Results review: Brokerages stay bullish on Zomato despite profit fall

Shares of Zomato Ltd rallied over 18.09% to ₹67 apiece on the NSE in Tuesday's trade, despite the company reporting a consolidated net loss of ₹359 crore in the fourth quarter ended March 2022. The stock hit an intraday high of ₹67.60, making it the scrip's biggest intraday surge since listing on July 23, 2021.

On May 23, food aggregator Zomato reported a net loss of ₹359 crore in the fourth quarter of the fiscal year 2021-22. The net loss has nearly tripled as compared to the year-ago period when it stood at ₹134.2 crore.

However, revenue has increased by 75% to ₹1,211.8 crore, up from ₹692.4 crore in Q4 FY21.

Zomato reported an EBITDA loss of ₹449.7 crore in Q4 FY22, as compared to a loss of ₹153.5 crore in the corresponding period last year.

The average monthly transacting customer, however, rose to "an all-time high of 15.7 million" last quarter, growing from 15.3 million in the third quarter.

The company reported that its gross order value increased by 6% QoQ and 77% year on year to a record high of ₹5,850 crore during the quarter under review.

"We expect to get to a double-digit contribution margin (as a % of GOV) in the long term as we are already seeing some of our cities trending towards that," said Zomato Chief Financial Officer Akshant Goyal.

The company further stated that in the quarter under review, it witnessed an average monthly transacting customer at an all-time high of 15.7 million, growing from 15.3 million in the previous quarter. Likewise, average monthly active restaurant partners and delivery partners were at all-time highs as well.

For the fiscal year 2022, losses for Zomato came in at ₹1222 crore, compared to ₹816 crore in the same quarter last fiscal.

Further, Zomato also added that during the fourth quarter, it launched 300+ new cities and is now present in 1,000+ towns and cities across India.

Financials

Despite increasing revenue by 75% from ₹692.4 crore to ₹1,211.8 crore, Zomato reported a net loss of ₹339 crore, due to excessive expenses, which increased from ₹885 crore in Q4 FY21 to ₹1,661.50 crore in the quarter ending March 31, 2022.

The company said that it expects adjusted revenue growth to accelerate to double digits in the next quarter and the adjusted EBITDA losses to also "come down meaningfully." "Reduction in losses will be driven by improvement in the contribution margin of the food delivery business and also operating leverage playing out as our revenue is growing faster than our fixed costs," it said.

Stock Performance

Zomato's stock price dropped by 20.44% in the last one month. 

Meanwhile, the shareholders of Zomato have lost about ₹82,871.38 crore following a 62.16% crash in the stock from its all-time peak.

The market capitalization of Zomato came down to ₹50,273.3 (as of 24 May- 2022) crore. This was exactly ₹82,871.38 crore lower than its peak m-cap of ₹1,33,144.38 crore in November 2021, when the stock had zoomed to an all-time high of ₹169.10.

At present, shares of Zomato are trading about 20% lower than their issue price of ₹76. In July last year, Zomato made a staggering debut on the stock exchanges. Shares of the food-tech firm opened at ₹116 on the BSE, a premium of 53% over its issue price of ₹76.

Deals

In the recent past, Zomato has diversified into the quick commerce space via investments in Blinkit (erstwhile Grofers – an online grocery delivery platform), Shiprocket, and Magicpin, having a larger total addressable market with huge synergy and potential to complement its existing business.

Alongside these investments, Zomato has acquired minority stakes in UrbanPiper (USD 5mn) which is a neutral tech infrastructure player helping drive efficiencies of scale for the food delivery players in the country, and Adonmo (USD 15mn) with a focus on building a unique tech-enabled hyperlocal adnetwork, thereby serving targeted and contextual ads to the audience. Additionally, Zomato has acquired a 16.66% stake for Rs. 37cr in Mukunda Foods Private Limited, a food robotics company which is into automation of food preparation for restaurants, according to Geojit BNP Paribas, these portfolio additions are expected to drive strong growth for Zomato in the future.

Diversification

Zomato also plans to set up a non-banking financial company (NBFC) which will allow it to extend short term credit to its ecosystem, i.e., to delivery partners, buyers, and restaurants. This will lead to more traction among the customers and other platform partners equally and should boost the growth of the overall ecosystem.

Brokerage Views

Morgan Stanley maintained 'overweight' for the food delivery firm with a target of 135/share, indicating an upside of 110.93 per cent. It noted that the company is moving in the right direction, but needs consistent execution to meet the high expectations.

JPMorgan said adjusted Ebitda losses continued to decline for Zomato and that gross order value (GOV) saw strong growth as orders came back. It said food delivery revenues rebounded for Zomato in the March quarter, as it suggested a price target of ₹130/share.

Citi has a target of ₹80/share on the stock as it revised its estimates to incorporate FY22 numbers. It also talked about a 6 per cent sequential growth in GOVs and a fall in adjusted Ebitda losses to ₹220 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.