Zomato dips 7% on profit booking as loss widens to Rs 347 crore in Q3

Global brokerage Jefferies believes outlook seems positive as break-even target stays, as early as Q4FY23 - another positive in the context of Zomato Gold

Shares of restaurant aggregator Zomato dipped 7 per cent to Rs 50.35 on the BSE in Friday's intra-day trade on profit booking after the company's losses widened to Rs 346.6 crore for the quarter that ended in December (Q3FY23).

The food delivery giant had posted a net loss of Rs 67.20 crore in the corresponding quarter of the previous financial year (Q3FY22). It had reported a net loss of Rs 250.8 crore in the September quarter (Q2FY23).

The losses widened nearly 5.5x year-on-year (YoY) owing to the inclusion of Blinkit. This is the first full quarter after the completion of the acquisition of Blinkit.

At 10:17 am, the stock erased its intra-day loss partially and was quoting 1.8 per cent lower at Rs 53.45 on the BSE. In comparison, the S&P BSE Sensex was down 0.29 per cent at 60,629. In the past four trading days, till Thursday, the stock had rallied 14 per cent in an otherwise weak market.

That said, revenue for the food delivery company surged 75 per cent to Rs 1,948.2 crore in Q3FY23, compared with Rs 1,112 crore in the year-ago period.

The food delivery business was sequentially flat. The gross order value (GOV) for Q3FY23 was only 0.7 per cent in an otherwise strong quarter. Adjusted revenue declined 1 per cent quarter-on-quarter (QoQ), driven largely by a decline in order volumes. Adjusted revenue grew 30 per cent YoY. The company attributed this fall to an industry-wide slowdown in the food delivery business since October 2022.

However, the management believes that the long term opportunity remains large and exciting. "We think that the current slowdown is a result of a few temporary factors – macro slowdown for the mid-market segment, boom in dining out for the premium-end, and boom in travel at the premium-end," the management said.

The short-term negative impact of Zomato Gold (due to free delivery benefit) will be offset by improvements in other revenue and fixed & variable cost drivers. In the long term, the management believes the company will be able to make the Zomato Gold program itself profitable.

Further, the management said the company's business is already break-even ex-quick commerce last month (January 2023) and there is a good chance of getting to adjusted Ebitda break-even (ex- quick commerce) in the current quarter if the company is able to bank some execution related wins in the next few weeks (which should offset the negative impact of Zomato Gold on our margins).

Global brokerage Jefferies has a target price of Rs 100 per share for Zomato. "Zomato continues to show an urgency to reduce loss with adj Ebitda (ex-Blinkit) now less than Rs 40 crore, a positive. Outlook seems positive as break-even target stays, as early as Q4FY23 - another positive in the context of Zomato Gold. Green-shoots in food delivery are also visible on demand in January. Blinkit also sees strong growth with swift reduction in losses," the brokerage firm said.

“"n our base case, we expect a 32 per cent CAGR in delivery revenue over FY22-26E. Unit economics to steadily improve with scale as Zomato unlocks cost efficiencies and as customer willingness to pay for convenience increases. We value Zomato's delivery business at an exit multiple of 42x FY26E Ebitda, quick commerce at 3x FY26E Sales, dine-out + others at 12x FY26E revenues and Hyperpure at 1x FY26E revenue. We discount the equity value at a 14 per cent discount rate to arrive at a 1-yr price target of Rs 100," analysts at Jefferies said.