India’s food delivery giant, Zomato’s share price crashed after the company posted its earnings report for the quarter ended December earlier this week.
Zomato’s stock has slumped over 15% this week.
Zomato reported a 57% decline in its consolidated net profit for the December quarter, posting ₹59 crore compared to ₹138 crore in the same period last year.
However, the company’s revenue from operations reached ₹5,405 crore, reflecting a 64% increase from ₹3,288 crore in the corresponding quarter of the previous financial year.
Zomato share price: technical analysis
“Zomato’s post-results price action has breached the key support of ₹239, testing a major support zone between ₹207-₹200.” said Anshul Jain, Head of Research, Lakshmishree Investments & Securities.
The analyst added that in the near term, this range is expected to act as a solid buying zone, with the potential for a bounce back towards ₹239.
Jain told Invezz:
Looking ahead, we anticipate range-bound movement between ₹200 and ₹300 for the upcoming quarter. Traders should watch for a confirmed reversal at this support level, as it could offer opportunities for short-term gains in the near future.
Riyank Arora, technical analyst at Mehta Equities, said that the stock may slip further from these levels.
Arora said that the stock gave a sharp breakdown below its major support mark of 240 and fell as much as 10% after the quarterly results came in.
The analyst added:
The overall technical structure of the stock is indicating a negative bias with sell on rise approach. A trailing stop loss is advised near 225 for potential downside targets of 200 and 190 coming in over time.
Brokerages mixed on Zomato
Analysts at UBS and Nuvama maintained their “buy” rating on the stock after the results came out.
Nuvama has a target price of ₹300 on stock, while UBS has a price target of ₹320.
Analysts at Nuvama said that the food delivery giants revenue for the quarter slightly surpassed the consensus estimate of ₹5,380 crore.
However, the EBITDA margin came in at 3.0%, falling short of the consensus estimate of 4.9%. The PAT was at ₹59 crore, much below the estimate of ₹229.7 crore.
The company’s Blinkit dark store additions are progressing faster than expected, leading to quicker growth.
However, Zomato is facing higher upfront costs for new store openings, which is temporarily weighing on profitability.
Nuvama believes that while the short-term profitability may suffer due to the higher costs, these investments should result in stronger profitability in future quarters as these stores mature.
UBS also considers Zomato’s Q3FY25 results as decent, with strong growth in GMV from quick commerce helping offset margin deterioration and a modest slowdown in food delivery.
The brokerage noted that revenue grew by 64% YoY, exceeding consensus by approximately 2%.
Food delivery revenues were up 3% QoQ (about 17% YoY, but 2.6% below consensus), while Blinkit revenue grew by 21% QoQ and 117% YoY, beating consensus by 2.3%.
The analysts at UBS added that while the slowdown in food delivery was a surprise, margin expansion was a positive.
Blinkit’s growth was better than expected and the margin decline was anticipated due to increased competition in the space, as per the analysts.
On the other hand, analysts at Macquarie are not so bullish on the stock. The brokerage has a target price of ₹130 on the stock.
The brokerage said that underperformance in the December quarter was primarily driven by increased investments in Blinkit—including higher marketing spends and operating expenses—as well as higher employee expenses related to Blinkit and the “Going Out” business.
In the Quick Commerce segment, Gross Order Value (GOV) grew by 120% YoY, which exceeded expectations, largely due to strong monthly transacting user additions.
However, the analysts said that the growth in GOV was likely driven by increased marketing spends, leading to an adjusted EBITDA margin of -1.3% (of GOV), significantly lower than the near-breakeven expectations.
Macquarie analaysts added that while they view Zomato as an efficient quick commerce and food delivery platform, they caution that a limited margin of safety remains for the shares at current levels.
Macquarie also anticipates that rising competition in Q-Com could dent consensus forecasts for the company going forward.
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