Brokerages retain bullish calls on Zomato, but cut price targets

Mumbai: Analysts retained their bullish calls on Zomato but slashed the price targets on the stock as the company's losses for quarter ended December 31 widened against the same period a year ago.

On aggregate, analysts cut consensus targets by 1.53% to Rs 80.7 apiece, which presents a 51% upside potential from the current levels. After three days of gains, Zomato's shares closed down 1.65% on the NSE on Friday at Rs 53.50 per share. The stock fell nearly 7% during the day before paring most of its losses. Citigroup cut its price target by 10.6% after seeing Zomato's food delivery business posting lower growth but said it remained hopeful that the long-term growth remained intact.

Jefferies called the third quarter earnings a good delivery with a promising outlook as it retained the rating and price target. "Zomato continues to show an urgency to reduce loss with adjusted Ebitda (ex-Blinkit) now < Rs 0.4 billion, a positive. Outlook seems positive as break-even target stays, as early as 4QFY23 - another positive in the context of Zomato Gold," said the US brokerage.


However, the company's business model is based on the growing food services industry in India as well as increasing adoption of digital commerce. "With only 15 million monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability," said Jefferies in a note to clients.

Investor wealth in new-age businesses such as Zomato, Paytm, Nykaa, Delhivery and PB Fintech have been wiped out since their market listings in 2021-22. The shift in focus to profitability and balance sheet strength made investors concerned about these companies' frothy valuations and high burn rate.

Earlier this week, India's largest payments platform Paytm said it became profitable at an operating level for the first time, prompting analysts to upgrade their ratings and price target on the stock.