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Despite Zomato reporting a bigger loss for the second quarter ended September 2021, investors’ interest is still intact in the stock as its revenues doubled and its investments in related companies soared.
Some analysts are surprised that the stock remained resilient on a day when the BSE Sensex, NSE Nifty, BSE MidCap and BSE SmallCap indices tumbled 0.6-0.9 per cent.
Shares of Zomato jumped 6 per cent in early deal on the BSE to ₹144 and currently hovering around ₹140.75, up 3.5 per cent over the previous day’s close. Trading volumes jumped 41.20 lakh shares against the two-week average of 11.14 lakh shares. On the NSE, it closed at ₹142, up 4.37 per cent. Over 8.35 crore shares changed hands on the NSE.
Analysts are discounting Zomato’s loss, but giving premium to its business model. The possible inclusion of Zomato into MSCI Standard index and FTSE is also keeping interest in the stock, analysts said.
Loss widens
Zomato on Wednesday reported consolidated loss of ₹434.90 crore against a loss of ₹229.80 crore reported in the same period year ago, due to a steep rise in branding and marketing expenses. However, revenues jumped 140 per cent to ₹1,024.20 crore (₹426 crore), as orders on its food delivery business zoomed.
The company also said it was investing in logistics-tech firm Shiprocket, savings app Magicpin and fitness firm CureFit and added it will invest $1 billion more over the next 1-2 years, with a large chunk likely going into the quick-commerce space.
Kotak Institutional Research initiated coverage on Zomato with a Buy rating and a SoTP-based Fair Value of ₹175. “Zomato’s leadership position in the underpenetrated food-delivery space will drive healthy revenue CAGR of 36 per cent over FY2021-30. Turnaround in unit economics will lead to profitability by FY2025, leaving Zomato with the bulk of its current $2 billion cash balance intact, which can drive the company’s entry into fresh adjacencies enabling further value creation,” it added.
To see inflow on index entry
Recently, brokerage Edelweiss Securities said Zomato along with Tata Power and SRF are likely to get added to MSCI Standard Index during the semi-annual review slated on November 12. The adjustment will take place on November 30, 2021. Other possible stocks that may enter the MSCI index included Mphasis, Godrej Properties, Mindtree and IRCTC.
Some brokerages also expect the stock to enter in FTSE index, too. If the stock finds entry into these indices, Zomato may see a buying of ₹1,700-2,000 crore from funds that track them, they added.
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