Target: ₹93

CMP: ₹75.11

Zomato delivered a robust financial performance in the fourth quarter of FY23, with revenue reaching ₹2,056 crore, reflecting a 5.5 per cent increase compared with the previous quarter and an impressive 70 per cent growth year on year. The growth was mainly driven by the outstanding performance of Blinkit, which experienced a significant 21 per cent quarter-on-quarter increase in revenue. EBITDA loss for the quarter showed a remarkable improvement, standing at -10.96 per cent in Q4-FY23 compared to -37.11 per cent in Q4-FY22. This improvement was attributed to effective cost-control measures and a higher take rate. Excluding Blinkit, Zomato achieved positive EBITDA, driven by a sharp increase in profitability in the food delivery segment, which generated ₹78 crore of adjusted EBITDA in the quarter, resulting in a 5.1 per cent adjusted EBITDA margin.

Zomato has set a target to achieve PAT break-even on a consolidated basis within the next four quarters. Remarkably, the company has successfully delivered on this goal in the third quarter following the announcement.

Zomato has started charging for its Gold programme, contributing to its revenue growth. However, specific sign-up numbers and pricing dynamics are considered competitively sensitive information. The company expects the dine-out business to take a few more quarters to become meaningful and plans to share more details as it progresses. Overall, Zomato remains focused on the restaurant sector for its offline business and is currently exploring something other than local services.

We value the stock at a target price of ₹93 based on 6.22x FY25 P/Sales. We anticipate revenue CAGR growth of 34 per cent between FY22 and FY24. This growth is expected to be driven by earnings upgrades, supported by improved visibility of profitability and a sustained improvement in the underlying operating metrics.

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