Zomato hits 52-week high: Should you place an order?

Zomato shares jumped over 4% in the opening trade on Monday and hit their fresh 52-week high of Rs 121.45 on the NSE following target upgrades by as many as five top brokerages.

In their post-earnings stock review, CLSA, Jefferies, HSBC, Motilal Oswal and Nuvama reiterated their buy stance on the counter and raised their targets as well.

The company posted a Rs 36-crore profit after tax (PAT) against the estimates of Rs 5-crore loss by ETNow poll. The company had posted a surprise profit of Rs 2 crore in the preceding June quarter and a loss of Rs 251 crore in the year-ago period. Revenue from operations surged 71% year-on-year (YoY) to Rs 2,848 crore, which was also higher than Street expectations. The gross order value (GOV) across its B2C businesses (food delivery + quick commerce + going-out) grew 47% YoY to Rs 11,422 crore. Read More

Here is what top brokerages recommended on Zomato shares:

HSBC: Buy | Target: Rs 140

HSBC held a buy view on Zomato and hiked the price target to Rs 140 from Rs 120. The company’s GOV growth in food delivery and quick commerce business were in line with HSBC’s estimates with margin expansion also as per its estimates. The guidance for Q3 is strong with high single-digit growth for food delivery and continued traction for quick commerce, the brokerage noted. The brokerage remains positive on Zomato’s long-term prospects, especially quick commerce.

Jefferies: Buy | Target: Rs 165

Jefferies has also maintained a buy on this counter and hiked its price target to Rs 165 from Rs 130. The brokerage said that the company always surpasses its estimates. The Q2 was another comprehensive beat which drives meaningful upgrades on both topline as well as bottomline, a post-earnings note said.

Quick commerce remains impressive on growth with EBITDA break-even in sight while stable EBITDA margin in food delivery may disappoint some. GOV growth acceleration addresses a key investor concern around MTU and frequency. Management will likely prioritise growth versus margin quarter to quarter, in Jefferies’ view.

CLSA: Outperform | Target: Rs 168

CLSA has upgraded the Zomato stock to Outperform while revising its price targets upwards to Rs 168 from Rs 120. It said that the quick commerce business viability is increasing. The Q2 GOV acceleration was primarily driven by an increase in monthly transacting customers, it said in a note. Higher use frequency for Zomato drove improved contribution, Jefferies said as it sees greater confidence in profitability, especially for Blinkit.

Motilal Oswal: Buy | Target: Rs 135

Motilal Oswal remains positive about the long-term growth opportunity for Zomato and does not expect competition to intensify further despite the entry of ONDC in the space. Its DCF-based valuation of Rs 135 suggests a 16% upside from the current price. “We reiterate our BUY rating on the stock,” it said in its stock review.

Zomato delivered another good quarter, with 2QFY24 revenue growth beating Motilal’s estimates of 11% growth. Growth was led by Blinkit, up 31.5% QoQ. The food delivery business also outperformed, with revenue growth of +12.7% QoQ on the back of strong order volume.

Nuvama: Buy | Target: Rs 140

Nuvama moved from a DCF-based valuation methodology to SOTP as it maintained a Buy view with a revised target price of Rs 140 from an earlier Rs 110.

Zomato posted very strong performance-beating expectations on all fronts, it said, adding that the growth in food delivery bounced back after two-quarters of tapered growth. “While adjusted EBITDA margin (as a percentage of GOV) of food delivery stayed stable, it improved 170bp QoQ for Blinkit,” a Nuvama said.

Zomato’s revenue growth was much stronger than expected as all businesses continued to grow at full throttle. The brokerage increased its revenue growth estimates, as it believes that the management is aiming at higher-than-anticipated growth. Though Nuvamalowered its profitability expectation, citing that the management will invest to drive growth.

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