Should you buy, sell or hold Zomato shares after second quarter results, key investment announcements?

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Online food delivery platform Zomato announced a widening of its consolidated net loss to ??435 crore for the quarter ended September compared to a loss of ??230 crore in the quarter of last year. Zomato shares were trading nearly 2% higher at ??139 each on BSE in Thursday’s session.

The company’s losses increased primarily due to investments in growing its food delivery business. As part of its long-term strategy to focus on its core business, Zomato unveiled its three key investments in startups Curefit, Magicpin and Shiprocket.

“Zomato plans to roll out an additional $ 1 billion over the next 1-2 years with the idea of ​​adding several large core businesses to the existing core, particularly in the hyperlocal e-commerce space. Some of these investments would eventually lead to a merger and the rest would generate financial returns or apprenticeships for Zomato, ”Jefferies said in a note. The brokerage has a buy rating on the stock with a target price of ??175 each.

Zomato said it was in the process of divesting or shutting down its non-core businesses, which was not going to shake things up in any meaningful way for shareholders in the long run.

Those at Ambit Capital said Zomato’s second quarter revenue was better than expected, but came at a price with an approximately 82% increase in quarterly adjusted EBITDA losses. They see growth at a price and could lower profitability.

“We would wait and monitor the success of the companies we invest in and believe that it may be premature to give bonuses to invested capital. We keep Sell with an unchanged price target of ??127, “added the brokerage house.

Zomato’s delivery cost per order has increased by ??5 per order on a sequential basis, although the food delivery giant doesn’t expect delivery costs to increase any further and feels confident that the contribution margin remains positive in the medium to long term .

“Zomato posted a mixed earnings package where turnover is encouraging but profitability is a major concern. Investments are tied to their current business, therefore the market is responding positively to this and it may help the business. to continue growing, however, cash flow will be key going forward. The outlook is optimistic as the penetration of India’s food delivery industry is still low, but only aggressive investors are advised to hold this stock amid uncertain profitability, ”said Parth Nyati, founder of Tradingo.

The opinions and recommendations expressed above are those of individual analysts or brokerage firms, not Mint.

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