Zomato Q2FY22 loss widens, revenue surges. Here’s what brokerages say

 Online food delivery giant Zomato's revenue surged sharply during the second quarter, but the company's net loss widened to Rs 435 crore during the period. Find out what experts said about Zomato's stock.

Many brokerages remain positive about the company despite wider net loss. (Photo: Reuters)

Food delivery giant Zomato reported a consolidated net loss of Rs 435 crore for the September quarter, compared to a loss of Rs 230 crore in the corresponding period a year ago.

The losses were mainly due to investments made towards the growth of its food delivery business and other acquisitions. Zomato also disclosed that it has made investments in startups including Curefit, Magicpin and Shiprocket.

Zomato mentioned that the higher losses were on account of increased spending on branding and marketing for consumer acquisition, increased investments and growing share of smaller/emerging geographies in our business and increased delivery costs due to unpredictable weather and increase in fuel prices.

It is worth mentioning that Zomato’s delivery cost per order increased by Rs 5 during the September quarter due to the prolonged rainy season and sharp increase in fuel prices.

On the brighter side, the company’s adjusted revenue during the quarter stood at Rs 1,420 crore, which is 22.6 per cent quarter-on-quarter (QoQ) growth and 144.9 per cent year-on-year (YoY) growth.

While experts were divided over Zomato’s strategy following the successful initial public offering (IPO) earlier this year, it seems that the company is focused on boosting its revenue position over the long term through investments.

It may be noted that the food delivery giant plans to deploy an additional $1 billion over the next 1-2 years to investment in other businesses. Jefferies said in a note that Zomato's plan could be to “add multiple large core businesses t the existing core, particularly in the hyperlocal e-commerce space”.

“Some of these investments would eventually result in merger and remaining would generate financial returns or learnings for Zomato," it added. Jefferies has maintained a ‘buy’ rating on the stock with a target price of Rs 175.

The company also indicated that it is working towards shutting down its non-core businesses as they were unlikely to benefit the company’s growth over the longer term.

Most experts have praised the company for registering strong revenue growth in Q2, but they also felt that the revenue growth came at the cost of profitability. Zomato’s investments over the long term could help the company boost revenue growth, but profitability from its core food delivery business remains a concern, according to brokerages.

ICICI Securities said that Zomato’s Q2FY22 revenue growth was “incredibly strong” and higher than expectations.

"Operationally, both supply (restaurants: +15 per cent QoQ) and demand-side (MAUs: +31 per cent QoQ; MTUs:+26 per cent QoQ) metrics reported an impressive increase. This strength seems to be driven by opportunistic branding and marketing investments (+Rs0.4bn vs Q1FY22) focused on driving the return of customer traffic post the 2nd covid wave," the brokerage noted.

"Besides this, (1) increase in delivery cost (Rs 5 / order or Rs 73 crore, vs Q1FY22), (2) growing share of cities outside top-20 and (3) higher ESOP expenses (+Rs 20 crore billion,vs Q1FY22 and +Rs 70 crore billion vs our FY22 run-rate estimate) led to Rs 160 crore higher EBITDA loss vs the previous quarter," it added.

Goldman Sachs also maintained a ‘Buy’ rating on the stock with a target price of Rs 185 per share. It said the company is well-placed to capture the accelerated shift to online in the food delivery space.

Zomato’s stock ended 4.37 per cent higher at the end of Thursday’s trading session on the Bombay Stock Exchange (BSE) at Rs 142 per share.