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Published: May 14, 2024
Updated: May 14, 2024

Zomato's Strong Q4 Results Spark Target Price Hikes

Stock Performance and Analyst Outlook

Despite Zomato's in-line Q4 results, the stock witnessed a decline for the second consecutive day, falling by 9 percent over two days to Rs 182 per share on May 14. However, brokerages remain optimistic about Zomato's growth trajectory and have raised their target prices, anticipating significant upside potential.

Path to Profitability

Analysts highlight Zomato's potential path to profitability, emphasizing improving contribution margins. With the company reporting a net profit of Rs 175 crore for Q4FY24, marking the fourth consecutive quarter of positive earnings, confidence in Zomato's financial performance remains strong.

Revenue Growth and Margin Expansion

Zomato reported a 73 percent year-on-year increase in revenue to Rs 3,562 crore, reflecting robust growth amidst challenges in the broader e-commerce sector. The company's margin expansion efforts in both food delivery and quick commerce have been noteworthy, with its quick commerce business, Blinkit, achieving an adjusted EBITDA break-even in March 2024.

Brokerage Insights and Target Price Adjustments

Brokerages have revised their target prices for Zomato upwards, reflecting their positive outlook on the company's future performance. Nuvama Institutional Equities maintains a 'buy' rating with a revised target price of Rs 245 per share, citing Blinkit's dominant position in quick commerce as a key growth driver.

Continued Confidence from Analysts

Other brokerages, including CLSA, Bernstein, Morgan Stanley, and Nomura, also maintain positive outlooks on Zomato, with buy ratings and target prices ranging from Rs 180 to Rs 248 per share. These firms acknowledge Zomato's steady performance and focus on expanding its quick commerce operations, despite short-term profitability impacts.

Modest Expectations in the Near-Term

While Zomato's growth trajectory remains promising, some analysts, like Jefferies, advise investors to temper their return expectations in the near-term. Despite significant growth over the past year, Jefferies suggests adopting a more modest outlook for returns in the coming months.

Zomato's strong Q4 results and optimistic outlook from brokerages underscore its position as a key player in the food delivery and quick commerce space. While short-term fluctuations may impact stock performance, the company's strategic initiatives and focus on profitability bode well for its long-term growth prospects. Investors should weigh these factors carefully while considering their investment decisions.