Zomato achieves profitability milestones, Bernstein maintains “Outperform” rating

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Zomato, one of India’s leading food delivery platforms, has achieved profitability milestones well ahead of schedule, according to a recent report by Bernstein. The report cites sustained improvements in contribution margins and robust execution as key drivers of the company’s success.

The report notes that Zomato has reached consolidated adjusted EBITDA break-even three quarters ahead of its initial target, in Q1FY24 instead of Q4FY24. This is attributed to a consistent increase in contribution margins over the last six quarters, which now stand at 6.4% of gross order value (GOV). The report projects long-term contribution margins in the range of 8-9% and an adjusted EBITDA margin of 5%.

The food delivery segment has shown considerable strength, with GOV growth of 11% quarter-over-quarter in Q1FY24. The report foresees a sustainable CAGR of 24% year-over-year over the next three years, primarily driven by the addition of new monthly transacting users and increased order frequency. Analysts believe that Zomato is well-positioned to maintain high-teens growth in food delivery, coupled with continuous improvements in contribution margins.

The report also highlights the positive developments in Zomato’s quick commerce business, particularly Blinkit. Blinkit has achieved contribution margin break-even, with management guiding towards adjusted EBITDA break-even within the next four quarters. Blinkit’s GOV is expected to grow by more than 20% quarter-over-quarter, with a significant reduction in contribution margin percentage losses (0.6% compared to 2.7% in the previous quarter). Bernstein values Blinkit inline with the food delivery business.

In light of these performance metrics, Bernstein has expressed optimism regarding Zomato’s future prospects. They maintain an “Outperform” rating on Zomato and have raised the target price (TP) to Rs 120, representing a 20% upside potential. The company is now valued at 35 times the estimated EV/adjusted EBITDA for FY25.

Here are some of the key takeaways from the article:

  • Zomato has achieved profitability milestones well ahead of schedule.
  • The company’s food delivery segment is showing considerable strength.
  • Zomato’s quick commerce business, Blinkit, is also making progress.
  • Analysts are optimistic about Zomato’s future prospects.

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