Superior Execution; Robust Demand
Est. vs. Actual for Q1 FY25: Revenue – BEAT ; EBIT Margin – BEAT ; PAT – BEAT
Change in Estimates post Q1FY25 (Abs.)
FY25E/FY26E: Revenue: 0%/ 0%; EBITDA: 0%/ 0%; PAT: 0%/ 0%
Recommendation Rationale
• Strong GOV growth: Zomato’s B2C business witnessed strong gross order value( GOV) growth of 14 % QoQ and 53%YoY and stood at Rs. 15,455 in Q1 FY25. GOV has shown consistent growth of 30% CAGR from FY20 to FY24.
• Blinkit continues to perform: The Blinkit business continues to deliver strong growth despite increasing competition, achieving a 20% QoQ growth in Q1 FY25.
• Healthy medium-to-long-term outlook: The management remains confident about the medium- to long-term outlook and expects it to remain healthy moving forward. Furthermore, it has indicated that FY25 is likely to be better than FY24.
Sector Outlook: Cautiously positive
Company Outlook & Guidance: Strong demand from the top 10 cities for food order delivery is expected to continue. Blinkit is anticipated to achieve 20%+ growth over the next 5 years, supported by growing demand, a better brand, and superior execution.
Current Valuation: SOTP based P/E; Earlier Valuation: SOTP based
Current TP: 280/share (Earlier TP: Rs 280/share)
Recommendation: With a strong brand value and increasing demand for B2C business and quick commerce, we believe Zomato will demonstrate exponential growth from FY25 to FY26. Hence, we maintain our BUY rating on the stock.
Financial Performance
In Q1FY25, Zomato Ltd. (Zomato) reported revenue of Rs 4,520 Cr, up 17% on a QoQ basis (in rupee terms), exceeding expectations. On a YoY basis, revenue growth was 62%. The company reported operating profits of Rs 299 Cr and operating margins of 6.6%, up 160 bps QoQ, due to superior execution and lower overhead costs. Net profit grew strongly by 40% QoQ, reaching Rs 253 Cr.
The management’s commentary on verticals such as Food Delivery and Quick Commerce remains constructive, with expectations for incremental growth in consumption and GOV. Furthermore, the company anticipates strong growth in the near term and has observed increased customer engagement on some products and improved visibility. On a brighter note, the B2B vertical also delivered robust growth of 19% QoQ, and the management’s outlook on this segment remains strong.
Outlook: From a long-term perspective, we believe Zomato has built a resilient business model by securing multiple strategic verticals and delivering broad-based growth. It has also established robust capabilities that will enable it to gain market share moving forward. Strong brand value and increased market share will enhance revenue visibility.
Valuation & Recommendation
Zomato’s management sees strong broad-based growth across verticals, supported by robust GOV growth. We are constructive on the long-term outlook of the company and expect robust growth. We maintain our BUY rating on the stock and value it at Rs 280 on an SOTP valuation, implying an upside of 23% from the CMP.
