Zomato Shares Rise 2% After Q4 Loss Narrows, Boosting Profit Hopes

Zomato shares rose 3% as losses narrowed in the fourth quarter.

Shares of Zomato Ltd rose nearly 2% on May 22 after narrowing losses in the fourth quarter, and the company said it expects to be profitable within the next four quarters.

The stock touched a high of Rs 66.16 on the BSE, up nearly 2% from Friday’s close. The stock was trading at Rs 65.29 on the BSE at 9:30 am, up 1.16% from its previous close, while the benchmark Sensex edged up 0.16% to 61,830.

On May 19, Zomato reported that its consolidated net loss for the fourth quarter narrowed to Rs 188.2 crore from Rs 359.7 crore a year earlier. Its operating income jumped 70% to Rs 2,056 crore from Rs 1,211.8 crore a year ago.

Zomato management is guiding for adjusted EBITDA and consolidated profit (including quick commerce) over the next four quarters and plans to do so through profit growth in the food delivery business and loss reduction in Blinkit.

Brokerage firm Jefferies India said Zomato has managed to achieve its promised adjusted EBITDA breakeven (excluding Blinkit) within the expected time frame (March-September). Although challenging macroeconomic conditions have weighed on growth, management has prioritized profitability and demonstrated a sense of urgency, even with the launch of the Gold programme.

Positive signs of improvement are emerging, with high-single-digit growth in total order value expected in the first quarter. The most important takeaway is that the company is targeting consolidated adjusted EBITDA breakeven and profit after tax (PAT) over the next four quarters. Jefferies recommends buying Zomato with an unchanged target price of Rs 100 per share.

Emkay maintained its “buy” call and price target at Rs 90 per share.

Many brokerages remain cautious amid declines in total order value and average monthly trading users. Nomura maintained its “sell” call on the stock and kept its target price unchanged at Rs 45, representing a 30% downside from the current market price. Kotak maintained its “buy” call and unchanged target price at Rs 82 per share.

Dolat Analysis & Research Themes maintained its “sell” call on the stock and lowered its target price by 7% to Rs 60 per share.

Zomato’s food delivery business saw a 1% drop in gross order value to Rs 6,569 crore in the third quarter. The decline can be attributed to a slowdown across the industry and Zomato’s exit from 225 cities in the previous quarter. The average monthly transacting users (MTU) also decreased from 1.74 million to 1.66 million.

Zomato clarified that this decline was mainly due to the removal of unprofitable customers in the bottom percentile, and stated that there will be no further decline in MTU. Analysts predict that despite Zomato Gold’s growing popularity, factors such as weak demand, increased dining out activity and increased competition will limit MTU’s growth.

Zomato posted a contribution margin (CM) of 5.8% in the March quarter, beating analysts’ expectations of 5.2%. This improvement is primarily driven by effective cost optimisation. Analysts believe contribution margins are unlikely to decline unless Zomato resumes aggressive discounting practices.

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