Global brokerage firm Jefferies sees over 130 per cent upside in Zomato shares from the current market price, citing hopes of strong growth momentum in average monthly transacting users (MTUs) and gross order value (GOV) for the food delivery firm over the medium to long-term.
Shares of Zomato plunged nearly 20 per cent in two trading sessions to a record low of Rs 43 on Tuesday, as a one-year lock-in period for promoters, employees and other investors came to an end following a 2021 listing. With a listing gain of over 50 per cent, the scrip earlier made a stellar debut on bourses on July 23, 21, but its shares have lost more than 60 per cent of their value since then.
While commenting on Zomato, Jefferies said that worries of Fed tightening and investor focus on cash flow have been weighing on the internet names, including food tech, globally.
“From an exuberance at the time of listing last year, Zomato is now unloved, having underperformed peers year-to-date. Blinkit acquisition elongates the path to profitability and despite management guidance on break-even in food delivery, investors are not giving many benefits of doubt. We think this makes for a great case for long-term investors to Buy,” Jefferies said.
It has set a target price of Rs 100 for Zomato. However, in the upside scenario, Jefferies believes that Zomato may hit Rs 160 over the next 12 months.
“In our base case, we expect a 33 per cent CAGR in delivery GOV over FY20-26E to reach $9 billion by FY26. Unit economics is likely to dip in FY23 as Zomato invests behind new user acquisition and order volume growth, before recovering gradually over FY24-26. Other segments such as dine-out and Zomato Pro also see strong growth, on a low base,” Jefferies said.
However, in the upside case, Zomato expects a 36 per cent CAGR in delivery GOV over FY20-26E to reach $11 billion by FY26E.
Following the sharp correction in Zomato share price, Jefferies added that the stock now trades at 0.9 times 1 year forward EV/GMV and 3.5 times EV/Revenue.
“While this is at a premium to global and regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV (30 per cent for Zomato versus 10-20 per cent for peers). We also see a consistent improvement in profitability in food delivery despite strong 30 per cent CAGR over FY22-25E (well ahead of global/regional peers),” Jefferies said.
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