Zomato hits 52-week high on positive Q3 show; brokerages bullish on growth prospects, fuels target price hike

Brokerages have overwhelmingly celebrated Zomato’s quarterly earnings show, with most institutions raising their target price on the stock of the online food aggregator.

On February 8, Zomato reported a net profit of Rs 138 crore for the October-December period, marking the third straight quarter of the food aggregator’s earnings coming in the green.

Zomato share price jumped 5 percent in early trade on January 9, touching a fresh 52-week high at Rs 151.40.

Revenue surged 69 percent year-on-year to Rs 3,288 crore at a time when the broader e-commerce sector is reeling under the pressure of high inflation and muted demand. The gains in Zomato for the quarter were on the back of the positive impact from the Cricket World Cup and festive season.

During the same quarter last year, Zomato had posted a net loss of Rs 347 crore and revenue of Rs 1,948 crore.

Bernstein noted that Zomato 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. Over the past year, Blinkit grew 103 percent, led by category expansion.

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As a result of its smart gains in the food delivery segment, which was up 27 percent on-year, Jefferies raised its target price on Zomato to Rs 205 per share, with a 'buy' call. HSBC also raised its target price on Zomato from Rs 150 to Rs 163. The international lender noted that it now expects a gradual return going forward, compared to the previous twelve months.

The food delivery growth can be driven by improvement in order frequency, restaurant addition and increase in market share. While Zomato’s average order value increased, it was led by seasonal demand, per the management. Per Elara Securities, key monitorables for the counter going ahead will be the scale of business beyond metros and potential competitive intensity in future.

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