Zomato’s stellar listing and its subsequent rally could not be more than but. Domestic brokerage and investigation firm JM Financial has initiated the coverage of newly-listed meals-tech giant Zomato with a ‘buy’ rating and a target value of Rs 170 per share. This implies an upside possible of 26% from existing levels. “Zomato is poised to leverage the decadal growth opportunity in India’s on-demand hyperlocal delivery ecosystem. The company is a market leader in the food delivery vertical and (like some of its global peers) could explore adjacent growth opportunities,” analysts at JM Financial stated in a note.
Zomato stock is trading at Rs 135 per share. In much less than a week considering that listing on the stock exchanges, Zomato is now at a 77% premium more than its IPO value of Rs 76 per share. Investors nevertheless appear to be gung-ho on Zomato shares, even in spite of huge bull Rakesh Jhunjhunwala, and Aswath Damodaran – Professor of Finance at Stern School of Business, NYU – not painting a rosy image of the corporation presently producing losses.
Millennials and GenZ to assist Zomato develop
JM Financial in their note forecast a income CAGR of 46% more than the monetary year 2021-2026 and think Zomato will attain operating profitability by Financial Year 2025. “We expect this growth to be driven by the growing share of millennials/GenZ in the ‘earning’ population and fast-growing e-commerce penetration beyond Tier-1 cities,” they stated. For Zomato’s Hyperpure enterprise, JM Financial expects a sharp scale-up more than the next 5 years, due to inherent positive aspects for Zomato such as access to a wider addressable market place and elevated loyalty from restaurants as nicely as buyers.
Zomato could turn lucrative by 2025
Zomato has not been capable to mint earnings at this stage and that continues to stay one of the overhangs for some investors. Analysts at JM Financial, on the other hand, think the corporation could turn lucrative in the monetary year 2024-25 on a money EBITDA basis. “Our analysis suggests the company can turn profitable in FY25 on a cash EBITDA basis if it were to reach annual order volumes of 1 billion (2.5x FY20 levels) and a contribution margin of ~ Rs 21/order,” they added.
JM Financial values Zomato at 11x EV/Adjusted sales as of March 2030 to improved capture in the company’s extended-term development possible. “We discount this valuation back to September 2022 to derive our target price of Rs 170 per share and initiate with a ‘BUY’ rating,” they added.