Analysts see restaurant recovery, new entrants as risks

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Analysts have reported a slowdown in the number of monthly users of Zomato Ltd.

Still, most of them reiterated “buy” recommendations for the Gurugram-based company. Stocks, however, posted their biggest drop in two weeks.

Zomato reported a 9% sequential growth in consolidated revenue to Rs 1,112 crore in October-December, compared to the Bloomberg consensus estimate of Rs 1,171 crore.

Key Q3 Highlights (Consolidated, QoQ)

  • Net loss at Rs 63.20 crore vs loss of Rs 429.6 crore.

  • Operating loss at Rs 488.80 crore vs. Rs 535.80 crore.

  • Gross order value increased by 1.7% to Rs 5,500 crore.

  • The number of orders increased by 5%.

  • The average order value decreased by 3%.

Zomato, in an exchange filing, said it was “well capitalized” with around Rs 12,700 crore of cash on its balance sheet, and it does not see raising any funds in the foreseeable future. “With this capital, we plan to focus on two key areas of investment in our business: staple food businesses and fast trade.”

The food business, including food ordering and delivery, restaurants and B2B Hyperpure supplies, the company says, will need to be funded until it becomes profitable. Fast trade, he said, is “very synergistic” with the long-term food delivery industry. “We have made cash investments worth $225 million over the past year in three companies – Blinkit (formerly Grofers), Shiprocket and Magicpin – as part of our goal to develop fast e-commerce in India.”

The company is also in the process of creating its own non-banking finance company, aiming to provide short-term credit to delivery partners, customers and restaurant partners within its own ecosystem.

Zomato also said the focus over the next few years will remain on growing the overall ecosystem rather than maximizing revenue or profit.

The company’s shares fell 9.1%, the most since Jan. 27, in early trading on Friday. Of the 19 analysts who follow the company, 15 recommend a “buy”, one suggests a “hold” and three have a call for “sell”, according to Bloomberg data. The average of the 12-month price targets implies an upside of 54.7%.

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