Zomato Shares Touch A Fresh Record High At INR 214; Stock Up 5X In 2 Years

SUMMARY
The stock continued its rise for the third consecutive trading session today on the back of overall positive sentiment around the company and an uptrend in the broader market
Zomato pared some early gains to close today’s session 2.2% higher at an all-time high price of INR 212.5 on the BSE
The stock has gained over 5X within two years of touching its all-time low at around INR 40 at the end of July 2022

Shares of foodtech major Zomato jumped almost 3% in the early trading hours to touch a fresh all-time high at INR 214 on the BSE on Tuesday (July 9).
The stock continued its rise for the third consecutive trading session today on the back of overall positive sentiment around the company and an uptrend in the broader market.
After touching a record high, shares of Zomato pared some gains to close today’s session 2.2% higher at an all-time high price of INR 212.5 on the BSE.
There were multiple developments in the company last week, including it receiving shareholders’ approval to create a new employee stock option pool of 18.26 Cr shares and the suspension of its logistics business ‘Xtreme’ due to poor demand.
Though the shares started rallying after the development on ESOP, JM Financial cut its price target to INR 230 from INR 250 earlier following this.
The brokerage said that ESOP grants should be linked to measurable performance-based outcomes, which is not the case with Zomato’s newly laid-out policy.
There is a risk of the new ESOP policy being considered unfair by some shareholders as they would be the ones taking a meaningful hit on their earnings in the medium term, said JM Financial analysts.
“Hence, we feel that Zomato should publicly lay out a formal policy where eligibility and criterion for grant of ESOPs is clearly defined and linked to certain measurable performance parameters such as GOV growth, Revenue growth, EBITDA growth, FCFF growth, PAT growth, return ratios or total shareholder returns,” the analysts said.
As a result, the brokerage has also changed its valuation methodology for Zomato. However, it also said, “Despite the revision, the stock continues to be one of our preferred picks in the listed internet space as we believe it is well-positioned to benefit from robust industry tailwinds for the hyperlocal delivery businesses.”
It is pertinent to note that shares of Zomato touched their all-time low at around INR 40 at the end of July 2022 post the acquisition of quick commerce startup Blinkit. Since then, the stock has gained over 5X.
In a research report last week, Kotak Institutional Equities said it anticipates Zomato to report healthy Q1 FY25 results, driven by 23% YoY growth in food delivery GMV and 113% YoY growth in Blinkit GMV. The brokerage also sees Zomato posting a PAT of INR 238.6 Cr in the quarter.
It is pertinent to note that Zomato first turned profitable in Q1 FY24, which led to a huge shift in the market sentiment around the company. It posted INR 2 Cr PAT on an operating revenue of INR 2,416 Cr in the quarter. Its profit has increased every quarter since then, with the company posting a consolidated profit after tax of INR 175 Cr in Q4 FY24.
Kotak reiterated its ‘buy’ rating on the stock and a fair value of INR 225.

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