Stock Overview & Performance
On Friday, 10 June 2022, Zomato’s share price closed at Rs 69/share after gaining 0.44%. However, the week was not good as it gave a negative return of 1.71% and 27.88% of positive return in 1 month. In short-term investment, it gave good returns. On the other hand, since its inception, that is July 23, 2021, has given a negative return of 40.52%, a fall of Rs 47/share.
The CMP of the stock is Rs 18.95 above its 52-week low of Rs 50/share level. Whereas, its CMP is Rs 100/share below its 52-week high of Rs 169/share level. Considering the CMP, and the targeted price of Rs 84/share, the share price could jump 22% in 12 months investment period.
Strong growth across business lines to drive growth
Zomato Limited’s consolidated revenue for the FY22 increased by 110.3% YoY to Rs. 4,192cr and it increased 75% YoY in Q4FY22 and 9% QoQ. Food ordering and Delivery revenue grew 126% in FY22 to Rs. 3,415cr which was driven by healthy growth in order volumes, while the Average Order Value (AOV) remained stable at Rs.398. Marketing spends have reduced by 14% QoQ while maintaining healthy levels of new customer addition. Hyperpure revenue grew 160% YoY to Rs. 1,942cr in Q4FY22 (+24% QoQ) and Rs. 5,376cr in FY22 (+170% YoY). With penetration of ~17%, Hyperpure supplied to over 34,000 unique restaurant up from 27,000 in Q3FY22.
EBITDA losses have been reducing in the last two quarters and the company aims for accelerated growth along with further reduction in losses and increasing profits in the near time. Management expects Adjusted Revenue growth to accelerate to double digits in the next quarter and the Adjusted EBITDA losses to also come down meaningfully. Reduction in losses will be driven by improvement in the contribution margin of the food delivery business and operating leverage as revenue is growing faster than fixed costs. The business has enough cash to fulfil all growth plans and has no need/plan to raise capital at this point. Zomato has committed to give Blinkit a short-term loan of $150mn to fund short-term needs.
Other Business Updates, Key highlights
Zomato launched more than 300 new cities in Q4FY22, totaling to 1000+ cities. The company will recycle more than 100% of all the estimated plastic packaging used in a food order placed through Zomato’s platform and plans to convert delivery fleet to 100% electric by 2030 to reduce the carbon footprint. Business is well funded to fuel all its growth plans in all the businesses and has no need/plan to raise any further capital at this stage. Double-digit Contribution as a % of GOV (Gross Order Value) margin in the long term.
Buy for a target price of Rs 84/share
Valuation Zomato’s growth is back on track and looking at strong order volumes growth, healthy levels of new customer addition, strong penetration, and reduced costs we see strong outlook of the company’s future performance. The brokerage said, “We thereby reiterate our BUY rating on the stock with a revised target price of Rs. 84 based on 11x FY23E P/Sales.”
About – Zomato Ltd
Launched in 2010, Zomato Limited is a leading food delivery aggregator in India and has presence in 23 other countries abroad. The company has a presence in more than 1,000 towns and cities as of FY22. The company uses its platform to connect customers, restaurant partners and delivery partners, serving their multiple needs. Its offerings include food delivery, dining-out services, Loyalty programs, and others. As of December 31, 2020, Zomato has established a strong footprint across 23 countries with 131,233 active food delivery restaurants, 161,637 active delivery partners, and an average monthly food order of 10.7 million customers. The company has a market cap of Rs 54,328 crore.