11 Nov , 2021 By : Kanchan Joshi
Online food delivery platform Zomato reported widening of its consolidated net loss to Rs435 crore for the quarter ended September as compared to a loss of Rs230 crore in the year-ago quarter. Shares of Zomato were trading nearly 2% higher at Rs139 apiece on the BSE in Thursday's session.
The company's losses went up mainly on account of investments in the growth of its food delivery business. As part of its long-term strategy to focus on core business, Zomato unveiled its three key investments in startups Curefit, Magicpin and Shiprocket.
“Zomato plans to deploy another US$1bn in next 1-2 year with an idea to add multiple large core businesses to existing core, particularly in the hyperlocal e-commerce space. Some of these investments would eventually result in merger and remaining would generate financial returns or learnings for Zomato," said Jefferies in a note. The brokerage has a Buy rating on the stock with a target price of Rs175 apiece.
Zomato said that it is in the process of divesting or shutting down its non-core businesses which were not going to significantly move the needle for shareholders in the long term.
Those at Ambit Capital said that Zomato's Q2 revenue was better than expected, but came at cost with around 82% QoQ increase in adjusted EBITDA losses. They see the growth to come at cost and could pushback profitability.
“We would wait and watch for the success of the investee companies and believe it might be premature to accord any premiums to invested capital. We retain Sell with an unchanged target price of Rs127," the brokerage added.
Zomato's delivery cost per order increased by Rs5 per order on a sequential basis, though the food delivery giant doesn't expect the delivery costs to go up further and feels confident about the contribution margin staying positive in the mid, as well as long term.
“Zomato posted a mixed set of earnings where the top line is encouraging but profitability is a major concern. The investments are related to their current business, therefore, the market is reacting positively to that and that may help the company to grow further, however, cash flow will be the key in the future. The outlook is bullish as penetration of the food delivery business in India is still low but only aggressive investors are advised to hold this stock amid uncertainty about profitability," said Parth Nyati, Founder, Tradingo.
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