has a positive stance on the food aggregator as it expects the reduction in Blinkit's losses to aid the company's breakeven on the contribution margin (CM) front in FY24.
"Blinkit is fast scaling down losses, and the weakening competitive intensity should aid CM breakeven in FY24 for the business and we now ascribe a Rs 8,000 crore valuation to this business," KIE stated in its report.
Accordingly, KIE also raised its FY25-26 EBITDA (Earnings before interest, taxes, depreciation, and amortization) estimates by 14-65 percent, baking in higher take rates and improvement in CM. The firm has a 'buy' call for the stock with a price target of Rs 95.
Follow our live blog for all the market action
The recent news on MSCI weight addition on Zomato and the revision of incentives and discounts at Open Network for Digital Commerce (ONDC) also boosted sentiments among investors. The firm recently saw an addition to its weight in the MSCI index which is likely to trigger inflows of $59 million and an addition of 77 million shares.
ONDC has made revisions to its incentive scheme for network participants in an effort to decrease reliance on discounts for fostering adoption. This move has largely addressed concerns regarding the network's ability to break the duopoly of Zomato and Swiggy. As a result of reduced incentives, the daily order values on ONDC have witnessed a significant decline of approximately 64 percent, now standing at 9,000 compared to the peak levels.
The adjustments made by ONDC come in response to growing observations from internet analysts who have emphasized that the initial volumes of food delivery on the platform were unsustainable.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
