On Friday, shares of Zomato went up strongly as the stock went up 8% in early trading. This was due to good news about the revision of incentives and discounts at ONDC. At Rs. 76, the stock is less than 4% away from its price when it was first sold.
The ONDC, which is backed by the government, is changing the way its incentives work. Under the new rules, the highest price incentive per order will be capped at Rs 100, down from Rs 120. Also, the total reward won’t be more than 50% of the total price of the order, including shipping costs.
Open Network for Digital Commerce (ONDC) has changed its incentive plan for network users so that they don’t have to rely as much on discounts to use the network. This changes most of the doubts about the network’s ability to break the monopoly of Zomato and Swiggy.
After the news came out, shares of Zomato went up by about 8% to Rs 73.20 on Friday. At 9:40 a.m., the stock was priced at Rs 72.25 and had a market value of just over Rs 62,000 crore. On Thursday, the share was worth Rs 67.92.
For the discounts to be available, the minimum order value should be around Rs 200 for food and beverages and Rs 300 for everything else, including shipping costs. Also, a buyer can get an incentive for as many as five deals per month.
From their 52-week low of Rs 40.55 on July 27, 2022, Zomato shares have gone up more than 80%. So far in 2023, it is up 20%, but its success in the last year has been flat. In the last year, the stock has gone up by more than 15%.
Both year-on-year (YoY) and sequentially, Zomato’s losses got smaller in the March quarter. From Rs 360 crore last year and Rs 345 crore in the previous quarter, the company’s overall net loss has shrunk to Rs 188 crore. Zomato’s overall income surged by a staggering 70% YoY to Rs 2,056 crore, but it fell short of expectations.
Christopher Wood, the Global Head of Equity Strategy at Jefferies and an expert on stocks, has put a 4% weighting on Zomato in his India long-only strategy. In the May version of Wood’s “Greed & Fear” index, Zomato has also been added to the global long-only equity portfolio.
“The core business milestone was reached largely because the food delivery contribution margin increased to 5.8% from 5.1% in Q3. This was because improvements in restaurant fees and income, as well as lower discounts and variable costs, made up for the negative effects of the Gold launch, JM Financial said, giving the stock a “buy” rating and a target price of Rs 105.
Management expects adjusted EBITDA and PAT to be positive on a combined basis within the next four quarters. They plan to do this by increasing profits in the FD business and decreasing losses in the Blinkit business. Emkay Global, which has a ‘buy’ rating and a target price of Rs 90, said that the strong performance in Q4 makes them more confident in Zomato’s ability to execute and achieve profitable growth.
“We see significant decreases in losses in the hyperpure and rapid commerce sectors, and ongoing growth in the food delivery business’ profitability. ICICI Securities forecasts a profit for both the hyperpure business and the Blinkit business, and they’re willing to pay up to Rs 83 per share to make it happen.