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Zomato Shares Fall 6% On ESOP Or Is It Because It’s Auditor Resigned?

Amidst fluctuations in its share price and recent developments, Zomato's performance has drawn attention. While its financial results showcase strength, questions emerge regarding factors influencing its stock performance and the implications of auditor resignations.

Zomato experienced a 6% decline in its shares on Tuesday, reaching Rs 182.10 on the BSE. 

This decrease occurred despite positive revisions in target prices by brokerage firms such as CLSA, Jefferies, Bernstein, and Elara; these revisions, which set target prices as high as Rs 280 per share, followed a strong performance in the company’s Q4 results.

Interestingly, Zomato’s financial performance has received a positive; Zomato disclosed the resignation of the auditor for its subsidiaries, Zomato Hyperpure and Blink Commerce, effective immediately. 

This move paved the way for the appointment of Deloitte Haskins & Sells as the new auditor, aimed at streamlining the audit process for the food tech platform.

Zomato clarified that the resignation aimed to facilitate the appointment of its current statutory auditor, M/s Deloitte Haskins & Sells LLP, for Zomato Hyperpure Private Limited (ZHPL) and Blink Commerce Private Limited (BCPL). The objective was to enhance audit efficiency across these entities.

Batliboi & Associates had been serving as the statutory auditor for Zomato for a term of five consecutive years, starting from the conclusion of the company’s eighth annual general meeting held on August 29, 2023.

According to communications received from the Global Controller Finance of Zomato Limited, the management of the Holding Company sought to align the statutory auditor of the Company with those of the Holding Company. This alignment aimed to minimize duplication and enhance efficiency in the audit process at the group level.

The audit of Hyperpure’s financial statements for the fiscal year ending March 31, 2024, was completed, as confirmed by an audit report dated May 10, 2024.

Zomato, SharesESOP Or Auditors Resignation Lead To Zomato Shares Downturn

While Zomato’s financial performance appears robust, questions arise regarding recent developments. 

–One query pertains to whether the decline in shares can be attributed to the Employee Stock Ownership Plan (ESOP) or the resignation of auditors. 

–Additionally, the timing of auditor resignations, notably close to result publication, raises eyebrows. Concerns linger over how newly appointed auditors can provide a clean assessment.

Despite these uncertainties, Zomato received favorable attention from brokerage firms. 

CLSA increased its target price to Rs 248, Bernstein to Rs 230, Jefferies to Rs 230, and Elara Capital set the highest target at Rs 280.

Elara Capital expressed continued support for Zomato, citing its strong position in the food business and projected growth in adjusted EBITDA. 

Analysts commended the growth of Blinkit, noting a significant increase in Gross Order Value (GOV) driven by rising orders. Zomato’s strategic decision to expand dark stores reflects a noteworthy shift in its market positioning within the quick commerce sector.

Posted Revenue

Zomato’s consolidated revenue surged by 73% year-on-year to Rs 3,562 crore, propelled by substantial growth across its food delivery, Blinkit, and Hyperpure segments. 

Notably, the company reported a consolidated net profit of Rs 175 crore for the quarter ended March 31, 2024, compared to a loss of Rs 188 crore in the corresponding period last year.

In the quarter under review, revenue from operations for  Zomato amounted to Rs 3,562 crore, a significant increase from Rs 2,056 crore reported in the corresponding quarter of the previous fiscal year. While this represented a substantial 73% year-on-year (YoY) surge, it slightly missed the poll forecast of Rs 3,579 crore.

Sequentially, the company witnessed a 27% rise in profit from Rs 138 crore in the December quarter. Additionally, revenue increased by 8.3% quarter-on-quarter (QoQ).

The consolidated financial results include unaudited financial data from 19 subsidiaries, reflecting total assets of Rs 92 crore as of March 31, 2024. 

These subsidiaries reported total revenues of Rs 4 crore and Rs 14 crore for the quarter and fiscal year ending March 31, 2024, respectively. 

The total net loss after tax for these subsidiaries amounted to Rs 23 lakh for the quarter and Rs 2 crore for the fiscal year ending March 31, 2024.

Zomato’s quick commerce arm, Blinkit, achieved adjusted EBITDA positivity in March.

In its India food ordering and delivery segment, Zomato reported revenue of Rs 1,739 crore in Q4FY24, marking an increase from Rs 1,172 crore reported in the corresponding period of the previous year. 

For the entire fiscal year, revenue in this segment reached Rs 6,361 crore, compared to Rs 4,533 crore in FY23.

The quick commerce business saw its revenue reach Rs 769 crore in the specified quarter, more than doubling from Rs 363 crore in Q4FY23. For FY24, this segment contributed revenue of Rs 2,301 crore, compared to Rs 806 crore in FY23.

The gross order value (GOV) in Q4FY24 grew across B2C businesses (food delivery, quick commerce, and going-out), accelerating to 51% YoY (5% QoQ) to Rs 13,536 crore. 

Specifically, food delivery GOV grew by 28% YoY and declined by 0.6% QoQ, quick commerce GOV surged by 97% YoY and 14% QoQ, while going-out GOV increased by 207% YoY and 25% QoQ.

In its B2B business Hyperpure, revenue experienced a notable 99% year-on-year (YoY) growth and an 11% quarter-on-quarter (QoQ) increase.

On the profitability front, consolidated adjusted EBITDA reached Rs 194 crore, marking a significant improvement of Rs 369 crore compared to the same quarter last year.

Kotak upgraded revenue estimates for FY2025-27 by 3%, primarily driven by higher Blinkit revenues. 

However, EPS saw a reduction ranging from 5% to 22%, attributed to an expanded ESOP pool (with a new ESOP pool of 2% of share capital) and lower near-term profitability for Blinkit. Despite this, Kotak maintained a buy call with a target price of Rs 225, emphasizing the company’s adept execution across verticals.

Nuvama adopted a Sum of the Parts (SOTP) valuation method for Zomato, valuing its food delivery segment at $10 billion and Blinkit at $13 billion. This upgrade was prompted by Blinkit’s faster-than-expected growth and its clear leadership position in the quick commerce sector. 

As a result, the domestic brokerage increased its target price to Rs 245 from Rs 180 previously.

The Last Bit, The factors influencing Zomato’s recent decline in share price appear muddled, with both the resignation of auditors and concerns surrounding the Employee Stock Ownership Plan (ESOP) potentially contributing to investor sentiment. 

The timing of the auditor resignations, coinciding with significant financial disclosures, could have sparked apprehensions regarding the company’s financial oversight and transparency. 

Additionally, the expansion of the ESOP pool and its impact on earnings per share (EPS) may have led to investor uncertainty about future profitability. 

However, amidst these concerns, Zomato’s strong financial performance, evident from robust revenue growth and improved profitability, suggests underlying strength in its business model. 

Therefore, while the resignation of auditors and ESOP-related adjustments may have contributed to short-term volatility, the company’s long-term prospects, accentuated by strategic initiatives and positive analyst outlooks, could potentially mitigate these concerns over time.

 

 

 

 

 

naveenika
naveenika
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