Zomato, a global leader in the food delivery and restaurant discovery sector, connects millions of customers with their favourite eateries. Founded in 2008, Zomato has expanded its services to over 24 countries, offering a comprehensive platform for food delivery, restaurant reservations, and online ordering.
The company’s diverse portfolio also includes quick commerce through Blinkit and a “going out” segment to enhance dining experiences. With a commitment to innovation and customer satisfaction, Zomato continually adapts to changing market dynamics, making it a cornerstone in the digital food ecosystem.
Zomato’s stock has been on a remarkable journey over the past year, capturing the attention of investors and market analysts alike. With a staggering 170% surge in share price and strong quarterly results, the question on everyone’s mind is whether Zomato remains a good investment. Let’s dive into the details and assess the factors driving this impressive growth.
Zomato’s impressive financial performance
Strong Q1FY25 results
Zomato’s consolidated net profit for Q1FY25 soared to ₹253 crore from just ₹2 crore in the same quarter a year ago. This remarkable growth was driven by higher gross order value across its food delivery, quick commerce, and going-out verticals.
The consolidated revenue for the quarter stood at ₹4,442 crore compared to ₹2,597 crore a year earlier.
Share price surge
Following the announcement of these stellar results, Zomato’s share price surged by 19% in morning trade on August 2, hitting a fresh all-time high of ₹278.45.
The stock opened 5% higher at ₹244 on the BSE, showcasing the market’s positive reaction to the company’s financial performance.
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Brokerages bullish on Zomato
Upgraded price targets
Several brokerage firms have expressed positive views on Zomato’s stock, raising their target prices after the company reported better-than-expected Q1 results.
- Nuvama Wealth: Maintained a buy call and raised the target price to ₹285 from ₹245, highlighting Zomato’s strong growth and improved profitability.
- Motilal Oswal Financial Services: Maintained a buy call with a target price of ₹300, citing the stable food delivery business and Blinkit’s potential to disrupt retail, grocery, and e-commerce industries.
- Kotak Institutional Equities: Maintained a buy call and revised the SoTP-based fair value to ₹270 from ₹225, upgrading Zomato’s FY25-27 revenue estimates by 4-5%.
CLSA’s optimistic outlook
CLSA has been particularly bullish, raising its target price for Zomato’s stock to ₹350, the highest among all brokerage firms. CLSA also increased its earnings estimates for Zomato by 6% to 36% for the financial years 2025 to 2027, citing improved performance from Blinkit despite the rapid expansion of dark stores.
Technical analysis: Overbought or still a buy?
Overbought zone concerns
While the long-term outlook remains positive, some technical analysts point out that Zomato’s stock has seen sharp gains recently, pushing it into the overbought zone.
Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers, noted that the stock has surged above all major key moving averages, including the 21-day, 50-day, 100-day, and 200-day exponential moving averages (DEMA).
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Profit booking recommendations
Patel advised against initiating new long positions at the current elevated levels and suggested that existing investors consider booking profits to lock in gains. The overbought condition indicates a possible price correction in the near term, as investors may begin to take profits, leading to selling pressure.
Quarterly results (Amount in Cr):
| Quarterly | Jun 2024 | Mar 2024 | Dec 2023 | Sep 2023 | Jun 2023 |
| Sales | 2,048 | 1,824 | 1,782 | 1,596 | 1,420 |
| Other Income | 279 | 269 | 236 | 229 | 186 |
| Total Income | 2,327 | 2,093 | 2,018 | 1,825 | 1,606 |
| Total Expenditure | 1,853 | 1,693 | 1,628 | 1,506 | 1,325 |
| EBIT | 474 | 400 | 390 | 319 | 281 |
| Interest | 4 | 4 | 5 | 4 | 5 |
| Tax | 0 | 0 | 1 | 0 | 0 |
| Net Profit | 470 | 396 | 384 | 315 | 276 |
Zomato’s strategic initiatives
Expansion and growth
Zomato continues to deliver on its promise of strong growth and improved profitability. Management has guided for 20%+ growth in the short term in food delivery and set a target to increase Blinkit’s dark store count from 639 in Q1FY25 to 2,000 by the end of CY26.
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New app launch
Zomato is also planning to launch a new app for the “going out” segment, further expanding its service offerings and catering to a broader audience.
Brokerages’ consensus: A buy rating
Out of 28 analysts covering Zomato’s stock, 25 have a “Buy” rating. This strong consensus reflects the company’s robust growth trajectory and improving profitability in both food delivery and quick commerce sectors.
Price target revisions
- Morgan Stanley: Retained its “overweight” rating and raised its target from ₹235 to ₹278.
- Nomura: Upgraded its price target from ₹225 to ₹280, praising Zomato’s growth trajectory.
- Citi: Maintained its “buy” rating and increased its price target to ₹280 from ₹235.
- Jefferies: Raised its target from ₹230 to ₹275, keeping a “buy” rating.
- Bernstein: Maintained its “outperform” recommendation with a new price target of ₹275 from ₹230.
Conclusion
Zomato’s impressive financial performance and strong growth prospects have garnered widespread support from brokerage firms, with many raising their price targets and maintaining buy recommendations.
However, the stock’s recent surge has pushed it into the overbought zone, prompting some analysts to recommend profit booking.
For long-term investors, Zomato remains an attractive buy, given its robust growth trajectory, strategic initiatives, and positive outlook.
However, those considering new positions should be mindful of the potential for short-term price corrections and may want to wait for a more opportune entry point.
Ultimately, Zomato’s ability to execute its growth strategies and maintain profitability will be key to sustaining its upward momentum and delivering value to shareholders.
