ICICI Securities expects Zomato to rally up to 48%; stock hits new 52-week high

Zomato share price: Domestic brokerage ICICI Securities continues to be bullish on the stock of online food delivery platform Zomato. The brokerage has reiterated its buy rating on the counter with a revised target price of Rs 160 as against the earlier Rs 120, implying a potential upside of 48 per cent from the last traded price of Rs 108.

In intra-day trade today (October 11), the stock climbed 2.78 per cent to hit a fresh 52-week high of Rs 109.05 per share on the BSE. 

“We reiterate our BUY rating on Zomato and increase our 3-stage DCF-based target price to INR 160 from INR 120 led by earnings upgrades, given improved visibility of profitability and sustained improvement in the underlying operating metrics. Zomato remains our top pick in the Indian internet space,” said the brokerage report.

The brokerage expects the company’s food segment to realise 4 per cent adjusted EBITDA (as a percentage of GOV) as early as Q3FY24E, spurred by robust order volumes and average order values (AOV) amid the ICC World Cup 2023 and festivities.

Furthermore, the company’s e-commerce arm, Blinkit, is expected to turn profitable at the adjusted EBITDA level by Q1 FY25. “In our view, the quick commerce business could improve adj. EBITDA (as % of GOV) by 620bps over the next four quarters, led primarily by: 1) scale benefits on corporate overheads (~210bps), 2) decrease in other fulfilment costs (~180bps), 3) mix improvement (~110bps), and 4) increase in ad revenues (~100bps),” added the brokerage.

For the company’s Hyperpure venture, brokerage sees margins improving from -5.7 per cent in the June-ended quarter of FY24 to -3.2 per cent in Q1 FY25.

Given the outlook for sharp profitability improvement in all three businesses of Zomato, the brokerage believes the stock's valuations are fairly sensible. Hence, it sees enough scope for significant rerating at the counter.

Zomato continues to be ICICI Securities’ top pick in the Indian internet space.

At the time of writing this copy, shares of the online food services aggregator traded over 1 per cent higher at Rs 107.7 per share on the BSE. In the past one year, Zomato shares have leaped by 65 per cent.

The company’s stock has been in action since Tuesday (October 10) after Swiggy’s services remained affected in the Mumbai region owing to a strike by its delivery workforce.

Zomato’s Q1FY24 performance

For the Q1 period of the current FY, the new-age tech company reported a consolidated net profit of Rs 2 crore versus a loss of Rs 186 crore in the same quarter last fiscal. In the quarter ended March, the company’s loss was Rs 189 crore. The revenue from operations during the Q1 period came in at Rs 2,416 crore, up around 71 per cent YoY.