What should investors do with Zomato? Brokerages cut target price post Q3 results

Some of the global brokerage firms slashed their target price on Zomato post December quarter results as the online food delivery platform reported lukewarm results.

Zomato reported narrowing of a consolidated net loss to Rs 67.2 crore for the third quarter ended December 31, 2021, on the back of better revenue growth.

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Credit Suisse and Goldman Sachs slashed their target price on Zomato but it still translates into an upside of 20-70 per cent from Rs 94 recorded on 10 February.

The company, which had posted a consolidated net loss of Rs 352.6 crore in the same quarter last fiscal, said it is updating the upper limit of its potential investments in the food delivery category to USD 400 million cash over the next two years, said a PTI note.

Its consolidated revenue from operations during October-December 2021 stood at Rs 1,112 crore as against Rs 609.4 crore in the year-ago period, Zomato said in a regulatory filing.

It further said total expenses in the third quarter were higher at Rs 1,642.6 crore as against Rs 755.7 crore in the same period last fiscal.

We have collated a list of recommendations from various global brokerage firms according to a Zee Business TV report:

Morgan Stanley: Overweight| Target Rs 150

Morgan Stanley maintained overweight rating on Zomato post December quarter results with a target price of Rs 150 that still translates into an upside of about 60 per cent from Rs 94 recorded on 10 February.

The global investment bank believes that a lack of growth in MTU (Monthly Transacting Users) QoQ and a slowdown in the GOV or gross order value (even after adjusting for lower delivery charges) more than offset the positive from lower burn rates on a QoQ basis.

The global investment bank is of the view that the above-given factors could limit the stock price in the near term.

Credit Suisse: Outperform| Target Rs 120

Credit Suisse maintained an outperform rating on Zomato post December quarter results but slashed its target to Rs 120 from Rs 185 earlier. The target price cut still translates into an upside of over 27 per cent return from Rs 94 recorded on 10 February.

The December quarter was a weak quarter as gross order value growth slows down. ‘

The global investment bank has given a lower target multiple to 2x EV/GOV given sharp correction in EV/GMV multiples of global online food delivery players like Doordash, maintaining premium to global online food delivery valuations.

BOFA: Buy| Target Rs 115

BofA maintained a buy rating on Zomato post December quarter results with a target price of Rs 115 which translates into an upside of over 22 per cent from Rs 94 recorded on 10 February.

The December quarter was a disappointment. The company reported a miss on revenues, and costs continue to remain elevated.

The global investment bank lowers FY23/24E EPS from Rs (-1.62)/(-0.75) to Rs (-1.76)/(-0.82).

Despite weak Q3, BofA reiterates a buy rating given the stable competition, benign regulation, and strong revenue growth.

Goldman Sachs: Buy| Target Rs 160

Goldman Sachs maintained a buy rating on Zomato post December quarter results but slashed its target price to Rs 160 from Rs 185 earlier. The target price cut still translates into an upside of over 70 per cent from Rs 94 recorded on February 10.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)