Analysts at UBS Securities are impressed by Zomato's better-than-expected earnings performance in the April-June quarter, which has kept them bullish on the stock's upside potential. The bullishness is so much so that the brokerage has lifted its price target for the stock by nearly 31 percent to Rs 320, anticipating another 21 percent upside from the previous close.
Along with that, UBS also retained its 'buy' call on the stock stating that Zomato surprised positively in Q1 FY25 with a solid 27 percent growth in its food delivery business and a stronger quick commerce GMV (Gross Merchandise Value) growth. For UBS, Zomato's growth and margin expansion in quick commerce as well as food delivery business were ahead of estimates.
This also comes at a time when Zomat's quick commerce business--Blinkit achieved a record-breaking gross merchandise value (GMV) on the eve of Raksha Bandhan, with the platform processing an impressive 693 Rakhi orders per minute at its peak. This all-time high in orders was shared by CEO Albinder Dhindsa.
Recently, Zomato also reported a whopping 126.5-fold increase in its net profit to Rs 253 crore in the April-June quarter. This growth came as the food aggregator raised platform fees for consumers and saw enhanced operational profitability from its quick commerce arm, Blinkit.
Its revenue surged by nearly 74 percent on year in the quarter gone by, coming at Rs 4,206 crore, up from Rs 1,416 crore in the same period last year while the EBITDA margin stood at 4.2 percent.
During the earnings call, management also highlighted that Zomato has gained market share in cities across the Southern states, an area traditionally dominated by Swiggy, which is preparing for its IPO.
Buoyed by the food aggregator's solid quarterly performance and upbeat management commentary, UBS raised its GMV estimates for Zomato by 20-30 percent for quick commerce and 2-3 percent for food delivery over FY26-28. The brokerage also applauded Zomato's superior growth and margin expansion profile.
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It also stated that Zomato currently trades at an FY27 EV/EBITDA of 35 times, much lower than that of average Indian consumer/retail peers at 30 times.
Recently, Morgan Stanley also reiterated its "overweight" rating on Zomato, setting a target price of Rs 278 per share. The brokerage firm has noted a rise in competitive intensity within the quick commerce (QC) sector, viewing it as an indicator of this channel's growing significance. However, it also cautions that increased competition could lead to delays in achieving profitability in this segment for Zomato.
Analysts at Morgan Stanley also stressed that maintaining market leadership remains crucial for Zomato, even if it requires deferring profitability goals. They believe that staying ahead in the competitive landscape is key to the company's long-term success.
The firm also feels that any short-term dip in Zomato's stock price due to heightened competition could offer a strategic entry point for long-term investors. Despite the challenges of a competitive market, Morgan Stanley remains optimistic about Zomato's future potential.
On August 16, shares of Zomato closed 1.7 percent higher at Rs 264.43 on the NSE.
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