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Stellar growth ahead for Zomato

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

* In Q4FY24, revenue surged 73.3% YoY to reach Rs 3,562 crore, driven by robust performance across key segments. .

* EBITDA stood at Rs 86 crore, propelled by a rise in topline, introduction of platform fees, higher average order values and effective cost management.

* Zomato expects strong growth in its food delivery and quick commerce businesses. Rising customer base, higher order frequency, expanding network of delivery partners, addition of new stores, untapped opportunities and operational leverage augur well for Zomato’s prospects. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs 220 based on 8x FY26E price/sales.

Strong growth across key segments

In Q4FY24, Zomato’s revenue surged 73.3% YoY to reach Rs 3,562 crore, owing to strong performance across key segments. The India food ordering and delivery segment saw a 48.4% YoY increase to Rs 1,739 crore, driven by a 14.5% growth in the customer base to 19.0 million and a rise in order frequency. The Hyperpure business experienced a remarkable 99.0% YoY growth, standing at Rs 951 crore, owing to a large B2B opportunity and a higher share of value-added products. The quick commerce business grew 111.8% YoY to reach Rs 769 crore, fuelled by 64.1% YoY increase in average monthly transacting customers, totalling 6.4 million and the store count rising to 526. The going-out business expanded 132.5% YoY to Rs 93 crore, led by growth in the dining out segment, while other segments cumulatively grew 233.3% YoY to stand at Rs 10 crore.

Positive EBITDA margin persists

In Q4FY24, Zomato reported an EBITDA of Rs 86 crore (vs. a loss of Rs 225 crore in Q4FY23). The company achieved a margin of 2.4%, driven by a significant increase in revenue, improved average order values and take rates, charging platform fee and cost management. As a result, reported profit after tax (PAT) rose to Rs 175 crore (vs. a loss of Rs 188 crore in Q4FY23), mainly due to an increase in other incomes.

Concall highlights

* Zomato expects a slight slowdown in revenue growth due to the base effect amid robust and substantial growth. It also expects its EBITDA margin to improve.

* Zomato plans to add 475 new Blinkit stores in FY25, taking the total store count to 1,000 by March 2025.

* The gross order value in the food delivery business is projected to grow over 20.0% YoY, while quick commerce is likely to witness a YoY growth of over 60.0%.

Valuation

Zomato has successfully scaled its operations, driven by growth across all segments and improved profitability. The company expects its food delivery business to display a strong performance, owing to scale improvements, growing customer base, increased order frequency and operational efficiency. The quick commerce business is expected to thrive, owing to the addition of new stores. With rising customer base, increasing delivery partners and significant untapped market potential, Zomato is poised for continued success. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs 220 based on 8x FY26E price/sales.

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