Shares of Zomato surged 9% to Rs 50.45 in intraday trade on the BSE on Tuesday after the food aggregator reported a consolidated loss of Rs 186 crore for the first quarter of 2022-23 (Q1FY23). The company’s losses declined both year-over-year and quarter-over-quarter. The company’s consolidated loss was Rs 359 crore in Q1FY22 and Rs 359.7 crore in Q4FY22.

In the first quarter of FY23, the company’s revenue grew 67.45% YoY and 16.7% QoQ to Rs 1,414 crore. Revenue growth was driven by a 10% quarter-on-quarter gross order value (GOV) increase to Rs 64.3 crore in Q1FY23 and higher revenue per order. In turn, the growth in GOV was driven by strong growth in order volume and a modest increase in average order value from the previous quarter.

Management said that in terms of profitability, the Food Delivery (FD) business reached an important milestone in the last quarter, reaching the adjusted Ebitda breakeven point. The share of government contribution in Q1FY23 increased to 2.8% from 1.7% in Q4FY22, driven by cost and revenue improvements.

FD’s reported EBITDA margin remains negative at around Rs 16/government order (including costs such as advertising and promotional fees). Another positive for the quarter was the continued growth and improved profitability of the Hyperpure and Blinkit businesses. The company didn’t provide clear guidance for the second quarter that differed from the first but continued to focus on growing revenue and improving profitability.

“Consensus expectations now seem more realistic for the FD industry and Zomato. Importantly, the average order value (AOV) has remained stable since we reported the COVID-19-induced uptick in August 2021. Since then, the biggest positive surprise. We think its share price has fallen over the past two years, and its one-year shareholder lock-up expiring in July 2022 suggests the market is too pessimistic,” said HSBC Securities analysts.

Also, the brokerage believes that, unlike many other areas in the new tech space, food delivery is relatively mature, with a healthy duopoly structure and a clear value proposition. The progress of the Blinkit acquisition and its integration and growth will be key issues to monitor in the coming quarters.

Growth in food delivery users may be slower than expected; Zomato’s equity investment in startups may not yield value; Grocery stores and other hyperlocal areas may outperform Zomato, with investee companies such as Blinkit being major, the brokerage said Downside risk.

At 9.21 am, Zomato traded up 5% to Rs 48.55 on the BSE. 72.6 million equity shares changed hands on the NSE and BSE in the first few minutes of trading. In contrast, the S&P BSE Sensex fell 0.2% to 58,001.

With today’s gains, Zomato’s shares have recovered 24% from an all-time low of Rs 40.55 on July 27, 2022. However, it is still down 34% from its issue price of Rs 76 per share. The company debuted on July 23, 2021, and the stock corrected more than 70% from its all-time high of Rs 169.10 on November 16, 2021.