Recent steps to cut costs have made the outlook better. As a result, Nuvama has raised its goal price to Rs. 85 and kept its “buy” rating. This is because the company’s profits are growing faster than expected.
On Friday, the food delivery platform Zomato is likely to report its earnings for the time that ended on March 31, 2023. Analysts expect the company to move faster towards making money. They expect strong growth in revenue from year to year (YoY), but growth from quarter to quarter (QoQ) may be slower. The net loss is expected to stay almost the same year over year and quarter over quarter.
Since interest rates kept going up and prices went up, people didn’t spend as much on extras in 4QFY23. This made our covering companies less busy, which hurt them. But seasonality would play a big role, and experts think that Zomato’s performance could get worse after the holiday quarter.
Even though Zomato Gold memberships were activated, ICICI Securities thought that food delivery GOV would stay the same from quarter to quarter but go up 14.2% year over year in Q4FY23E, despite the fact that Zomato Gold memberships were activated. This is because Q4FY23E is a usually weaker quarter and online consumption fatigue is a trend that was mentioned above. It also sees a 1% drop in the average order value of food because Gold users no longer have to pay delivery fees.
“We anticipate that the contribution margin from food orders will stay steady QoQ, as improvements in restaurant take rates could offset increases in delivery subsidies. We think that Hyperpure business (B2B) will grow by 26% QoQ and Blinkit will grow by 30% QoQ, driven by a wider regional reach. Overall, it said, “we expect adjusted revenue growth of 9.5% QoQ and 68.5% YoY and flattish combined EBITDA growth QoQ in Q4FY23E, which shows that new businesses are growing in a sustainable way.”
ICICI Securities predicts that Zomato’s sales will be Rs 2,154.6 crore, which is up 11% QoQ and 78% YoY. Its EBITDA loss is expected to be Rs 351.2 crore, which is down on both QoQ and YoY. The company may record a net loss for the quarter of Rs. 345.6 crore, which is slightly less than the previous quarter and year. On Zomato, it has a buy rating and a goal price of Rs 65.
We expect Food Delivery GOV to drop by 4.3% from 3Q to 4Q because of the effects of inflationary pressures on leisure spending, the rise in dine-in consumption, and the company’s focus on making money. JM Financial said that for Blinkit, straight GOV growth of 10% will be driven by volume, since AOVs are likely to go down as the company focuses on improving customer experience and growing transaction base.
Hyperpure should show growth of 16% from one quarter to the next, while the business of eating out is likely to show a drop from one quarter to the next. Food Delivery is expected to keep its contribution margin at 5.1% in Q4. Blinkit’s contribution margin could get better by 50 bps from one quarter to the next, bringing it to -4.0%. It said that, without Blinkit, adjusted EBITDA could be very close to breaking even.
JM Financial thinks that Zomato will have a net loss of Rs 343 crore, which is an increase of 1% QoQ and 4.7% QoQ. The brokerage business thinks that Zomato will make a net profit after all adjustments in FY25. It has a “buy” rating, and the goal price for the stock is Rs 100.
Nuvama Institutional Equities, another brokerage company, thinks that Zomato will make Rs 11,033.1 crore in revenue and have an EBITDA loss of Rs 681 crore and an adjusted net loss of Rs 537.1 crore for the whole financial year 2022–23. Some of the profits are cutting into the growth of sales. It said that a slowdown in QSR and a change towards eating out are adding to the pressure.
The food delivery business in India is on track to make money sooner than expected. In a duopoly where Zomato is one of the players, reducing cash burn is now the top priority for both companies. The brokerage company said that the recent reduction in staff and changes to delivery incentives are important parts of the recipe for making money.
According to Nuvama, “Recent cost-cutting initiatives have improved the profitability outlook, and we boost our target price to Rs 85 (from Rs 74 earlier) and hold ‘buy’ rating on the premise of faster-than-expected improvement in profitability.