Introduction:
Zomato’s stock hit a new high, rising 5% to Rs 281.40 on the BSE during Wednesday’s trading. This latest achievement continues a strong upward trend, with shares increasing by 127% so far this year, significantly outperforming the BSE Sensex’s 13.4% gain.
Robust Earnings Growth Drives Stock Surge
The food aggregator’s latest valuation surge is largely attributed to anticipated strong earnings growth. Zomato’s stock has exceeded its previous peak of Rs 280, achieved on August 19, reflecting heightened investor confidence.
Analysts project a robust growth trajectory, bolstered by the company’s optimistic guidance of 20-25% year-on-year growth in gross order value (GOV) for its food segment over the next five years. Additionally, Zomato plans to double its quick commerce outlet count post-FY25, potentially translating to a compound annual growth rate (CAGR) of over 70% in GOV from FY25 to FY27.
Diversification and Business Expansion
Zomato’s diversified business model is also contributing to its rising stock value. The Hyperpure and Going Out segments have demonstrated exceptional growth, with respective revenue increases of 96.4% and 105.8% year-on-year.
The management remains optimistic about the Going Out segment, predicting continued strong growth driven by increased lifestyle and consumption trends.
Zomato Soars to Record High: How a 127% Surge in 2024 Is Reshaping the Market:
Despite these positive indicators, profitability in the near term remains a focal point. The Going Out segment is expected to continue operating near break-even on an adjusted EBITDA basis. Analysts from Elara Capital highlight that Zomato’s quick commerce division, Blinkit, is positioned more as an experience-led business rather than a discount-driven one, suggesting that new entrants and discounting strategies may not significantly impact its growth.
Valuation and Future Prospects
Zomato’s food business is currently valued at a fair 60x FY26E EV/EBITDA, which limits near-term upside potential. However, the strong visibility of a 52.2% EBITDA CAGR from FY25E to FY27E could drive future share price performance.
Blinkit, trading at 6x FY26E EV/sales, is expected to be a significant growth driver once it achieves scale and better profitability.
The brokerage firm Elara Capital maintains a ‘Buy’ rating on Zomato with a target price of Rs 320 per share. They anticipate that Blinkit will play a crucial role in earnings upgrades in the medium term. Zomato’s strategy of capturing market share through aggressive expansion plans is seen as a positive indicator for the company’s growth.
Strategic Impact and Market Outlook
Zomato’s quick commerce business is at the forefront of transforming consumer retail with a focus on convenience and selection. The company’s expansion across metros, particularly in NCR where it generates approximately 50% of its GOV, is proving successful. As incremental store economics become increasingly positive, Blinkit is expected to scale faster and drive monetization through channel margins and advertising spending.
JP Morgan analysts foresee a significant impact from Blinkit on earnings, with growth projections for FY25-27 being revised upward by 15-41%. The food delivery segment, while maturing in terms of business model, is anticipated to continue profit expansion and moderate growth adjustments.
The Going Out segment, integrating core dining with new ticketing ventures, is also expected to enhance monetization and contribute to Zomato’s overall market disruption and forecasted growth.
Conclusion:
Zomato’s record-breaking stock performance underscores its strong growth prospects and strategic expansion. With robust earnings forecasts and a diversified business model, the company is well-positioned for continued success in the evolving consumer landscape.
FAQ:
1. What recent milestone has Zomato’s stock achieved?
Zomato’s stock hit a record high of Rs 281.40, surging 5% on the BSE. This new peak surpasses its previous high of Rs 280 achieved in August 2024.
2. How has Zomato’s stock performed year-to-date?
As of September 2024, Zomato’s stock has increased by 127% year-to-date, significantly outperforming the BSE Sensex, which has risen by 13.4% during the same period.
3. What are the key drivers behind Zomato’s recent stock surge?
The surge is driven by strong earnings growth expectations. Zomato’s guidance includes a projected 20-25% year-on-year growth in gross order value (GOV) for its food segment over the next five years. Additionally, the company is set to double its quick commerce outlet count, potentially achieving a GOV compound annual growth rate (CAGR) of over 70% from FY25 to FY27.
4. How are Zomato’s other business segments performing?
Zomato’s Hyperpure and Going Out segments have shown significant growth, with revenues increasing by 96.4% and 105.8% year-on-year, respectively. The Going Out segment is expected to continue growing, driven by increased consumer spending on lifestyle and experiences.
5. What are the profitability expectations for Zomato’s different business segments?
In the near term, the Going Out segment is expected to operate near break-even on an adjusted EBITDA basis. The quick commerce segment, Blinkit, is anticipated to perform well due to its experience-led business model rather than a focus on discounting.
6. What is the current valuation of Zomato’s food business?
Zomato’s food business is trading at a valuation of approximately 60x FY26E EV/EBITDA. This high valuation reflects strong future growth potential, although it may limit near-term upside.
7. What are analysts’ predictions for Zomato’s stock price?
Elara Capital maintains a ‘Buy’ rating on Zomato, with a target price of Rs 320 per share. Analysts believe that Blinkit will be a significant driver of earnings upgrades in the medium term.
8. How is Zomato’s quick commerce business expected to impact the company’s growth?
Zomato’s quick commerce business, Blinkit, is expected to drive substantial growth once it achieves greater scale and profitability. The focus on convenience and selection is likely to enhance monetization through channel margins and advertising.
9. What is the outlook for Zomato’s food delivery and Going Out segments?
The food delivery segment is considered mature but is expected to continue expanding in profits. The Going Out segment, which includes dining and new ticketing businesses, is projected to add to the company’s monetization efforts and contribute positively to overall growth.
10. How does Zomato’s performance compare to the broader market?
Zomato’s performance has significantly outpaced broader market indices, with its stock climbing 127% in 2024 compared to a 13.4% rise in the BSE Sensex. This reflects strong investor confidence and positive growth prospects for the company.
11. What should investors watch for in the near future?
Investors should monitor the performance and scalability of Zomato’s quick commerce business, particularly Blinkit, as well as the ongoing profitability and growth of the Going Out segment. Additionally, keep an eye on any updates regarding the company’s expansion plans and overall financial performance.
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