Buy Zomato, target price Rs 115: JM Financial

JM Financial has buy call on Zomato with a target price of Rs 115. The current market price of Zomato Ltd. is Rs 63.95.
Time period given by analyst is one year when Zomato Ltd. price can reach defined target.

Zomato Ltd., incorporated in the year 2010, is a Small Cap company (having a market cap of Rs 51128.20 Crore) operating in Services sector.

Zomato Ltd. key Products/Revenue Segments include Service Revenue, Other Operating Revenue and Royalty Income for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company reported a Consolidated Total Income of Rs 1350.00 Crore, up 7.17 % from last quarter Total Income of Rs 1259.70 Crore and up 79.81 % from last year same quarter Total Income of Rs 750.80 Crore. Company reported net profit after tax of Rs -359.90 Crore in latest quarter.

Investment Rationale
Zomato reported significant sequential improvement in all key operating and financial metrics in 4QFY22. What was even more impressive were the disclosures and management willingness to address street concerns both through a shareholders letter as well as post results conf. call. With a dual focus on growth and profitability, management guided for sequential top line growth to accelerate to double digits in 1QFY23 (despite supply side challenges in some cities) while Adj. EBITDA losses are also expected to decline meaningfully. Company mentioned that it was contribution profit positive in 120 cities in FY22 (out of its top 300 cities versus just 5 in FY20) while indicating that group contribution profits could inch towards double-digits in the long term. While the brokerage expects Zomato to sustain high-growth momentum in the near term, it moderates GOV/Revenue estimates over FY23-25E due to growing company focus on profitability and concerns on impact of inflation on demand.

Profitability on the other hand should continue to improve due to strong operating leverage. It raises WACC to 13% from 12% earlier due to rising yields and market volatility, leading to a revised DCF-based TP of INR 115 (versus INR 140 earlier).

Promoter/FII Holdings
Promoters held 0 per cent stake in the company as of 31-Mar-2022, while FIIs owned 10.44 per cent, DIIs 3.06 per cent.