Zomato shares up 4% even as brokerages trim food delivery biz growth estimates

while writing, zomatotraded on the share of 53.94 on the BSE, up 3.47%. The stock has climbed at least 4% overall, with intraday highs 54.20 each.

zomato share last day 52.13 each.

Zomato shares are up for the second consecutive day.

In its latest research note, JM Financial said, “Our recent channel check suggests that sequential food delivery gov growth is likely to remain muted for the third time in a row in March-Q.”

The key factors impacting growth, according to the brokerage include — persistent inflationary pressures, rising share of food and beverage, and focus on profitability improvement (to support growth investments in adjacent areas such as blinkit and Hyperpure). In particular, the reintroduction of the ‘Gold’ loyalty membership and the closure of operations in 225 cities suggests that the company is mining high-quality customers (whose ordering frequency is high) rather than investing in expansion. sees high long-term value creation potential by Long-tail of repeat customers.

JM Financial’s note said, “On the one hand, this strategy could have an adverse impact on the near-term MTU trend (amid weak macros), on the other hand, it could accelerate profitability expansion. Recent developments also suggests 1) improvements in restaurant take-out rates, and 2) the drop in delivery costs could be much better than previously thought, leading to quicker profitability.”

Thus, the brokerage said, “While we now forecast Zomato’s food delivery segment to grow at a CAGR of c.21% over FY23-27. Earlier estimates of ~25%, contribution margin (of %GOV as) could reach ~7% by FY27 vs FY34 expected earlier.

However, despite the lower food delivery growth estimates in Zomato, JM Financial believes the company remains a long-term story.

It added, “We remain bullish on the company’s long-term prospects in the hyperlocal delivery space as we believe it continues to benefit from strong industry tailwinds such as improving technology penetration and rising revenue share of digitally native millennials/GenZ.” The balance sheet also remains strong with net cash of Rs. 113 billion by 22 December.”

Having said that, on valuations, the brokerage said, “We continue to value the consolidated business using 15-year DCF (WACC of 13% and Tg of 6%) for Zomato to arrive at the Dec’23 FV.” Are. 100.”

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.