Zomato in sweet spot as stock nears IPO price

Zomato in sweet spot as stock nears IPO price

Zomato has given a boost to investor appetite, delivering 11.6% returns in the past one week. It has recorded five straight sessions of gains, with market capitalisation surging by Rs 6,760 crore.

On Thursday, the stock closed at Rs 75.80, just shy of its issue price of Rs 76. It touched Rs 76.30 — a fresh 52-week high — in intra-day trade, before settling Rs 0.20 lower than its issue price. As of Thursday, its market value was Rs 65,030 crore.

“The food delivery business is still at a nascent stage with long runway for growth. With dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 36% revenue CAGR over FY23-25. We further expect Zomato to break even in Q4FY24, in line with the management guidance,” said a May 22 report by Motilal Oswal.

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The brokerage said three senior promotions to the CEO/COO positions have helped moderate concerns on high attrition at the senior leadership level. It has maintained a ‘buy’ rating with a target price of Rs 80.

Zomato’s net loss narrowed to Rs 188 crore from Rs 360 crore last year in Q4. Consolidated revenue rose almost 70% Rs 2,056 crore on a year-on-year basis.

Revenue growth was driven by Blinkit’s strong showing — 21% sequential growth — though growth for the food delivery business was modest at 2%, owing to adverse seasonality and macro impact, said the Motilal Oswal report.

The management had guided for a strong momentum in Q1FY24, and remains bullish on long-term prospects. As regards Hyperpure — its platform that provides high-quality ingredients to restaurants — the firm expects consistent growth and reduction in losses thanks to its strong operating leverage.

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“The stock has witnessed a steady rise in the past two weeks, with resistance seen near the 76-zone and indication of getting into the overbought zone. One can consider support near 70, with further targets anticipated for 82-84 levels once a decisive breach above 76 is established. Our view gets negated if a decisive breach below 70 is witnessed after which we can expect a further slide,” said Vaishali Parekh, vice president – technical research, Prabhudas Lilladher.