Zomato Shares Tumble 10% Post Q3 Results: Here is Why

Zomato shares: The star new-age stock of D-Street plunged nearly 10% on Tuesday as Zomato's PAT (profit after tax) declined by 57% to Rs 59 crore in Q3FY25. The cheer from last fiscal year, when the company turned profitable for the first time, seems to be fading. Larger consumption woes, coupled with front-loaded growth investments took a toll on the bottom line.

At 10:10 am, the Zomato shares were trading at Rs 220.80 price level, down by nearly 8% on the National Stock Exchange.

Major Brokerages have reduced their target price on the stock citing short-term turbulence in the profitability figure. With new players gaining market share in the quick commerce scene, analysts are viewing the trend as a major risk for Zomato. As for margins, the management is expecting the upcoming quarters to remain under pressure due to accelerated growth investments. On top of this, higher advertisement spending also took a toll on the bottom line.

The consolidated Ebitda margins declined to 3% as compared to 4.7% reported in the previous quarter. Its major cash cow, Blinkit also posted an Ebitda loss of Rs 30 crore, down from Rs 48 crore reported in the corresponding quarter of the previous year.

Even as near-term profitability remains under pressure, analysts believe that Zomato's cash flow remains strong. This is largely owing to Blinkit's rapid expansion. Plus, just last year, Zomato raised $1 billion through a QIP (Qualified Institutional Placement).

Zomato Target Price

"The company is not burning cash at the Ebitda level (because of strong cash generation in core FD), though capex has picked up due to the fast-tracking of store openings in Blinkit. Doubling of store count in 9M FY25 to 1,007 reflects strong execution, in our view," Nomura stated in a report.

The global brokerage firm has maintained its 'Buy' rating on the stock and has revised the target price from Rs 320 to Rs 290, citing lower-profitability as the main risk in the near term.

Zomato should report PAT margin of 3.5% and 6.8% in FY25E and FY26E, respectively. "Our DCF-based valuation of Rs 270 suggests a 13% upside from the current price. We reiterate our BUY rating on the stock," Motilal Oswal stated in its report.

ICICI Direct has also maintained its 'buy' rating, with a target price of Rs 310.

On an annual basis, the shares of the food delivery platform have delivered a return of over 58% on the bourses. The stock even turned a multibagger last year after a robust trajectory of its profits