Zomato hits 20-month high after delivering strong Q3

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Shares of Zomato zoomed to 20-month high on Thursday, as analysts remained largely positive of the stock after the company reported profits in Q3 of current fiscal. Besides, the increase in weightage of Zomato following the recent rejig by global index major MSCI in its Global Standard Index also increased investors’ appetite for the stock.

Aided by steady performance of the company’s core business and a sharp growth in quick commerce business, Zomato posted consolidated net profit of ₹138 crore in the third quarter ended December as against loss of ₹347 crore incurred in a year-ago period.

Breaching December 2021 high of ₹157.80, the stock on Thursday hit an all-time high of ₹159.20 on Thursday. Shares of food delivery major ended the day at ₹155.50, producing an YTD return of nearly 25 per cent. The stock gave a return of over 202 per cent in one-year period. It had it an all-time high of ₹169.10 in November 2021.

Consistent profitability

Global investment advisory CLSA has a ‘buy’ rating on Zomato as it believes that the recent Q3 results are indicative of a trajectory towards consistent profitability, further enhancing the investor confidence. The global major who increased the target price to ₹227 (from ₹181 earlier) said, “We believe benchmarking its valuation with Indian QSRs and our consumer coverage is better given similar growth drivers and profit pool. Comparing with global peers is more complex given different drivers and large valuation ranges within a limited set.”

HSBC, which retained its Buy rating with revised price target of ₹163 (₹150 earlier) said “food delivery (FD) and quick commerce (QC) businesses performed better than we expected, though we see normalisation in FD growth going forward.”

Upside potential

CLSA foresees considerable upside potential for Zomato, emphasising the company’s resilience and anticipated growth, even in scenarios where the base case for food delivery might not materialise entirely.

Domestic brokerage Geojit Financial said Zomato’s performance continued to be solid. “Despite muted consumer demand, the food delivery business recorded healthy growth. A strong growth momentum in the segments, positive margin, and a leading market position are expected to support the superior performance,” it added.

“With better clarity emerging on product-market fit and roadmap to profitability for Blinkit, we now value it at 1x FY26 GOV, compared to book value earlier. We retain BUY with a TP of Rs170 (earlier ₹140) on SOTP basis, valuing the food delivery business at ₹119/share (DCF basis), Blinkit at ₹36/share (1x FY26E GOV); and cash and other investments at ₹15/share (book value),” said another domestic broking major Emkay Global Financial.

However, Elara Securities, downgraded the stock to Accumulate (from Buy) but raised the target price to ₹165 (₹150) as the stock has moved up by 50 per cent in the last six months, largely factoring in on healthy growth and profitability.