Zomato shares rose 19 per cent in early trades on Tuesday despite the company reporting widening of its losses in the latest Q4 earnings. Due to the stellar intraday rise in the counter, the market capitalization of the new age tech platform hit Rs 50,000 crore mark after a long time. The online food delivery platform reported a consolidated net loss at Rs 359.7 crore in the fourth quarter ended March 2022, impacted by higher expenses. The company had posted a consolidated net loss of Rs 134.2 crore in the same period of the previous fiscal. Although, revenue from operations came in at Rs 1,211.8 crore, up 75.01 per cent compared to Rs 692.4 crore in the same quarter last year.
Zomato‘s CEO Deepinder Goyal has said that the company is being “aggressive” about conserving cash amid widening losses, and will not make any more fresh investments in the quick commerce space (q-comm), for which it had previously earmarked $400 million. The company also acknowledged a shortage of delivery workers, saying that many professionals who left for their villages during the first Covid-induced lockdown in 2020 have not returned yet.
According to a letter shared by the company with its shareholders on Monday evening, Zomato has about Rs 12,200 crore unrestricted cash at this point and it said the capital needs are currently limited. To that effect, it said it will not be making more fresh investments from its $400 million corpus in the q-comm space, where it has previously placed its bets on Blinkit (formerly Grofers).
“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,” Goyal said. “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 added.
Zomato also accepted that there was a shortage of workers. “We are seeing some stress on the availability of delivery partners in the current quarter in select large cities since the last week of April. We think this is short-term in nature, as the post-Covid economic recovery has brought back jobs in cities, and we lost some delivery partners to such jobs,” Goyal said. “On top of it, all the workforce which migrated to their hometowns (or villages) during the first Covid wave, hasn’t yet come back to the cities for work”.
Zomato Shares: Should you Buy, Hold or Sell?
Broking house Morgan Stanley has kept ‘overweight’ rating on the stock with a target at Rs 135 per share. The Q4 numbers were in line with improved transparency on segment disclosures.
The company gave better outlook for Q1 and a tighter framework around capital allocation. The company is moving in the right direction, needs consistent execution to meet high expectations, the brokerage house said.
JPMorgan said adjusted Ebitda losses continued to decline and that gross order value (GOV) saw strong growth as orders came back. It said Food delivery revenues rebounded for Zomato in the March quarter, as it suggested a price target of Rs 130 on the stock.
Listed in July 2021, shares of Zomato were still 15 per cent below its issue price of Rs 76. Furthermore, the counter has corrected about 65 per cent from its all time high of Rs 169.10.
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