Despite Zomato share price plunging around 50% from its record high level of Rs 169.10 hit in November last year, brokerages maintain a bullish stance on the stock, but have revised their target prices downwards.
Zomato share price surged 3 per cent on Thursday to hit intraday high of Rs 88.15. Today’s gain follows the steep correction earlier this week when the foodtech company’s stock slumped 8 per cent on Tuesday to hit a new low of Rs 75.75, falling below the issue price of Rs 76. Despite share price plunging over 50 per cent from its record high level of Rs 169.10 hit in November last year, brokerages maintain a bullish stance on the stock, but have revised their target prices downwards. “Management should face tough investor questions through an earnings call rather than providing abstract details on the business,” said Jefferies in a note. Zomato shares have plunged nearly 36% in the past month, but it can rally to over Rs 100 mark, going forward.
Stock Talk: Should you buy, hold or sell Zomato shares?
Jefferies: BUY
Target price: Rs 120
According to the international brokerage firm, Zomato is a play on the growing food services industry in India as well as increasing adoption of digital commerce. With only 10-11 million monthly transacting users currently, Jefferies believes that Zomato has a long run-way for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability. After a positive surprise in MTUs and GOV resulting in sharp upgrades in 2Q, Jefferies has cut the FY22-26 GMV by 4-9% to reflect the muted performance in 3Q.
“The past two quarters signal how unpredictable this business (& probably Internet sector) is likely to be, but we remain confident on the structural India growth story. We retain BUY with a revised PT of Rs 120, as we cut the target multiples for delivery business reflecting the derating in global peers and weak 3Q trends. We continue to believe that management should face tough investor questions through an earnings call rather than providing abstract details on the business,” it said in its report.
Edelweiss: HOLD
Target price: Rs 101
Analysts at Edelweiss stated that Zomato’s Q3FY22 results disappointed on growth and profitability, with meagre 1.7% QoQ GOV growth, 5% order growth and 10bp dip in contribution margin. Zomato’s growth trajectory and profitability also appears weaker than anticipated. Additionally, valuation of Zomato’s global peers have also declined sharply. The brokerage firm cutt its FY23/24 EBITDA estimates by around 35% to factor in lower growth and profitability. “While we would have liked to upgrade the stock considering correction, faltering growth and profitability, and aggressive capital allocation in unproven areas, keeps us on the side-lines,” it said. Edelweiss maintained ‘HOLD’ rating on the stock and cut target price to Rs 101 from Rs 151 earlier.
JM Financial: BUY
Target price: Rs 155
JM Financial remains bullish on Zomato’s long term growth prospects as it believes that the company is well-positioned to benefit from robust industry tailwinds such as improving tech penetration and rising income share of digitally native millennials / GenZ. While 3Q results were a tad disappointing, it expects the company to return to strong growth trajectory once reopen impact subsides. “We tweak our FY22-24 estimates following the results and continue to value Zomato as of Mar’30 using 11x EV/ Net Sales multiple,” it said. However, given the rising global interest rates, the brokerage firm used a higher WACC of 12% to discount this valuation back to Mar’23, to derive their revised target price of Rs 155, down from Rs 180 earlier. It maintained a Buy rating on the stock.
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