Zomato Share Price Surges 19%; Is the Stock Still a Buy After Q1 Results?

News Mania Desk/Agnibeena Ghosh/2nd August 2024

Zomato’s share price has experienced a remarkable 170% increase over the past year, culminating in a new all-time high of ₹278.45 on August 2, following the company’s Q1FY25 results. The stock’s price jumped 19% in morning trade on Friday, reflecting investor optimism after Zomato’s impressive financial performance. The stock opened 5% higher at ₹244 apiece on the BSE.

Zomato’s consolidated net profit for Q1FY25 soared to ₹253 crore, a significant leap from ₹2 crore in the same quarter a year ago. This impressive growth was driven by higher gross order value across its food delivery, quick commerce, and going-out verticals. The company’s consolidated revenue for the quarter under review reached ₹4,442 crore, up from ₹2,597 crore a year earlier. On the day before the surge, Zomato’s stock closed 2% higher at ₹234.10.

Despite the sharp gains over the past year, most brokerage firms maintain that Zomato’s stock remains a strong buy due to its robust growth and profitability prospects. The company’s strategic expansion and improved financial performance have bolstered investor confidence.

Several brokerage firms have expressed positive views on Zomato’s stock, raising their target prices following the better-than-expected Q1 performance. Nuvama Wealth maintained a buy call on the stock and increased the target price to ₹285 from ₹245. The firm highlighted Zomato’s consistent delivery on growth and profitability promises. Nuvama pointed out that the company aims for over 20% growth in food delivery in the short term and plans to increase Blinkit’s dark store count from 639 in Q1FY25 to 2,000 by the end of CY26.

Similarly, Motilal Oswal Financial Services maintained a buy call on Zomato’s stock with a target price of ₹300, implying a 28% upside potential. Motilal noted the stability of Zomato’s food delivery business and the generational opportunity presented by Blinkit in disrupting industries such as retail, grocery, and e-commerce.

Kotak Institutional Equities also maintained a buy call on the stock, revising the SoTP-based fair value to ₹270 from ₹225. Kotak upgraded Zomato’s FY25-27 revenue estimates by nearly 4-5%, driven by higher food delivery and Blinkit revenues. However, they adjusted EPS estimates down by 7-9% due to lower near-term profitability of Blinkit. Kotak praised Zomato for its sharp execution across verticals and noted that stable food delivery growth and margins justify a lower weighted average cost of capital (WACC) assumption of 12.5%.

While Zomato’s stock remains attractive for long-term investment, some technical analysts warn that the stock has entered the overbought zone following its recent surge. Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers, observed that Zomato’s stock has moved significantly above key moving averages, indicating potential for a pullback. Patel advised against initiating new long positions at this elevated level and suggested that existing investors consider booking profits to lock in gains.

In conclusion, Zomato’s impressive financial performance and strategic growth initiatives have driven significant gains in its share price, making it a strong buy according to many brokerage firms. However, technical indicators suggest a potential for price correction, prompting some analysts to recommend profit booking at current levels. As Zomato continues to expand and improve profitability, its long-term investment prospects remain robust.