Shares of food delivery firm Zomato tanked over 4% on Wednesday after the company’s second quarter net profit, despite increasing multifold, failed to meet analysts’ expectations.

What Happened: Zomato’s net profit zoomed by 390% to ₹176 crore in the July to September period, compared to ₹36 crore in the same quarter last year. The figure was below the average analysts' estimate of ₹232 crore. The company's revenue from operations stood at ₹4,799 crore in the quarter ended September, representing a 68.5% year-on-year jump.

The company’s food delivery segment clocked in a revenue of ₹2,012 crore in the quarter whereas its quick-commerce arm Blinkit saw its revenue shoot up 129% to ₹1,156 crore.

What Brokerages Think: Kotak Securities said the firm’s food delivery gross order value (GOV) growth, reported at 21.4% year-over-year, slightly fell short of its estimates. The food delivery contribution margin of 7.6%, exceeded its expectations backed by better cost management. The restaurant take rate in this vertical saw a slight decline quarter-over-quarter, Kotak noted.

Blinkit experienced a robust GOV growth of 122% year-over-year, which surpassed Kotak’s estimates, along with a decent contribution margin and minimal segment losses. The brokerage retained a “buy” rating for the stock with a slightly reduced target price of ₹310.

Motilal Oswal also maintained its “buy” rating for the stock with a price target of ₹330. The brokerage said that Zomato delivered another strong performance in the September quarter, with revenues reaching ₹4,800 crore, reflecting a 14% quarter-on-quarter (QoQ) growth, in line with their expectations.

The brokerage firm attributes this growth primarily to Blinkit, which saw its GOV rise by 25% QoQ and an impressive 122% year-on-year (YoY). Analysts at Motilal Oswal also noted that the core food delivery business continued to deliver over 20% YoY growth in both GOV and revenue, with margins remaining steady.

Emkay Global also maintained its “buy” rating with a target price of ₹310. The analysts said that Zomato exhibited remarkable revenue growth in the quarter under review, driven by strong performances in its Blinkit, Hyperpure, and Going Out segments.

Emkay analysts added that the flat margin may be due to the ongoing investments in scaling infrastructure, with the company looking to achieve its target of 2,000 dark stores by December 2026.

See Also: How A Bangalore Man Stalked His Partner Using A Food Delivery Platform’s Data

HSBC has a “buy” rating for Zomato with a target price of ₹330. The food segment performed in line with its expectations, while quick commerce (QC) exceeded them. Margins remained largely stable quarter-over-quarter due to ongoing investments in QC capacity and brand building, HSBC noted.

Nomura has issued a “buy” recommendation for Zomato with a target price of ₹320. The quick commerce segment is experiencing rapid growth while the food delivery business continues to show steady growth, the brokerage said. In the near term, Nomura believes, the QC business will focus on prioritising growth while striving for neutral EBITDA.

All the brokerages believe that the firm’s plans to raise funds via a qualified institutional placement (QIP) positions it better to remain aggressive in a competitive market.

More Challenges Ahead For Quick Commerce: The Central Consumer Protection Authority (CCPA), has sent notices to multiple quick commerce companies for not adhering to mandatory product disclosure requirements, according to a report by PTI.

Notices have reportedly been sent to “three to four” quick commerce companies, who have not been named, for violations concerning packaged product disclosures required by the Legal Metrology Act. The law mandates that both online and offline retailers display essential product information on packaged goods, including the maximum retail price, expiration date, weight, manufacturer details, and addresses for consumer grievances. The companies have been given 15 days to respond to the notice.

Price Action: Zomato plunged 3.82% to trade at ₹246.55 on Wednesday morning.

Read Next: TVS Motor Q2 Preview: Net Profit To Increase 27% To ₹684 Cr