Zomato stock scales fresh record high as investors await Q1 results; UBS sees 16% upside

UBS has maintained its 'buy' rating on the food aggregator's stock, increasing its target price to Rs 260 from Rs 250 earlier.

Zomato shares gained nearly 3 percent to touch a fresh record high of Rs 223.25 on July 12 on the National Stock Exchange (NSE) as investors await the company's Q1FY25 earnings.

The company turned profitable recently, and analysts are keenly watching for its performance in the quick commerce business, to turn profitable, or at least operationally profitable.

Zomato is likely to report an overall revenue of Rs 39,600 crore in Q1FY25E, up 63.9 percent YoY, as traction in food delivery and quick commerce business continues, said Elara Capital while keeping Zomato among its top buys from the internet sector.

"However, May 2024 was slightly muted, given the impact of heat waves; low availability of delivery partners in tier I markets; and the general elections, which hit order volume. But volume started to pick up pace in June and momentum may sustain in the near term," said Elara Capital.

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UBS has maintained its 'buy' rating on the food delivery aggregator's stock, increasing its target price to Rs 260 from Rs 250 earlier.

"Industry volume growth was 1 percent month-on-month in June, adjusted for the number of days. The global brokerage firm said that the quarter gone by saw a push and pull between Zomato and its rival Swiggy. It estimates Zomato's GMV QoQ growth for Q1FY25E at 9 percent," it said.

Zomato reported robust FY24 results with adjusted revenue of Rs 13,545 crore, a 56 percent YoY increase, and anticipates 40 percent growth in the coming years. Achieving positive EBITDA and PAT for the first time, the company targets a 4-5 percent EBITDA margin while reinvesting for growth.

Its Gross Order Value (GOV) jumped 48 percent year-on-year, bolstered by demand recovery and gold program adoption in food delivery.

According to StoxBox, Zomato's large user base and strategic initiatives in the food delivery sector enhance its investment appeal. Zomato's quick commerce arm Blinkit plans aggressive expansion, aiming to double store count and increase GOV by 4x.

Hyperpure's B2B business expects strong, albeit slightly moderated growth as it scales, focusing on improving margins, analysts noted.

Zomato's management plans to keep reinvesting into its quick commerce business to grow as fast as possible and target EBITDA neutrality soon," StoxBox added. Recently, the internet firm's shareholders approved employee stock option plan 2024 (ESOP 2024) that would enable grant of 183 million stock options to its group employees.

The dilution impact for existing shareholders on a fully diluted basis would be 2 percent, said JM Financial as it put a 'buy' rating on the stock.

"However, the formulation of a new policy suggests ESOP costs should be treated as a regular business expense as they are likely to recur in future. So we changed our valuation methodology for Zomato to PER from the multiples-driven SOTP approach earlier to better capture the impact of ESOP cost on valuations" it added, trimming its target price of Rs 230 apiece from Rs 250.

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Zomato shares ended 2.8 percent higher at Rs 223.21 on NSE, just shy of its lifetime high, hit earlier in the day. So far this year, the stock has surged around 79 percent, beating benchmark Nifty's returns of 12.7 percent during this period.

In the last one year, the multi-bagger stock has zoomed over 188 percent, nearly tripling investors' money. In comparison, benchmark Nifty rose around 26 percent during this period.

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