Here's why some analysts expect Zomato shares to gain by as much as 50% in the next one year

Restaurant aggregator and food delivery company Zomato’s second-quarter numbers include 50 days of Blinkit financials post the closing of the Rs 4,447.48 crore acquisition. Blinkit was formerly known as Grofers.

The adjusted revenue, excluding Blinkit, grew by 38 percent year-on-year and 19 percent quarter-on-quarter to Rs 1,965 crore. The overall adjusted revenue came in at Rs 2,107 crore, up 16 percent from the previous quarter.

The contribution margin improved to 4.5 percent and as a result, the company said, food delivery adjusted EBITDA has hit a break even in the quarter. It also said it strategically traded low-quality growth for better unit economics. Here’s a snapshot of brokerages' stance on the company following the results.

According to Jefferies, Zomato’s management showed urgency to reduce losses, as adjusted EBITDA (excluding Blinkit) was down to Rs 0.6 billion — this is better than the most bullish estimates and addresses investor scepticism on break-even guidance.

Morgan Stanley said the firm’s quick commerce segment showed good progress on reduction in losses sequentially while growing gross merchandise volume (GMV)/revenues QoQ. The brokerage has an overweight stance on the stock with a target price of Rs 80.

Citi pointed out that Zomato had clearly prioritised profitability over gross order value growth (A&P spends likely declined 100bps+) and appears on track to achieve ex-Blinkit B/E by March 2024. Given healthy monthly transacting users’ addition of 5 percent QoQ, the brokerage believes the overall 30 percent gross order value growth rate in FY23 should still be achievable.

Credit Suisse has raised the target price on Zomato’s shares as it said profitability was improving well ahead of estimates while growth remains steady. The key surprise was a sharp improvement in the food delivery contribution margin to 4.5 percent of gross order value (2.8 percent in Q1), it said. The brokerage has upgraded overall EPS by 48 percent, 60 percent, and 102 percent for FY23, FY24, and FY25.