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Zomato shares jump 8% after ONDC’s incentive revision; what’s next for the stock?

On Friday, shares of Zomato had a sudden uptick in price as the company experienced an increase of 8% during the early part of the trading day. This was in response to favourable news flow about the modification of incentives and discounts offered by ONDC. At 76 rupees per share, the stock’s current price is less than 4% below its initial public offering price.

The ONDC, which is supported by the government, is now revising the structure of its incentives. The highest price incentive would be set at Rs 100 per purchase under the new system, down from Rs 120 per order when the old system was in place. Additionally, the total incentive will not be more than fifty percent of the entire purchase value, which takes into account the cost of delivery.

The Open Network for Digital Commerce (ONDC) has updated its incentive plan for network members in order to lessen the need for discounts for adoption. This action has essentially put to rest worries over the network’s capacity to bring an end to the duopoly of Zomato and Swiggy.

As a result of the announcement, Zomato’s stock price increased by around 8% on Friday, reaching a new high of Rs. 73.20. At 9:40 in the morning, the price of the stock was reported to be Rs 72.25, and it had a market value of somewhat more than Rs 62,000 crore. On Thursday, the price of the share had finally stabilised at Rs 67.92.

For the food and beverage category, the minimum purchase value should be around Rs 200, while the minimum order value for all other categories, including shipping fees, should be Rs 300. In order to be eligible to receive the rewards, the minimum order value must be met. In addition, a buyer is only qualified for an incentive for a maximum of five transactions throughout the course of a single calendar month.

Zomato’s share price has increased by more than 80 percent from its 52-week low of Rs 40.55, which was reached on July 27, 2022. It is now 20% higher than it was at this point in the year 2023, although its performance throughout the course of the previous year was unchanged. Over the course of the last year, the stock price has increased by more than 15%.

During the March quarter, Zomato announced that it was able to reduce its losses on both a year-over-year (YoY) and sequential basis. The combined net loss of the corporation decreased to 188 crores from 360 crores a year earlier and 345 crores in the previous quarter. Zomato’s consolidated revenue grew to Rs 2,056 crore, a year-over-year gain of 70 percent, but fell short of analysts’ projections.

Christopher Wood, the Global Head of Equity Strategy at Jefferies, recently added Zomato to the long-only portfolio that he oversees for the firm’s Indian clients. Wood’s weighting for Zomato in the India portfolio is 4%. In the May edition of Wood’s ‘Greed & Fear’ index, Zomato has also been included in the global long-only stock portfolio.

“The core business milestone was accomplished primarily as a result of substantial growth in the food delivery contribution margin, which increased to 5.8 percent from 5.1 percent in the third quarter.” This was due to profitability levers such as improvements in restaurant commissions and revenue, as well as reduced discounts and variable costs offsetting the detrimental effect of the Gold launch, as stated by JM Financial, which has a ‘buy’ rating and a target price of Rs 105.

The management anticipates that the company will have positive adjusted EBITDA and PAT on a consolidated basis during the next four quarters. They expect to accomplish this goal by increasing profits in the FD business while decreasing losses in the Blinkit business. According to Emkay Global, which has given Zomato a ‘buy’ rating with a target price of Rs 90, the exceptional performance of Zomato in the fourth quarter strengthens their conviction in the company’s capacity to execute and generate profitable growth.

Aryan Jakhar
Aryan Jakhar
Aryan Jakhar is an Indian Journalist with over two years of active working experience. Aryan is currently working as editor-in-chief at BusinessHeadline.in and he is reachable on contact@businessheadline.in
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