ICICI Securities Raises Zomato’s PT To INR 300, Cites Higher Revenue CAGR Than Global Peers

Brokerage ICICI Securities has reiterated the ‘BUY’ rating on foodtech giant Zomato and raised its price target (PT) to INR 300.

This represents an upside of more than 67% from the stock’s last close of INR 179.5 on the BSE on Wednesday (March 27). The brokerage attributed the increase in PT to the company’s “sustained growth trajectory and sustained improvement in profitability metrics”.

“We reiterate our BUY rating on Zomato and increase our 3-stage DCF-based target price to INR 300 from INR 182 as we significantly increase our long-term explicit forecasts, given the improved visibility on sustained growth trajectory and sustained improvement in profitability metrics. Zomato remains our top pick in the Indian internet space,” ICICI Securities said in a report.

While noting that the company is currently trading at a premium to its global peers, the brokerage added that the PT is “justified” given Zomato’s significantly higher revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) compounded annual growth rates (CAGRs).

It also estimated that the gross order volume (GOV) of Zomato’s food business could grow at more than 20% YoY till FY33. “We believe food delivery EBITDA margin should stabilise at around 6% of GOV. We think ad revenues should continue to drive up food delivery take rates over the medium term, before it stabilises at around 21%. This should drive up (the) contribution margin to 8.5%,” the brokerage added. 

The development comes at a time when the foodtech major continues to notch up record highs on the bourses. The stock reached an all-time high of INR 188.95 during the intraday trading on the BSE today before closing the session 1.7% lower at INR 179.50.

The stock has soared over 200% in the past 12 months.

This upswing has largely been led by the positive financial numbers reported by the company in the past three quarters. Zomato posted a consolidated profit after tax (PAT) of INR 138 Cr in the December quarter (Q3) of the financial year 2023-24 (FY24), up from INR 36 Cr in Q2 FY24 and INR 2 Cr in Q1.

Pushing the stock further up are the Delhi NCR-based startup’s new offerings and pilots, including plans to set up a plant for processing value-added food supplies for its Hyperpure business and daily payout feature for select restaurants to keep them happy. 

As a result, multiple brokerages, including Jefferies, Nuvama and Kotak, have raised the PT for Zomato stock in recent months. While investment banking firm JM Financial has so far retained PT of the stock at INR 200, Jefferies, earlier this month, said Zomato is among its ‘top picks’ for the next five years and it expects the touch to surge to INR 400 in this period.

However, the company has also faced some controversies in the recent past. The foodtech major’s plans to introduce a ‘Pure Veg Fleet’ with a green uniform was met with criticism online. Eventually, it reversed the decision to use the green uniform for the new fleet. 

Earlier in the day, Zomato cofounder and CEO Deepinder Goyal said he was taken aback by the backlash against the introduction of the new fleet as it was rolled out after positive responses in  a survey conducted by the company. 

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