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All-time high profit, outlook upbeat

Zomato Ltd. is a leading food delivery aggregator in India, with presence in 23 other countries as well.

• The company’s consolidated revenue grew a significant 70.9% YoY in Q1FY24, primarily due to robust performance of the food delivery and Hyperpure (supplies ingredients to restaurants) businesses.

• Also, EBITDA loss narrowed to Rs. 48cr, owing to improvement in operating leverage. Moreover, the company achieved positive profit after tax (PAT) for the first time, at Rs. 2cr.

• The company’s dominant market presence, new initiatives and businesses, and sustained improvement in the operational metrics are expected to continue to drive growth and profitability. Hence, we reiterate our BUY rating on the stock, with a revised target price of Rs. 114 based on 6x FY25E price/ sales.

Strong growth in key segments

The company posted robust consolidated revenue growth of 70.9% YoY in Q1FY24, to Rs. 2,416cr (+17.5%QoQ). Among the segments, the India food ordering and delivery businesses reported a significant increase of 18.5% YoY, reaching Rs. 1,742cr (+13.9% QoQ). Growth was influenced by favourable seasonality and robust performance of Zomato Gold membership programme. Hyperpure’s revenue posted a sharp 126% YoY rise to Rs. 617cr (+29.1% QoQ), primarily due to growth in the core restaurant supply businesses. Also, implementation of higher minimum order value led to small unprofitable restaurants leaving the platform, simultaneously boosting average order value. Further, Blinkit, the quick commerce business, reported revenue of Rs. 384cr, up from Rs. 363cr in Q4FY23. However, the number of orders decreased 6% QoQ to 36.8mn because of temporary disruptions caused by revisions in delivery partner pay structure and challenges such as heat waves and unseasonal heavy rainfall. Other segments declined 35.8% YoY to Rs. 43cr.

EBITDA loss narrowed, PAT turned positive

EBITDA loss reduced to Rs. 48cr in Q1FY24, attributed to improvement in operating leverage and reduction of 3.1% YoY in employee benefit expenses. The decrease in employee benefit expenses was the result of rightsizing undertaken in the December 2022 quarter. Also, the food and delivery business posted improvement in profitability, with contribution increasing to Rs. 466cr, marking a 22.6% QoQ growth. As a result, the company achieved positive PAT for the first time, at Rs. 2cr.

Key concall highlights

* The company’s management is confident of attaining over 40% YoY growth in the coming years, primarily fueled by an increase in the user base.

* It also plans to achieve EBITDA margin of 4-5% (as a percentage of gross order value) for the food delivery business in the upcoming quarters.

* For the quick commerce business, the company intends to achieve adjusted EBITDA breakeven within the next four quarters. Also, it has plans to add 100 new stores in FY24.

Valuation

The company’s performance was impressive in Q1FY24, turning profitable. Also, the food delivery business in India still presents ample opportunities for expansion. With further means to improve profitability, continuous improvement in operational metrics, and prominent market presence, we expect the company’s food delivery and Hyperpure businesses to grow substantially. Hence, we reiterate our BUY rating on the stock, with a revised target price of Rs. 114 based on 6x FY25E price /sales.

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