Broker’s Call: Zomato (Buy)

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Target: 93 rupees

CMP: INR 75.11

Zomato It delivered a strong financial performance in the last quarter of FY23, with revenue reaching Rs. 2,056 crore, reflecting an increase of 5.5 per cent over the previous quarter and an impressive 70 per cent growth year-on-year. The growth was primarily driven by the outstanding performance of Blinkit, which saw revenue increase 21% quarter over quarter. EBITDA loss for the quarter showed a significant improvement, reaching -10.96 percent in Q4FY13 compared to -37.11% in Q4FY22. This improvement was attributed to effective cost control measures and take rate higher. Excluding Blinkit, Zomato delivered positive EBITDA, driven by a sharp increase in profitability in the food delivery segment, generating Rs.78 crore of adjusted EBITDA in the quarter, driving adjusted margin. EBITDA of 5.1 percent.

Zomato has set a goal to break even PAT on a consolidated basis over the next four quarters. Remarkably, the company succeeded in achieving this goal in the third quarter after the announcement.

Zomato started charging for its Gold program, which contributed to its revenue growth. However, specific subscription numbers and pricing dynamics are competitively sensitive information. The company expects the restaurant business to take a few more quarters to become meaningful and plans to share more details as it progresses. Overall, Zomato is still focusing on the restaurant segment for its offline business and is currently exploring something other than local services.

We value the stock with a price target of $93 based on 6.22 times sales in FY25. We expect revenue CAGR of 34% between FY22-24. This growth is expected to be driven by earnings improvements, supported by improved profitability visibility and optimization Continuous core operating metrics.