Analyst Corner: Zomato expects to turn Blinkit adjusted-EBITDA positive in two years The management of Zomato is expecting to achieve a break-even (ex-Blinkit) by the fourth quarter of the current fiscal (outer limit: 2QFY24), with the rise in take-rate and cost efficiency being the drivers. Blinkit loss is likely to be lower than earlier guidance. We maintain ‘buy’ with the price target of Rs 100. Ebitda break-even: Management is targeting Ebitda break-even (ex-Blinkit) by March 2023 or the latest by September 2023, this would be led by better profits in food delivery. The company was already cashflow-positive in Q1FY23 (including treasury income). Also read| Zomato targets Ebitda break-even by 2023 Upside in take rates: Driving parity of take rates at under-indexed restaurants (which were on-boarded earlier, in our view), along with higher customer delivery charges and ad sales drove the expansion in take rates in the first quarter. Zomato sees further upside in both of these components in coming quarters. Also read| Zomato’s consolidated loss narrows to Rs 186 crore in Q1 ATU to MTU: The growth in monthly transacting users (MTUs) is driven by increased conversions of ATUs into MTUs and this stays as a focus. However, the management cautioned that the growth is lumpy and not necessarily linear (implying there would be periods of high growth followed by moderate trend). However, the Y-o-Y growth trends in MTU have remained healthy. Cost trends: Employee expenses should continue to grow at 15-20% YoY. ESOP expenses are expected to decline as these were front-loaded. Unit delivery costs for Blinkit and Zomato are at similar levels, which should decline post acquisition, driven by synergies.
However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.