Zomato gains 10% as Q2 loss shrinks, Jefferies upgrades stock with 42% upside

Shares of Zomato surged over 10 percent in the morning trade on Friday, a day after the company declared its September quarter earnings.

The food delivery services provider on November 10 said its consolidated net loss for the quarter ending September 2022 narrowed to Rs 250.8 crore against Rs 434.9 crore registered in the same quarter last year. Its revenue from operations zoomed 62.20 percent to Rs 1,661.3 crore from Rs 1,024.2 crore in the corresponding quarter last year, the company said in an exchange filing.

The company said its “adjusted” EBITDA loss increased to Rs 192 crore in Q2FY23 as compared to Rs 150 crore in the first quarter. The increase in loss was on account of the consolidation of quick commerce losses.

At At 09:32am, Zomato was quoting at Rs 70.40, up Rs 6.45, or 10.09 percent, on the BSE. It has touched an intraday high of Rs 72.25 and an intraday low of Rs 65.55. It was trading with volumes of 8,903,451 shares, compared to its five-day average of 4,426,343 shares, an increase of 101.15 percent.

For the food delivery business, the gross order value (GOV) growth was 3 percent quarter-on-quarter (QoQ) and 23 percent year-on-year (YoY), driven by growth in both order volumes and average order value. Growth in revenue per order led to a higher adjusted revenue (for food delivery) growth of 8 percent QoQ and 27 percent YoY.

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“The increase in contribution margin is driven by improvements on both cost and revenue side. This has been the result of scale and heightened focus on profitability over the last few quarters. In our view, none of these improvements in contribution margin is temporary in nature,” said Akshant Goyal, Chief Financial Officer, Zomato.

Global research firm Jefferies has upgraded the stock to 'buy' call with a target at Rs 100 per share, an upside of 42 percent from current market price. The brokerage firm feels that Zomato management shows urgency to reduce losses. "Adjusted EBITDA (ex-Blinkit) is down to Rs 60 crore which is better than estimates. Blinkit growth was impressive and so is loss reduction, hyperpure also has grown strongly," it said, according to a CNBC-TV18 report.

Morgan Stanley has an 'overweight' rating on the stock with target at Rs 80 per share. Contribution margin in food delivery improved to 4.5 percent from 2.8 percent in Q1. Quick commerce showed good progress on reduction in losses QoQ, it added.