Zomato's Stock Soars: Q1 Success and UBS Upgrade Fuel Investor Optimism

Zomato (NS:ZOMT) has recently witnessed a notable surge in its stock price, rising over 3% following an optimistic outlook from brokerage firm UBS. This rise comes on the heels of Zomato’s impressive performance in the first quarter, which surpassed market expectations and prompted UBS to raise its target price for the stock.

UBS’s Positive Outlook on Zomato

UBS has maintained its “buy” rating on Zomato, while also increasing its target price to ₹320 per share. This revised target reflects a potential 19% upside from Zomato’s closing price the previous day. The brokerage firm’s bullish stance is primarily driven by Zomato’s robust performance in the first quarter, which has outpaced both market estimates and internal forecasts.

Q1 Performance Highlights

Zomato’s first quarter of the fiscal year 2024 brought several positive surprises for investors. The company reported stronger-than-expected growth in both its quick-commerce and food delivery segments. The gross merchandise value (GMV) for quick commerce saw significant growth, while the food delivery business reported a 27% increase in GMV, surpassing expectations.

UBS highlighted that margin expansion in both segments exceeded estimates, contributing to the company’s overall strong performance. Moreover, Zomato’s management provided an upward revision in its guidance, further boosting investor confidence in the company’s future prospects.

Revised Estimates and Growth Potential

In response to Zomato’s impressive Q1 performance, UBS has revised its GMV estimates for the company’s quick-commerce segment for FY26-28, increasing them by 20-30%. The brokerage firm also raised its GMV projections for the food delivery business by 2-3%. UBS believes that Zomato’s growth trajectory and margin expansion profile remain superior compared to its peers, making it an attractive investment opportunity.

Zomato’s Financial Performance in Q1

Zomato reported a remarkable increase in net profit for the June quarter, with profits soaring to ₹253 crore, up from just ₹2 crore in the same period last year. This dramatic improvement in profitability is a clear indicator of Zomato’s successful business strategies and operational efficiency. The company’s revenue also saw a substantial increase, rising 74% year-over-year to ₹4,206 crore.

In addition to its core food delivery business, Zomato’s quick-commerce arm, Blinkit, also delivered strong results. Blinkit’s revenue grew to ₹942 crore, up from ₹769 crore in the previous quarter, showcasing the growing demand for quick-commerce services in India.

Market Reaction and Future Prospects

Following the release of its Q1 results and the subsequent target price upgrade from UBS, Zomato’s stock price gained 3.27%, reaching ₹273.09 on Monday morning. The positive market reaction reflects investor confidence in Zomato’s ability to continue its growth trajectory and achieve further margin expansion in the coming quarters.

Looking ahead, Zomato is well-positioned to capitalize on the growing food delivery and quick-commerce markets in India. With strong financial performance, effective management strategies, and a favorable outlook from leading brokerage firms like UBS, Zomato’s stock appears poised for continued growth.

In conclusion, Zomato’s impressive first-quarter results and the subsequent target price upgrade by UBS have significantly boosted the company’s stock price. With strong growth in both its food delivery and quick-commerce segments, along with margin expansion and positive guidance from management, Zomato is well-positioned for sustained growth. Investors looking for opportunities in the rapidly expanding food delivery and quick-commerce sectors may find Zomato to be an attractive option for medium to long-term gains.