Zomato soars 9% as net loss narrows to Rs 186 cr in June quarter

The contribution as a percentage of gross order value (GOV) increased to 2.8 per cent in Q1FY23, against 1.7 per cent in Q4FY22, driven by improvements on both cost and revenue sides.

Shares of Zomato’s soared 9 per cent to Rs 50.45 on the BSE in Tuesday’s intra-day trade after the food aggregator reported a consolidated loss of Rs 186 crore in the first quarter of 2022-23 (Q1FY23). The company's losses declined both on year-on-year (YoY) and sequential bases. The company’s consolidated loss was Rs 359 crore in Q1FY22 and Rs 359.7 crore in Q4FY22.

In Q1FY23, the company’s revenue jumped 67.45 per cent YoY and 16.7 per cent quarter-on-quarter (QoQ) at Rs 1,414 crore. The revenue growth was driven by a 10 per cent QoQ jump in gross order value (GOV) to Rs 64.3 billion in Q1FY23, and also growth in revenue per order. The GOV rise was, in turn, driven by robust growth in order volumes and mild growth in average order value over the previous quarter.

The management said on the profitability front, the food delivery (FD) business hit an important milestone last quarter by getting to adjusted Ebitda break-even. The contribution as a percentage of GOV increased to 2.8 per cent in Q1FY23, against 1.7 per cent in Q4FY22, driven by improvements on both cost and revenue sides.

Reported EBITDA margin for FD is still negative at around Rs 16/order of GOV (including costs like advertising and promotion expenses). The other positive in the quarter was the continued growth and profitability improvement in the Hyperpure and Blinkit businesses. The company refrained from giving explicit guidance for Q2 (unlike Q1), but maintained its endeavour to grow revenues and improve profitability.

“Consensus expectations appear more realistic now for the FD industry and for Zomato. Importantly, average order values (AOVs) have remained stable since the COVID-19-led rise, and that has been the single biggest positive surprise since our initiation of coverage in August 2021. We think the decline in its share price in the past 2 months as a result of the one-year lock-in for its shareholders expiring in July 2022 shows that market is pricing in an overly pessimistic scenario,” analysts at HSBC Securities said.

Also, fundamentally, the brokerage firm believes that unlike many other segments in the new-tech space, food delivery is relatively mature with a healthy duopoly structure and clear value proposition. Progress of the Blinkit acquisition and its integration and growth will be a key issue to monitor over the next few quarters.

Growth in food delivery transacting users may be slower than expected; Zomato’s equity investments in startups may not generate value; and competition in grocery and other hyperlocal areas may outperform Zomato and its investee companies such as Blinkit are key downside risks, the brokerage firm said.

At 09:21 AM; Zomato traded 5 per cent higher at Rs 48.55 on the BSE on the back of heavy volumes. A combined 72.6 million equity shares had changed hands on the NSE and BSE in just the first few minutes of trade. In comparison, the S&P BSE Sensex was down 0.2 per cent at 58,001.

With today’s gain, the stock price of Zomato has recovered 24 per cent from its all-time low of Rs 40.55 touched on July 27, 2022. However, it still down 34 per cent from its issue price of Rs 76 per share. The company made its market debut on July 23, 2021, and the stock has corrected over 70 per cent from its record high of Rs 169.10 touched on November 16, 2021.