Shares of Zomato surged 9 per cent to hit a 52-week high of Rs 153 on BSE after the scrip got included in the MSCI India Index. The stock opened a tad higher at Rs 141.40 against the previous close of Rs 140.80.
With a market capitalisation of more than Rs 1,15,000 crore, the shares stand higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
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MSCI Inc, a leading provider of research-based indexes and analytics, announced the results of the November 2021 Semi-Annual Index Review for the MSCI Equity Indexes.
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As per the press release, Godrej Consumer Properties, IRCTC, SRF, Zomato, Tata Power, Mindtree and Mphasis will be added to MSCI Global Standard Index, whereas IPCA Laboratories and REC will be removed. The changes will be implemented from November 30, 2021.
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“As per our assessment, the fresh addition and deletions will lead to a total inflow of USD 1.2 billion. This is ex of weights changes in existing stocks,” said Edelweiss Alternative Research.
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“As per Edelweiss Alternative Research early assessment, all the MSCI potential high conviction inclusion names hold a strong chance to move from the current midcap categorization to the large-cap categorization. While Zomato will be for a sure fresh entrant in the large-cap category,” it had said in a note.
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On Thursday, the shares of Zomato Limited surged 6 per cent to hit an intraday high of Rs 144 on BSE after the company reported its earnings for the quarter ended September 2021.
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The online food delivery giant reported a net loss of Rs 429.6 crore in the July-September quarter against a loss of Rs 229.6 crore in the year-ago quarter. The company had posted a loss of Rs 356.2 crore in the preceding June quarter.
The delivery cost per order increased by Rs 5 per during the September quarter as compared to the preceding June quarter due to the prolonged and unpredictable rainy season and a sharp increase in fuel prices.
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Brokerage view
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ICICI Securities noted that Zomato’s Q2FY22 revenue growth was incredibly strong (+21% QoQ & 140 per cent YoY) and way higher than our expectations (+10 per cent QoQ). The delivery fee (+25 per cent QoQ) outgrew GOV (+19 per cent QoQ) by a margin, hinting at a meaningful increase in delivery charges.
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“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,vs Q1FY22 and +Rs 70 crore vs our FY22 run-rate estimate) led to Rs 160 crore higher EBITDA loss vs the previous quarter,” it added.
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Jefferies noted that the Q2 MTU & GOV are a big positive, of course, comes at the cost of profitability. The management intends to exit non-core, with the focus shifting from buy to build. The brokerage house has maintained a ‘Buy’ call with a target price of Rs 170 per share.
Goldman Sachs has maintained a ‘Buy’ call on the stock with a target price of Rs 185 per share. It noted that the company is well-placed to capture the accelerated shift to online in the food delivery space.
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However, Dolat Capital noted that the declining contribution despite robust improvement in Gross Order Value (GOV) suggest that the growth is more pushed through subsidies (month-long discount campaigns such as ‘No Cook July’) while delivery cost pressure is increasingly hurting (unlimited free delivery for Pro+ users), which in turn increases the magnitude of losses.
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“Also, with the continued burden from ESOP cost would mean no near-term operating leverage. We maintain our ‘Sell’ rating with DCF based target price of Rs 90 per share,” it added.
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Meanwhile, the online food aggregator also decided to shut down all its international businesses. “We are also shutting down our operations in Lebanon, which is the only international business we were left with (other than dining-out business in UAE) after shutting down the rest of our international operations last year,” Zomato said in a release.
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Besides this, Zomato is in the process of selling Fitso to Curefit for $50 million. The company will also invest a net $50 million cash investment plus the value of the Fitso business (worth $50 million). Due to this investment, Zomato will have 6.4 per cent shareholding in Curefit.
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