• Miki

When revenues increase in the fourth quarter, should investors book profits or buy Zomato stock?

Despite the company disclosing a deepening of its losses in the most recent Q4 earnings, Zomato shares increased 19% in early exchanges on Tuesday. The new age tech platform's market value now reached Rs 50,000 crore thanks to the fantastic intraday gain in the counter. Due to rising costs, the online meal delivery service recorded a combined net loss of Rs 359.7 crore for the fourth quarter that ended in March 2022. In the comparable quarter of the prior fiscal year, the company reported a combined net loss of Rs. 134.2 crores. Nevertheless, operating revenue totaled Rs 1,211.8 crore, increasing 75.1% from Rs 692.4 crore during the same quarter last year.

Deepinder Goyal, CEO of Zomato, stated that the firm is being "aggressive" about saving money despite growing losses and will not be making any additional new investments in the rapid commerce arena (q-comm), for which it had previously set aside $400 million. As a result of numerous professionals leaving for their villages after the first Covid-induced lockdown in 2020, the corporation also recognized a shortage of delivery personnel, claiming that they have yet to make a comeback.

Zomato has approximately Rs 12,200 crore in unrestricted cash on hand at this time, and the firm claims that its capital needs are now minimal, according to a letter distributed by the company to its shareholders on Monday night. To that end, it declared that it will not be making any additional fresh investments from its $400 million corpus in the q-comm sector, where it had previously backed Blinkit (formerly Grofers).

"In the last quarterly letter, we provided an upper bound of $400 million investment over the next two years (CY22 and CY23) for fast commerce. We currently intend to adhere to this outside limit, Goyal added. "As part of this $400 million upper limit, we do not intend to make any fresh minority investments. If and when we completely enter the rapid commerce company, consider this to be the maximum amount of losses we may need to fund in this time frame.

Zomato acknowledged the labor shortage as well. Since the final week of April, we have noticed considerable pressure on the supply of delivery partners for the current quarter in a few significant cities. Since the post-Covid economic recovery has restored jobs in cities and we lost some delivery partners to such occupations, we believe this is a temporary situation, Goyal added. Additionally, none of the workforce who left the cities during the first Covid wave to work in their hometowns (or villages) has returned.

Zomato Shares: Should you Buy, Hold or Sell?

With a target price of Rs 135 per share, brokerage firm Morgan Stanley has maintained its "overweight" rating on the company. The Q4 results were consistent with increased disclosure clarity for segments.

The corporation provided an improved Q1 projection and a more rigid capital allocation methodology. The brokerage house stated that while the company is headed on the right path, constant execution is required to live up to lofty expectations.

According to JPMorgan, adjusted Ebitda losses continued to shrink and gross order value (GOV) increased significantly as orders resumed. It stated that Zomato's food delivery income recovered in the March quarter and offered a price target of Rs 130 for the stock.

Shares of Zomato were still 15% below its offering price of Rs. 76 when they were listed in July 2021. In addition, the counter has decreased by nearly 65% since reaching an all-time high of Rs 169.10.

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