Eternal Ltd. share price target

We re-iterate our BUY thesis on Zomato (link). We believe the company is likely to achieve its medium-term adj. EBITDA guidance of 4-5% in food delivery and adj. EBITDA breakeven in Blinkit by Q1FY25E. Given the strong growth trajectory expected over the next 3-4 quarters as well as the distinct possibility of becoming the first company globally to achieve adj. EBITDA breakeven in grocery, we think further re-rating of the stock is due.

Heading towards a profitable and faster delivery

Zomato achieved adjusted EBITDA (consol.) break-even in Q1FY24 (2-3 quarters ahead of guidance). Adjusted EBITDA margin (consol.) improved 760bps QoQ vs our estimate of 320bps improvement. This was driven by 11% QoQ GOV growth in food delivery and superior cost control led by organisation restructuring. In addition, management commentary with regards to growth outlook improved materially over Q4FY23.

We note a sustained improvement in profitability of the food delivery business and meaningful reduction in losses in the hyperpure and quick commerce businesses. This in our view has significantly improved visibility of profitability in the medium term.