Zomato to grow at 24% CAGR, says Bernstein Research
Indian food delivery giant Zomato has reached Consolidated Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) break-even three quarters earlier than expected. Zomato accomplished this feat in Q1FY24 instead of the originally projected Q4FY24. The company's consistent increase in contribution margins and healthy cash balance have boosted investor confidence.
Rising contribution margins fuel success
Zomato's success is attributed to sustained improvements in contribution margins, which now stand at 6.4% of Gross Order Value (GOV). The food delivery segment has shown considerable strength, with GOV growth of 11% quarter-over-quarter in Q1FY24. Bernstein's report highlights the company's strong performance and robust execution as key drivers of its success.
Bernstein's positive long-term projections
The Bernstein report establishes a long-term projection for contribution margins within the range of 8-9% and an Adjusted EBITDA margin of 5%. Zomato is now valued at 35 times the estimated Adjusted EBITDA for FY25. Recent stake sales by Tiger Global and SoftBank have brought in long-term investors with an increased focus on profitability earnings.
Target price raised, 'Outperform' rating maintained
Bernstein maintains an "Outperform" rating on Zomato and has raised the target price (TP) to Rs. 120, representing around 20% upside potential from its current value. The company's focus has shifted from Gross Merchandise Value (GMV) to profitability as the primary valuation metric. With a sustainable compound annual growth rate (CAGR) of 24% year-over-year over the next three years, Zomato's future prospects look bright, Bernstein report noted.
