Q3FY24 Review: Zomato: Superior execution on display!

9 Feb 2024 , 11:57 AM

Zomato’s Q3FY24 Adj. revenue grew 12% QoQ/53% YoY, ahead of IIFLe at 47% YoY. Food delivery GOV grew by 6% QoQ, driven by an increase in order volume, number of active restaurants and market share gains. Blinkit (quick commerce) growth remained robust with GOV/revenue growing 28% QoQ, on festive demand and mix changes. Food delivery Contribution margin expanded further to 7.1% of GOV (+50bps QoQ) on increase in platform fee and higher ad revenues; and Blinkit continued to reduce losses. Management reiterated their guidance to achieve Blinkit Adj. Ebitda breakeven by Q1FY25 and their aspiration of margins of ~4-5% of GOV for its Food delivery business over the medium term. Analysts of IIFL Capital Services believe consistent delivery on both growth and profitability highlights the superior execution by Zomato and increasing TAM of quick commerce provides them the optionality to grow faster for longer. Analysts of IIFL Capital Services raise FY25/26 EPS by 28-33% and DCF-based 12-mth TP to Rs165 (was Rs120), implying 15% upside as they now build ~₹25bn PAT by FY26. Maintain BUY. 

Growth momentum continues: 

Adj. revenues rose 12% QoQ to Rs36.1bn (+53% YoY), on broad based growth across segments. Food delivery grew 5% QoQ, Hyperpure 15% QoQ and Blinkit growth remained robust at 28% QoQ, on festive demand and changing assortment. Zomato expects Food delivery GOV to grow 20% YoY in near-term and now expects overall Adj. revenues by 50%+ in the near-term (vs 40%+ medium-term target) on continued growth potential in Blinkit. 

First quarter of Ebitda breakeven: 

Zomato Adj. Ebitda (ex-ESOP) margin increased to 3.5% (vs 1.3% in Q2), while reported Ebitda margin turned positive for the first time at 1.6%. Blinkit continued to trim losses and management reiterated its target of reaching Adj. Ebitda breakeven in Blinkit by Q1FY25. Increasing platform fees and ad revenues led to increasing Food delivery Ebitda margins to 12.4% (vs 10.6% in Q2) 

Strong execution can keep valuations elevated: 

Analysts of IIFL Capital Services believe that the consistent delivery on growth and sooner-than-expected profitability would ensure valuations remain elevated. Their TP increases to ₹165, implying 8.5X/6.6X on FY25/26 EV/Sales. Stock is offering 27% revenue Cagr over FY24-26 and achieve ~₹25bn PAT by FY26. Key risks: regulations.