Shares of online food aggregator Zomato have slipped around 12 per cent in 2023 so far. Yet, brokerages suggested a sharp upside potential upside on the counter over a one-year period. HSBC Global Research has maintained a ‘Buy’ rating for Zomato with a target price of Rs 87, hinting at a 63.72 per cent upside. The stock today crawled 0.19 per cent higher to settle at Rs 53.14.
“The food delivery industry may slow down further in the fourth quarter of the current financial year (Q4 FY23), but we expect Zomato to reclaim market share,” HSBC Global said. Despite the profitability headwinds from Zomato Gold, we expect Zomato to continue to improve unit economics as well, it added.
“We expect Zomato to continue to gain market share from Swiggy, led by an aggressive go-to-market strategy. We now expect Zomato’s share to improve to 57 per cent in FY24. Zomato has consistently gained market share over Swiggy since FY20. Swiggy continues to burn a lot more cash than Zomato. As the execution bias swings in favour of profitability, industry dynamics will be more conducive for Zomato as it looks to expand margins,” the brokerage stated.
In the next few quarters, HSBC Global also expects Zomato to absorb the impact of Gold benefits, thereby improving its EBITDA margins. In addition, it expects Zomato’s quick commerce vertical Blinkit to add value over the next 1-2 years.
Blinkit’s current gross order value run-rate of $1 billion could easily double by FY25, as per HSBC estimates. “Blinkit remains under-appreciated by the Street. Hyperlocal/Q-commerce is likely to see strong growth for a few years due to low penetration and stabilizing competition. With increasing volumes, we see the potential for an improvement in profitability as well,” it stated.
For Zomato, Kotak Institutional Equities has also assigned a ‘Buy’ call while pegging the counter at a fair value of Rs 82, a potential upside of 54.31 per cent.
Zomato has an average target price of Rs 62.50, Trendlyne data showed, suggesting a potential upside of 17.26 per cent. The scrip has a one-year beta of 1.49, indicating high volatility on the counter.
The stock traded higher than the 5-day and 50-day moving averages but lower than 20-day, 100- and 200-day moving averages. The counter’s 14-day relative strength index (RSI) came at 49.95. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company’s stock has a negative price-to-equity (P/E) ratio of 126.52.
Ravi Singhal, CEO of GCL Securities, said, “Zomato looks good at the current valuation for a target of Rs 99 till Diwali this year. The company is slowly becoming a leader in the segment and bigger than its competition. Also, it is expected to turn cash positive in the coming quarter.”
Meanwhile, Indian equity benchmarks extended their gains for the second straight session, led by gains in pharma, state-owned lenders, automobile, consumer goods and financials.
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