The PE multiple measures how much investors are willing to pay per unit of earnings. It’s calculated by dividing the current share price by the earnings per share (EPS). For example, if a stock’s price is ₹200 and company’s EPS is ₹10, the PE multiple is 20. This means investors are paying ₹20 for every Re 1 of earnings.
The PE multiple is used to assess a stock’s valuation. A high PE multiple can indicate that a stock is expensive relative to its earnings or that investors expect high future growth. Conversely, a low PE multiple might suggest the stock is undervalued or that investors have lower growth expectations.
Investors generally compare the PE multiple of one stock against another from the same industry to see which is cheaper. However, PE is not to be seen in isolation and other factors need to be compared, too.
This brings us to our main question.
Is Zomato’s high PE multiple justified?
Let’s start with some assumptions. For Q1 2026, Zomato reported EPS of ₹0.03. For FY25 the company reported diluted EPS of ₹0.58. Let’s assume that the company does exceedingly well and reports EPS of Re 1 for FY26. The stock is currently trading around ₹304, or a PE multiple of more than 300. This is huge by any measure.
It’s always hard to predict what future EPS will be, but it all hinges on profits. We have just assumed Re 1 to indicate that the stock trades at a very high PE multiple. On a trailing-EPS basis, Zomato’s PE multiple is 524.14 (304/0.58).
The stock has risen sharply recently, causing a further expansion of the PE multiple. This means investors are now willing to pay an even higher price for each unit of earnings as they are confident of the company’s future profitability.
If this optimism ends up being rewarded, a major deciding factor will be quick commerce. Zomato’s quick commerce segment operates primarily through Blinkit, its fastest-scaling vertical that focuses on high-frequency, low-ticket, instant delivery of groceries and other essentials. Blinkit posted an Ebitda loss of ₹162 crore in Q1 FY26, better than the ₹178 crore loss in the previous quarter, which points to trend towards profitability.
Management is confident that Blinkit’s absolute losses have peaked and margins will continue to improve, with some cities already generating more than 2.5% Ebitda margins. Long-term Ebitda margin guidance is in the range of 5-6%.
But whether this justifies the high PE multiple is an open question.
Financial performance
Revenue surged in Q1 FY26, while net profit plummeted, largely on account of rapid investments in growing the quick commerce segment. Revenue from operations jumped 70% year-on-year to ₹7,167 crore, driven by solid growth in both the food delivery and quick commerce segments. Net profit crashed 90% year-on-year to ₹25 crore, from ₹253 crore in Q1 FY25.
What stood out during the quarter was Blinkit’s revenue, which surged 155% year-on-year to ₹2,400 crore, surpassing Zomato’s core food delivery revenue of ₹2,261 crore.
What’s next for Zomato?
Q1 numbers were not bad, given Blinkit’s solid revenue and narrowing losses in quick commerce. Optimism has grown and the stock surged since then. Investors now hope that profits at Blinkit are imminent.
Zomato added as many as 243 net quick commerce stores during Q1 FY26 and sees enough room for store growth in all cities, including ones where it already has good coverage. Management aims to have 2,000 such stores by December.
Management believes margins in quick commerce have bottomed out and that if competition stays the same, margins should improve as a large number of stores that were opened in the past 12 months mature. Management also expects absolute losses to narrow, though margin improvement may not be linear if, say, competition increases.
For the food delivery business, management remains optimistic. It expects net order value (NOV) to grow more than 15% in FY26, and hopefully trend towards 20% growth in FY27.
The company has also seen its going-out business (District) improve. This segment now accounts for about 20% of the food delivery and quick commerce businesses.
Despite a 90% decline in net profit in Q1 FY26, the market’s positive response shows investors are prioritising Blinkit’s growth trajectory and the company’s strategic vision over short-term fluctuations in profit.
Over the past month, Zomato stock is 18.7% from ₹254.25 to ₹304. It’s up 39% over the past year, having hit a 52-week a 52-week low of ₹189.6 on7 April 2025 and a 52-week high of ₹311.6 on 22 July 2025.
Beyond food delivery
Zomato Ltd changed its corporate name to Eternal Ltd on 20 March 2025, following approval from the ministry of corporate affairs and shareholders. The change reflects a strategic transformation from primarily a food delivery company to a diversified technology conglomerate with several business verticals. While the Zomato brand remains in place for the food delivery business, parent company Eternal is envisioned as a multi-service platform with ambitions beyond its original core business.
As always, investors must evaluate a company’s fundamentals, corporate governance, and stock valuation before making an investment decision.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
