The brokerage firm, Macquarie Capital Securities maintains its ‘Underperform’ rating on Zomato with a share price target of Rs 130 per share. According to them, Zomato’s share price has a very limited margin of safety due to a substantial rise in competition in quick-commerce. This is instrumental in denting the consensus forecasts. The brokerage added that it regards Zomato as an efficient Q-com and food delivery platform but sees a 44% downside to the stock price.
In June 2022, Macquarie gave the Underperform rating to Zomato, but soon changed it to Outperform. However, it has raised the target price from time to time, but majorly on the downside. Although, Zomato’s share price has beaten the target price for a year now.
Zomato’s December quarter earnings were below Macquarie’s estimates, which was largely due to higher investment and marketing spending in Blinkit. Plus, the company bore higher employee expenses, said the analysts.
Macquarie estimated that Blinkit’s gross order value (GOV) to increase by 3.25 times over the next three years along with an EBITDA margin expansion ot 3.5%. “In the face of hyper-competition, we continue to flag material downside risk, particularly to this margin expansion assumption, whilst even noting scope for a prolonged period of negative margins,” read the research report. However, it doesn’t see many changes to the estimates for the food-delivery segment.
Zomato’s Q-com. GOV jumped 120% year-on-year on the back of strong monthly transacting user additions. The GOV and MTU soared due to higher marketing spending, which affected adjusted operating margins that diminished to -1.3% (of GOV), compared to the expectations of near-breakeven. The food delivery segment’s GOV grew by 17% YoY, below estimates of Macquarie.
Macquarie saw a change in estimates and maintained its rating plus target price on Zomato after it reported earnings for the third quarter of the current financial year.
Zomato’s Q3 performance
The food delivery company reported a drop of 57% YoY in its net profit for the period standing at Rs 59 crore, compared to Rs 138 crore posted in the same quarter a year ago. Its revenue from operations for the period jumped 64% on year to Rs 5,404 crore from Rs 3,288 crore in the same quarter a year ago. Blinkit added 216 dark stores in the December quarter, the total stores stand at 1,007.
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