Shares of Zomato, a leading food delivery major, climbed over 13.5% in early trade deals on Friday after the company delivered an excellent performance for the June quarter. The food aggregator on Thursday reported its first-ever consolidated net profit of ₹2 crore in Q1FY24.
In the same period of last year, the company posted a net loss of ₹186 crore. The revenue from operations during the quarter came in at ₹2,416 crore as against ₹1,414 crore in the year-ago period. The company said its food delivery business posted adjusted revenue of ₹1,742 crore in the first quarter as compared to ₹1,470 crore in the year-ago period.
The gross order value (GOV) for the food delivery business showed strong growth, rising by 11.4% QoQ to reach ₹7,318 crore in Q1, compared to ₹6,569 crore in the preceding March quarter.
Furthermore, Blinkit, the grocery delivery service, also performed well, with revenue reaching ₹384 crore in Q1, a significant increase from ₹164 crore in the year-ago quarter. The GOV for Blinkit grew by 5% QoQ, reaching ₹2,140 crore.
Overall, the company's EBITDA loss narrowed sharply to ₹48 crore in Q1 from ₹307 crore in the year-ago quarter.
Commenting on the Q1 performance, Zomato Chief Financial Officer Akshant Goyal said, "Realistically speaking, we were expecting to hit this milestone in the September quarter, and we were being conservative in our earlier guidance. However, some critical parts of the team across our businesses out-executed our expectations/plans, and some of our initiatives delivered better outcomes than we had expected."
"We expect our business to remain profitable going forward, and knowing what we know today, we believe we will continue to deliver 40 percent-plus YoY topline (adjusted revenue) growth for at least the next couple of years," Akshant said.
Following this robust performance, the company shares opened with a gap-up of nearly 3% at ₹89 apiece, and they rose further to hit an 17-month high of ₹98.40. The company's shares have exhibited a remarkable recovery in CY23 so far, with a gain of 63%.
This rally stands in stark contrast to the stock's weak performance in CY22, when it lost 57% of its value. On June 8, 2023, the stock crossed its IPO price of Rs. 76 nearly after 15 months.
"Zomato's Q1 FY24 adjusted EBITDA margin of 2.2% was significantly ahead of our estimates of (-3.1%) on account of a higher take rate and lower operating costs. This helped the company become profitable. The management expects the company to sustain profitability as it moves towards a food delivery adj EBITDA margin of 4.8% of GOV eventually, along with an accelerated break-even in Blinkit over the next four quarters," said brokerage firm Motilal Oswal.
The brokerage sees a strong all-around performance from Zomato as an indicator of an accommodative competitive environment in both food delivery and quick commerce verticals.
Moreover, the sharp 80 bps QoQ increase in take rate in food delivery highlights its success in cross-selling ads to restaurants, which is a more sustainable revenue stream rather than depending on the increase in take rate.
Motilal expects Zomato to deliver a 25% and 107% revenue CAGR in food delivery and quick commerce verticals over FY23–25, helping it grow its consol-adjusted revenue by 43% over the same period.
The brokerage is optimistic about Zomato's profitability, expecting it to turn positive on reported EBITDA by Q4 FY24 and achieve around 5% EBITDA margin in FY25, surpassing previous estimates. As a result, Motilal Oswal anticipates PAT of ₹1.3 billion and ₹8.3 billion for FY24 and FY25, respectively.
Despite the entry of ONDC into the market, Motilal Oswal believes that competition is unlikely to intensify further.
The brokerage remains positive on the long-term growth opportunity for Zomato and do not expect competition to intensify further despite the entry of ONDC in the space. The brokerage's DCF-based valuation of ₹110 apiece suggests a 14.60% upside from the stock's current market price.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
