Zomato stock zooms 15% after Q4 results; here's why

Shares of food delivery platform Zomato Ltd. rallied 15% on Tuesday even as the company's net loss widened over two-fold to ₹360 crore. The food ordering app's stock jumped 15% to ₹65.95 apiece on the National Stock Exchange (NSE) in the afternoon trade, aided by positive reviews of the company's fourth quarter results by analysts.

Brokerages expect Zomato's margin to improve owing to lower delivery costs through better fleet utilisation and a reduction in marketing expenses. Morgan Stanley reiterated its "overweight" rating on the counter with a target price of ₹135, an upside of 136.63%.

Better unit economics in the food delivery business, stable losses in other segments and tight control over overhead costs have led to narrowing of operating loss, the brokerage said.

Jefferies has a "buy" rating on the stock with a target price of ₹100, an implied return of 75.28%. "The company's plans to lower delivery cost through better fleet utilisation would aid margins," it said.

In an exchange filing, Zomato founder Deepinder Goyal said there's significant potential to optimise delivery costs through better utilisation of the company's fleet. "We are working towards bringing down the delivery cost per order while increasing delivery partners' EPH (earnings per hour) and enhancing customer experience at the same time," he said.

Zomato's average monthly transacting customers were at an all-time high of 1.57 crore in the March quarter compared with 98 crore in the same quarter of the last fiscal.

The company says it is aggressive about conserving cash. "We have about $1.6 billion unrestricted cash at this point. Our capital needs are currently limited. Losses in the core food business are reducing rapidly... The minority equity investments that we wanted to do are done," says chief financial officer Akshant Goyal.

"As far as quick commerce is concerned, we had given an upper bound of $400 million investment in the next two years (CY22 and CY23) in the last quarterly letter. As of now, we are on plan to stick to this outer limit. Just to be clear, we are not planning to make any new minority investments as part of this $400m outer limit. Think of this as the max amount of losses we may need to fund in this period of time in the quick commerce business, if and when we fully get into it," he adds.

Zomato had earlier committed to give a short-term loan of up to $150 million to quick commerce startup Blinkit.

The food ordering app's revenue from operations jumped 75% year-on-year to ₹1,211.8 crore in the January-March period compared with ₹692.4 crore in the same quarter of the previous fiscal.

Zomato's average order value in FY22 marginally increased to ₹398 compared with ₹397 in FY21. For the top 8 cities, the company saw its average order value increase by 3% in FY22 over FY21.