Zomato shares zoom 2% after CLSA raises target price

Shares of Zomato rallied over 4 percent in morning trade to hit a 52-week high of Rs 159.20 on the National Stock Exchange (NSE). With this sharp surge, the stock has moved closer to its all-time high of Rs 169, scaled on November 16, 2021. The surge comes after CLSA raised the target price on the food aggregator’s stock to Rs 227.

The international brokerage has a ‘buy’ rating on Zomato as it believes that despite the company being small, it is an increasingly vital component of the profit pool. Analysts at CLSA believe that the recent Q3 results are indicative of a trajectory towards consistent profitability, further enhancing the investor confidence.

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

At 9:53am, Zomato shares were trading 1.8 percent higher at Rs 155.05 on the NSE. The stock has zoomed 200 percent in the last one year, massively outperforming benchmark Nifty which has risen 21 percent in this period.

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Earlier this month, Zomato reported a consolidated net profit of Rs 138 crore for Q3FY24, as against a net loss of Rs 347 crore a  year ago. Its contribution margin – a key profit metric – expanded to 7.1 percent in the quarter ended December 2023 due to the introduction of a fee for customers to use the food delivery platform.

Zomato-owned Blinkit’s gross order value (GOV), the total value of all orders placed, more than doubled, while its core food delivery business saw 27 percent growth in the quarter which helped the total revenue zoom 69 percent YoY to Rs 3,288 crore.

The positive Q3 results kept brokerages bullish on Zomato. Bernstein said the company had once again, “raised the bar” and set medium-term growth expectations of around 50 percent on-year. The growth will be led by Blinkit, which has seen impressive acceleration over the past few quarters. It has an ‘outperform’ call on the stock with a raised target price of Rs 180 per share.

Jefferies has also raised its target price on Zomato to Rs 205, with a ‘buy’ call. Meanwhile, HSBC has raised its target price on Zomato to Rs 163 from Rs 150 earlier. The international brokerage now expects a gradual return going forward, compared to the previous 12 months.

Going forward, the food delivery growth can be driven by an improvement in order frequency, restaurant additions and increase in market share. While Zomato’s average order value increased, it was led by seasonal demand, according to the management. Key monitorables for Zomato going ahead will be the scale of business beyond metros and potential competitive intensity in future, said Elara Capital.

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According to Motilal Oswal, the food delivery business is still in a nascent stage in India, with a long runway for growth. “With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 38 percent Adjusted revenue CAGR over FY24-26,” the brokerage said as it maintained its ‘buy’ rating on the counter with a target price of Rs 170 per share.

Geojit Finacial Services in its report said “a strong growth momentum in the segments, positive margin, and a leading market position” are expected to support the superior performance of Zomato. The brokerage reiterated its ‘buy’ rating on the stock with a rolled forward target price of Rs 174, based on 7x FY26E price/sales.

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