Zomato shares surge ahead of Oct-Dec earnings, CLSA sees 42% upside potential

Shares of Zomato surged sharply on February 8 as investors bet on hopes of improved earnings by the company ahead of the release of its quarterly results for October-December, due on February 9.

Adding to that, global research and broking firm CLSA Asia-Pacific Markets' positive growth outlook and expectations of a strong upside potential in the stock also lifted investor sentiment.

At 10.08am, shares of the food delivery company traded 6.08 percent higher at Rs 52.35 on the National Stock Exchange.

CLSA Asia-Pacific Markets raised Zomato's earnings estimates for the next two financial years by 4-8 percent  due to the company's improved focus on profitability.

The broking firm also expects Zomato to continue its march towards profitability in the December quarter.

On account of the bullish growth outlook, the broking firm gave a 'buy' rating to the stock along with a target price of Rs 70, which translates into an upside potential of nearly 42 percent from Tuesday's closing price.

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Zomato is also set to hold an earnings call with stakeholders on February 10, a day after detailing its quarterly numbers. CLSA believes that stakeholders will likely throw questions on the company's growth sustainability, while the management's commentary around addition of cities and contribution of top cities will be on investors' watchlist.

Going ahead, CLSA believes the overall demand environment would be another key element to watch out for Zomato.

Following the footsteps of CLSA, domestic brokerage house Motilal Oswal Financial Services also raised its target price for Zomato to Rs 67 to price in an upside potential of 30% from Tuesday's closing level.

MOFSL has a Buy rating for the stock. "Zomato with its large strong footprint across 23 countries, is well placed to benefit from the immense potential in the food delivery industry. Adding to that, the management has not just guided for EBITDA breakeven for ex- Blinkit business by the second quarter of FY24 but also indicated that the firm is working to enhance its profitability, " the brokerage said in its report.

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