Shares of food-tech company Zomato Ltd fell as much as 9% from last close on Friday after posting lukewarm earnings a day earlier. Zomato’s stock fell to Rs 85.85 a scrip in early trade, from last close of Rs 94.50 a share. Zomato on Thursday posted a marginal 5% quarter-on-quarter increase in order volume and operating revenue. Brokerage firm JM Financial said Zomato reported lukewarm results in the third quarter, adding that the sequential orders volume growth was lower than its expectations. The stock was trading at Rs 89.05 a share.
JM Financial said it expected sequential volume growth of about 12% in the third quarter. Zomato reported its operating revenue for the third quarter of Rs 941.2 crore, a 5% Q-O-Q increase. The company also reported lower than expected growth in the number of orders due to weak growth in gross order value in its core food delivery business. Average order value shrunk by about 3% in comparison to the previous quarter mostly on account of reduction in customer delivery charges.
“Food delivery GOV/volumes grew a modest ~2%/5% QoQ despite substantial reduction in customer delivery charges and expansion in ~180 new cities. This was due to post-Covid reopening and retrenched marketing spends to acquire new customers,” JM Financial said.
Quick commerce could help with Zomato’s growth trajectory:
Zomato said it would be investing $400 million in the quick commerce sector after witnessing strong growth through its investment in quick commerce firm Blinkit (formerly Grofers) adding that it is very bullish on the product-market fit, unit economics, as well as the growth trajectory of the quick commerce category.
Brokerages expect a significant portion of this investment to go into Blinkit. “The Company made a further commitment of cash investments up to USD 400mn over the next two years in this category. We expect a significant chunk to go to Blinkit, which is pioneering the 10-minute grocery delivery format,” JM Financial said.
Kotak Institutional equities said the quick grocery commerce is expected to be near-term focus area for Zomato but will require additional investments. We believe most of these investments will be towards the scale-up of Blinkit, it added.
Brokerages rating action:
JM Financial reiterated buy rating for Zomato but cut its target price to Rs 155 a unit from Rs 180 a unit. “Given the rising global interest rates we use a higher WACC (Weighted average cost of capital) of 12% (vs. 11% earlier) to discount this valuation back to Mar’23, to derive our revised TP of INR 155,” it said.
Kotak Institutional Equities also reiterated Buy rating for the food-tech firm but revised its fair value (FV) for the stock to Rs 135 a unit from earlier FV of Rs 170 a unit.”We remain positive on Zomato given strong execution in its core business; efforts to drive positive
contribution margins should also accelerate. Investments in quick grocery commerce opens up another large opportunity though this will require sizeable investments in the near-term,” the brokerage firm said.
from The Financial Express https://ift.tt/a2jexhX
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