Buy Zomato; target of Rs 140: Emkay Global Financial

Emkay Global Financial's research report on Zomato

Zomato delivered yet another impressive performance, with strong growth across segments. Food Delivery growth was solid for the second consecutive quarter, aided by demand uptick, strong execution, and growing adoption of the Gold program, which led to higher order volumes. Contribution margin for food delivery also saw an uptick to 6.6% from 6.4% in Q1. Blinkit GOV bounced back sharply by 29% QoQ, after temporary disruptions in Q1. Blinkit also managed to turn contribution-positive for the first time, delivering contribution margin (as a % of GOV) of 1.3%, and is on track to break even by Q1FY25. The company remains profitable, in line with its guidance in the last quarter. The management reiterated its adjusted revenue CAGR expectations of over 40% for the next couple of years.

Outlook

Consistent delivery in the last few quarters has reaffirmed our faith in the company’s execution capabilities. We raise FY24-26E EPS by 12-31%, factoring-in the Q2 performance. We retain BUY on the stock, with revised DCF-based TP of Rs140/share (earlier Rs120).

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