Zomato Shares Drop by 6% After Q4 Results

Zomato the popular food delivery platform saw its shares take a dip of 6% in early trade on Tuesday following the release of its fourth quarter financial results. The company announced a consolidated net profit of ₹175 crore for Q4 FY24 marking a turnaround from the ₹188 crore loss recorded in the same period last year. This represents a robust 27% growth from the preceding quarter's net profit of ₹138 crore. Despite this positive surge in profitability, Zomato shares declined by as much as 5.98% to ₹182.10 on the BSE.

Revenue Growth and Operational Improvement

Zomato's revenue for the fourth quarter of fiscal year 2024 saw a 73% rise to ₹3,562 crore up from ₹2,056 crore in the previous year. Additionally, the company's Gross Order Value or GOV surged by 51% year on year to ₹13,536 crore across its Business to Consumer or B2C operations. At the operational level, Zomato posted an EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization of ₹86 crore marking an improvement from the loss of ₹226 crore incurred during the same period last year. Zomato's quick commerce arm, Blinkit achieved operational EBITDA break even in March 2024 signaling a milestone for the company.

Analysts' Take

Emkay Global Financial Services

Emkay Global Financial Services noted Zomato's stable operational performance with revenue surpassing their expectations. However, they observed a margin miss due to higher than anticipated ESOP costs. Despite this Emkay maintained their future earnings estimates, though they adjusted down the FY25 earnings per share by approximately 20%. This adjustment reflects a slower profitability outlook for Blinkit attributed to its aggressive store expansion strategy and increased ESOP costs. Emkay reiterated a Buy rating on Zomato shares with a target price of ₹230 per share.

Nuvama Institutional Equities

Nuvama Institutional Equities highlighted Blinkit's plans to double its dark store count by the end of FY25 aiming to solidify its position as a leader in quick commerce. While acknowledging the short term impact on profitability Nuvama remains optimistic about Blinkit's long term prospects. They revised their valuation of Zomato, valuing food delivery at $10 billion and Blinkit at $13 billion using the Sum of the Parts (SOTP) method. As a result of Blinkit's accelerated growth and leadership in quick commerce, Nuvama raised their target price for Zomato shares to ₹245 from ₹180 maintaining a Buy rating.

Elara Capital

Elara Capital continues to favor Zomato due to its strong market presence in the food delivery sector foreseeing a projected adjusted EBITDA Compound Annual Growth Rate of 47% for FY24-26E. They emphasized Blinkit's market leadership and superior execution attributing it to better customer experience compared to competitors. Elara raised their consolidated revenue estimates for FY25E and FY26E by 22% and 33% respectively, primarily driven by Blinkit and Hyperpure's growth. However, they revised the earnings estimates for the same periods by 7% and 3% respectively citing higher ESOP charges and lower EBITDA for Blinkit due to its expansion focus. Despite this, Elara maintained a buy rating and raised the Zomato share price target to ₹280 from ₹250. 

To Summarize

Despite reporting impressive financial results Zomato's shares witnessed a decline in early trade. However analysts remain optimistic about the company's future prospects citing its strong performance and strategic initiatives in the quick commerce segment. Investors are advised to carefully monitor Zomato's trajectory amidst the evolving market dynamics.