Shares of Zomato were trading more than 5% higher in Monday's deals at ₹161 apiece on the BSE, with the stock witnessing a surge of over 20% in the past three trading sessions after the online food delivery platform reported its second quarter earnings last week. Even as the company posted loss, its consolidated revenue from operations surged to ₹1,024 crore for the quarter from ₹426 crore in the year-ago quarter. The company's losses went up mainly on account of investments in the growth of its food delivery business. As part of its long-term strategy to focus on core business, Zomato unveiled its three key investments in startups Curefit, Magicpin and Shiprocket. Brokerage firm ICICI Securities has a target price of ₹220 on Zomato shares as the company's Q2FY22 revenue growth was incredibly strong and way higher than its expectations. Operationally, both supply (restaurants) and demand side (MAUs, MTUs) metrics reported an impressive increase.
This strength seems to be driven by opportunistic branding and marketing investments focused on driving the return of customer traffic post the second covid wave.
While some of these factors are outside the control of the company (e.g. prolonged monsoons), other factors (e.g. aggressive investments in Next 500 towns and branding) should drive back-ended benefits, in ICICI Securities' view.
Zomato's delivery cost per order increased by ₹5 per order on a sequential basis, though the food delivery giant does not expect the delivery costs to go up further and feels confident about the contribution margin staying positive in the mid, as well as long term.
Those at JM Financial believe that company hit the right notes in 2QFY22 by prioritising growth over profitability and by opting to use balance sheet optionality. The brokerage has a target price of ₹180 per share and maintains a ‘Buy’ rating.
“We remain bullish on the company’s long term growth prospects as it is well-positioned to benefit from robust industry tailwinds such as improving tech penetration and rising income share of digitally native millennials/GenZ," JM Financial's note stated.