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Zomato Delivers IPO Price After Two Long Years

Over the past 12 months, Zomato has reversed some of its loss and now is back at its IPO price band Rs 72-76 per share.

<div class="paragraphs"><p>A Zomato courier box sits on a food delivery motorcycle in Mumbai, India. (Source: Usha Kunji/BQ Prime)</p></div>
A Zomato courier box sits on a food delivery motorcycle in Mumbai, India. (Source: Usha Kunji/BQ Prime)

Zomato finally delivers what its shareholders have been waiting for, after two long years since its initial public offer. It's current market price has inched close to its IPO price of Rs 76 apiece — Rs 74.9 to be specific. It has been a roller-coaster ride for Zomato's investors.

The food delivery company launched its IPO in July 2021. The shares opened at a blockbuster 52.6% premium over the IPO price and it continued to rally upwards, touching its all-time high of Rs 160.3 apiece in November 2021. However, it then took a nosedive, falling 74% to Rs 41.65 per share in just eight months.

Over the past 12 months, Zomato has reversed some of its loss and now is back at its initial range of Rs 72-76 per share, as the stock closed at Rs 74.9 apiece on Wednesday.

But what's the story behind this stock price movement? Will Zomato continue to deliver?

Here's all you need to know:

What Went Wrong?

Zomato reported an 80% increase in net loss in FY22, with doubling of revenues. Its Ebitda loss was higher at Rs 1,844.5 crore during the period, compared to Rs 467.2 crore in FY21.

Coupled with this was the ending of the lock-in period for investors with stake in the company, on July 23, 2022. Following this, Tiger Global Management LLC and Uber Technologies Inc. divested their stake in Zomato.

The company's stock eventually tanked to an all-time low of Rs 41.65 per share, falling 64% within a year of it's listing.

What's Working Now?

Zomato's shares have climbed back to their IPO price range gradually.

But this time, it seems to stand on firmer ground as its adjusted Ebitda (excluding quick commerce) turned positive in the fourth quarter of fiscal 2023. This was in line with Zomato's announcement in August 2022 to break even within three to five quarters.

Zomato's performance improved in FY23, with its net loss falling 28.7% to Rs 1,040.6 crore. Its revenue was up 68.8% to Rs 7,079 crore and it's loss at Ebitda level reduced by 33.9% to Rs 1,217.9 crore. This was driven by continued expansion in contribution margin, along with operating leverage in the food delivery business.

Will Zomato Continue To Deliver? 

Zomato's valuations, despite it's FY23 performance, continues to be under its IPO level, with a Price-to-Book Value of 2.19 in FY23, compared to 3.5 in FY21 and 3.81 in FY22. However, its P/BV is expected to increase to 3.38 and 3.37 in FY24 and FY25 respectively, according to Bloomberg consensus.

The company's ebitda and net profit are expected to turn positive by FY25 to Rs 130.5 crore and Rs 165.7 crore respectively, according to Bloomberg data.

However, Zomato's management expects adjusted ebitda and net profits to turn positive in FY24 itself. Its ebitda (excluding quick commerce) had turned positive in the final quarter of FY23, driven by an ebitda of Rs 78 crore for its food delivery business.

Of the 27 analysts tracking the company, 22 maintain 'buy', one suggests 'hold' and four recommend a 'sell', according to Bloomberg data. There is a 9.1% potential upside to Zomato.

Here’s what brokerages have to say about Zomato:

Jefferies

  • Jefferies has a 'buy' rating on Zomato, with a target price of Rs 100, implying a potential upside of 38%.

  • Zomato is a "Top Buy" because of significant under-penetration in India's food services industry, coupled with improving contribution margin in its food delivery business and Blinkit's improving profitability, the brokerage said.

  • Chris Wood of Jefferies included Zomato in the India long-only portfolio, the global long-only equity portfolio, as well as in the Asia ex-Japan long-only portfolio, according to the Greed & Fear note.

Motilal Oswal Financial Services Ltd.

  • Recommends a 'buy', with a target price of Rs 80, implying a 9.5% upside.

  • The brokerage is positive on Zomato's long-term profitability and doesn't expect competition to intensify despite ONDC's entry.

Emkay Global Financial Services Ltd.

  • Maintains a 'buy' rating, with a target price of Rs 90, having a 24% potential upside.

  • The brokerage expects improved consumer sentiment to drive gross order value growth, with higher potential to improve profitability post it's strong fourth quarter results for FY23.