Zomato Ltd witnessed a 6% decline in its shares during Tuesday’s trading session, primarily attributed to concerns surrounding its ambitious guidance of adding 500 new stores in FY25. Analysts view this aggressive expansion strategy as potentially impacting its near-term profitability, despite maintaining a favorable outlook on the stock with price targets ranging between 225-300.
Kotak upgraded revenue estimates for Zomato but adjusted for higher ESOP costs and anticipated lower near-term profitability for Blinkit, leading to a reduction in EPS estimates by 5-22% for FY25-27. The brokerage expressed skepticism regarding the aggressive store addition guidance for FY2025 and its potential adverse effects on profitability in the short run.
Despite Zomato’s Q4 performance meeting expectations in terms of gross order value (GOV) and revenue, it fell short of Ebitda estimates due to escalated employee costs. UBS, while maintaining a ‘Buy’ rating on Zomato, emphasized the company’s plans for substantial growth, including doubling down on quick commerce with the addition of 100 stores in Q1FY25 and reaching 1,000 stores by FY25 end.
Nomura India highlighted Zomato’s growth trajectory and improving profitability, raising its target price to Rs 225. The company aims to enhance quick-commerce penetration in major cities, expecting a significant increase in GOV. Despite rising ESOP costs, Zomato’s overall employee costs as a percentage of revenue are projected to trend downwards.
Overall, while Zomato pursues aggressive expansion plans, analysts remain cautiously optimistic about its growth potential and long-term profitability.
