Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge

Zomato announced impressive Q2 results, with a significant surge in net profit. However, the stock price experienced a decline, potentially due to investor concerns about future profitability and the competitive landscape. The company’s strategic move to raise funds through a QIP aims to bolster its financial position and fuel growth initiatives.

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Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge

Zomato shares decline post-earnings

Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge Zomato Ltd., the food delivery aggregator, experienced an initial decline of up to 6% on Wednesday following its September quarter results, but later recovered to trade with a gain of 3%. The company reported a net profit of ₹176 crore for the July-September period, marking its fifth consecutive quarter of profitability. Adjusted revenue for this quarter rose by 69% year-on-year to ₹4,799 crore.

The Zomato board has also approved an ₹8,500 crore fundraising plan through the Qualified Institutional Placement (QIP) route, corroborating a recent report by CNBC-TV18.

Global brokerage CLSA has maintained an ‘Outperform’ rating on Zomato, increasing its price target from ₹353 to ₹370 per share, citing the company’s successful market expansion in the competitive food delivery landscape. HSBC has a ‘Buy’ rating with a price target of ₹330, noting that Q2 food delivery figures met expectations and that the quick commerce segment outperformed, with stable margins thanks to ongoing investments.

Nomura also holds a ‘Buy’ rating, with a price target of ₹320, highlighting rapid growth in the quick commerce segment alongside steady growth in food delivery. Zomato aims to prioritize quick commerce expansion while achieving neutral EBITDA in the near future.

Nuvama Institutional Equities reported that Zomato continues to drive growth across its operations and anticipates quicker addition of dark stores for Blinkit than expected. However, they caution that profitability may be delayed due to higher upfront costs, a necessary strategy in the competitive quick commerce market. Nuvama has revised its price target for Zomato from ₹285 to ₹325, maintaining a ‘Buy’ recommendation.

Currently, Zomato shares are trading 3.85% lower at ₹246.50, having dropped about 19% from their peak of ₹298.

Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge Zomato has reported another impressive quarter, with Q2 FY25 revenues soaring to ₹4,800 crore, driven by significant growth in its Blinkit, Hyperpure, and Going Out segments, while the Food Delivery sector maintained steady performance.

Despite the EBITDA margin remaining relatively flat due to investments in infrastructure expansion, brokerages are optimistic about Zomato’s potential for future growth. However, Zomato’s shares were trading over 4% lower at ₹245.30 on the NSE as of 9:21 AM.

HSBC has upheld its ‘Buy’ rating on Zomato, setting a target price of ₹330 per share, citing that the Q2 food delivery figures met expectations while the quick commerce segment exceeded projections. HSBC believes that the recent fundraising will enable Zomato to remain competitive in a challenging market.

Nomura also maintains a ‘Buy’ rating, with a target price of ₹320, emphasizing Zomato’s commitment to expanding its quick commerce operations while aiming for neutral EBITDA in the near term.

On October 22, Zomato announced a remarkable 389% increase in net profit to ₹176 crore for the quarter ending September 2024. Revenue surged 69% year-on-year as customer orders increased. However, the company’s cash balance has declined from ₹14,400 crore in July 2021 to ₹10,800 crore as of September 30.

Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge Analysts at Motilal Oswal remarked that Zomato’s food delivery business remains stable, while Blinkit presents a unique opportunity to disrupt sectors like retail, grocery, and e-commerce. They have kept their estimates largely unchanged, noting that the growth in Blinkit’s gross order value (GOV) from expanding dark stores is balanced by decreased profitability due to higher capital expenditures and investments.

They forecast Zomato’s PAT margins will improve to 4.7% in FY25, 8.6% in FY26, and 12.9% in FY27, reiterating a ‘Buy’ recommendation with a target price of ₹330, suggesting a 28% upside from recent levels. Zomato is on track to meet its target of establishing 2,000 dark stores by December 2026 and plans to launch the new District app in the next four weeks, which will consolidate its Going Out services into one platform, potentially making it the third-largest B2C business within Zomato.

The company has also announced a fundraising initiative of up to ₹8,500 crore, reinforcing its competitive position in the market, leading another brokerage to maintain a ‘Buy’ rating with a target price of ₹310.

Zomato shares closed 3.5% lower at ₹256.55 on the NSE in the previous session. However, the stock has risen approximately 106% this year, significantly outperforming the Nifty’s 12% return. Over the past 12 months, Zomato’s stock has surged by 135%, more than doubling investors’ capital, while the Nifty gained 28% during the same period.4

Zomato Shares Dip 6% After Q2 Results, Despite 389% Profit Surge On Tuesday, Zomato reported a remarkable 389% increase in its consolidated net profit, reaching ₹176 crore for the second quarter, compared to ₹36 crore in the same period last year. However, this figure fell short of analysts’ expectations, which had estimated a profit of ₹260 crore.

Revenue from operations grew 68% year-on-year (YoY), totaling ₹4,799 crore for the quarter. The growth in the bottom line was fueled by steady improvements in food delivery margins and the quick commerce business, which is nearing break-even.

Adjusted EBITDA for the quarter surged to ₹331 crore, up from ₹41 crore in the corresponding period last year. The gross order value (GOV) across B2C businesses increased by 55% YoY to ₹17,670 crore in Q2 FY25. On a like-for-like basis (excluding the acquisition of Paytm’s entertainment ticketing business), GOV growth was 53% YoY.

Segment-wise, Zomato’s food delivery business reported adjusted revenue growth of 21% YoY, amounting to ₹2,340 crore, with GOV for the segment also rising 21% YoY to ₹9,690 crore. Adjusted EBITDA for the food delivery segment jumped 137% YoY to ₹341 crore, leading to an improvement in margins from 2.6% last year to 3.5% in the current quarter.

The quick commerce segment, Blinkit, saw a substantial 129% YoY growth in adjusted revenues, reaching ₹1,156 crore, while its GOV climbed 122% YoY to ₹6,132 crore. However, adjusted EBITDA remained negative at -₹8 crore, though this was an improvement from a loss of ₹124 crore a year ago. It widened from a loss of ₹3 crore in the previous quarter, resulting in a segment margin of -0.1%.

Zomato indicated that while many of its stores are profitable and experiencing expanding margins, the overall margin growth is being hindered by ongoing investments to scale infrastructure.

The dining-out segment performed exceptionally well, with revenues increasing 214% YoY and GOV rising by 171% YoY for the July-September 2024 period.

The company’s cash balance dropped by ₹1,726 crore compared to the previous quarter, largely due to a ₹2,014 crore payment for the acquisition of Paytm’s entertainment ticketing business.

In response, Zomato’s board approved raising an additional ₹8,500 crore through a qualified institutional placement (QIP) to bolster its financial position in a competitive market. The company stated, “While the business is now generating cash (in contrast to being loss-making at the time of the IPO), we believe it is essential to enhance our cash reserves given the competitive landscape and the larger scale of our operations today.”

Zomato clarified that it has no plans for minority investments or acquisitions in the near future, and the fundraising is solely aimed at strengthening its balance sheet.