Shares of Zomato plummeted 13 per cent to hit an intraday low of ₹207.80 on the NSE after the food delivery aggregator reported a 57.2 per cent decline in consolidated net profit for the December quarter to ₹59 crore. The stock closed at ₹239.75 on the NSE on Monday.
The company recorded a net profit of ₹138 crore in the year-ago period.
Brokerages cheer strong execution for long-term gain
Brokerages have been optimistic on Zomato considering the long-term prospects, while Blinkit and store expansion have dragged the profitability in the short-term. The management expects losses in Blinkit to continue in the near term, as it targets reaching a store-count of 2,000 by December 2025.
Bank of America (BofA), maintaining ‘buy’ rating on Zomato at a target price of ₹375, stated that Blinkit’s growth focus led to EBITDA/profitability miss, but the demand and execution are strong.
Nomura also observed the strong execution as a favourable factor for Blinkit. This global brokerage acknowledged the competition in quick commerce space and has maintained buy call at a slashed target price of ₹290 from ₹320.
Domestic brokerage ICICI Securities believes the lower profitability is primarily due to accelerated store expansion. Nuvama Institutional Equities also emphasised in its report that Blinkit dark store additions are outpacing expectations, “this bunching up of cost for dark store addition shall hurt profitability in the short-term, but shall ultimately lead to bunching up of profitability in future quarters as these stores mature.”
ICICI Securities, maintained buy rating at a target price of ₹310, added that Zomato may have lost some share as competitors scaled the 10-15 minutes delivery business. It added that the slowdown in discretionary spending and negative externalities are disrupting business operations.
Nuvama, maintaining its buy rating on the stock, has cut the target price from ₹325 to ₹300.
Meanwhile, CLSA has reiterated outperform rating and hiked the target price to ₹400. UBS has given buy rating at the target prices of ₹320.
JM Financial analysts observed weaker-than-expected margins in Blinkit and Going-out verticals (due to store expansions and investments in the new District app). For the Hyperpure segment, they said strong growth momentum continues.
Zomato remains one of JM Financial’s preferred picks as it is well-positioned to benefit from the tailwinds for the hyperlocal delivery business. The brokerage has maintained buy at a revised target price of ₹280 from ₹300 earlier. It strongly suggested long-term investors to use the opportunity to build sizable positions.
Motilal Oswal sees a 13 per cent upside potential and reiterated a buy call on Zomato at a target price of ₹270.
Global brokerage Jefferies has assigned hold call at a lowered target price of ₹255 (from ₹275 earlier).
Zomato shares cracked 9.36 per cent to trade at ₹217.30 on the NSE as at 2 pm, while on the BSE, it declined 9.71 per cent to ₹217.55. Its market cap eroded to ₹2.09 crore.
Shares of Zomato-rival Swiggy also dropped sharply by 11 per cent to hit an intra-day low of ₹427.05 on the NSE.