Zomato’s 9 percent on-year user base growth in food deliveries in FY23, coupled with improved profitability in Blinkit and the Hyperpure play, has made analysts at Kotak Institutional Equities bullish on the counter. In its recent note, the brokerage firm has shared a ‘buy’ rating on the food delivery company, with a target price of Rs 125 per share (implying an upside of 16 percent from the October 23 closing price).
In the past three months, the stock of Zomato has gained 31 percent as against a 3 percent decline in the Sensex benchmark.
“The annual unique transacting users in food delivery business rose 9 percent year-on-year (YoY) to 58 million in fiscal year 2022-23 (FY23) due to pruning of uneconomical cities, introduction of Zomato Gold program, and resultant merger of multiple accounts within a household,” they wrote.
That apart, the food delivery firm’s average order value (AOV) in FY23 increased 2 percent YoY to Rs 407, driven by an increase in revenue per order, a reduction in variable costs, and minor cuts in delivery costs. Additionally, food inflation helped offset the impact of smaller sized orders post Covid, which resulted in higher AOV in FY23.
Going ahead, analysts pencilled the food delivery company’s gross order value (GOV) to grow at a 19 percent compounded annual growth rate (CAGR) over FY23-26E.
ALSO READ: Zomato forays into logistics, launches Xtreme for merchants
Blinkit: Profitability improves since acquisition
Zomato’s focus post acquisition of quick commerce platform Blinkit has been on increasing its store-level productivity, said analysts.
Since the acquisition, the monthly transacting users in Blinkit have risen by 77 percent YoY in the June-ended quarter.
That apart, the reduced store counts increased GOV/per day/dark store by 3x, resulting in a sharp improvement in contribution margin.
Hyperpure: Steady growth in partner restaurants
Hyperpure is an initiative by Zomato to provide fresh, hygienic, high-quality ingredients and supplies to restaurants.
In FY23, Hyperpure’s revenue grew 90 percent YoY driven by an increase in partner restaurant count and increase in revenue per restaurant.
“Overall restaurants serviced in FY23 were only 34 percent of food delivery active restaurant partners, which indicates that there is more room for Zomato to add more restaurants in the Hyperpure business,” noted analysts.
ALSO READ: Buy Zomato; target of Rs 160: ICICI Securities
Cash balance declines in FY23
Analysts observed that losses accruing from core business along with small cash outflow due to the Blinkit acquisition saw Zomato’s cash balance decline by a modest 2 percent YoY in FY23.
Other liabilities for Zomato, too, saw a jump of 42 percent YoY due to payments owed to merchants. The company offers a weekly settlement cycle to restaurant partners.
Target to reach complete EV-based deliveries by 2030
As a member of The Climate Group’s EV100 initiative, Zomato has committed to 100 percent EV-based food deliveries by 2030. The company registered a three-fold YoY jump in active EV-based delivery partners to 13,500 in FY23.
The company has partnered with over 50 companies in the EV ecosystem, including Sun Mobility, Zypp and Yulu to onboard around 1 lakh EV-base delivery partners on its platform within the next 2 years.
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