Zomato, one of India’s leading food delivery platforms, saw its share price fall by 6% today following the release of its Q2FY25 results. While the company posted a five-fold increase in net profit year-on-year, the sequential decline in profitability and a significant fundraising announcement have caused concerns among investors.
Zomato Q2 FY25 Financial Results: A Mixed Bag
Zomato reported a net profit of ₹176 crore for the July-September 2024 period, a significant jump from the ₹36 crore it posted in the same quarter last year. However, the company’s profit declined by 30% compared to the previous quarter (Q1FY25), when it posted a net profit of ₹253 crore.
The company’s revenue from operations showed a 69% year-on-year (YoY) increase, reaching ₹4,799 crore, compared to ₹2,848 crore in Q2FY24. On a sequential basis, revenue grew from ₹4,206 crore in the previous quarter.
| Zomato Financial Metrics | Q2FY24 | Q2FY25 | YoY Growth (%) |
|---|---|---|---|
| Net Profit | ₹36 crore | ₹176 crore | 388% |
| Revenue from Operations | ₹2,848 crore | ₹4,799 crore | 69% |
Despite the strong growth in revenue, investors were concerned about the 30% decline in net profit compared to Q1FY25, which led to the sell-off.
Fundraising Plan: Rs 8,500 Crore QIP
Adding to investor anxiety, Zomato’s board announced a fundraising plan of ₹8,500 crore through a Qualified Institutional Placement (QIP).
While this will help the company strengthen its balance sheet, particularly in light of losses from its quick commerce operations, the fundraising effort has raised concerns about dilution and its impact on the company’s future earnings.
Cash Flow and Balance Sheet Concerns
Zomato’s cash reserves declined from ₹14,400 crore at the time of its IPO in 2021 to ₹10,800 crore as of Q2FY25. This decline is primarily due to losses from quick commerce operations and equity investments. With these operations still in the red, the company’s ability to sustain its profitability remains in question.
What’s Next for Zomato?
Zomato’s future prospects depend heavily on its ability to balance revenue growth with profitability. While the quick commerce segment shows potential, it has been a significant drag on the company’s earnings. To maintain investor confidence, Zomato will need to show cash flow and profitability improvements in the upcoming quarters.
Conclusion: Should You Invest in Zomato?
Zomato’s recent stock price decline presents a buying opportunity for long-term investors who believe in the company’s ability to turn around its quick commerce business. However, the stock may remain volatile in the short term due to concerns about profit margins, cash flow, and the large-scale fundraising effort.
Investors should watch the company’s performance closely, particularly in its next earnings report, before making any investment decisions.
Disclaimer
This article is for informational purposes only. Please consult a financial advisor for professional investment advice.
