Shares of food delivery platform Zomato surged by as much as 3.5% to reach a fresh 52-week high of Rs 109.05 on BSE in Wednesday's (October 11) trade after domestic brokerage house ICICI Securities suggested a revised target price of Rs 160 on the stock from Rs 120 earlier.
The scrip is up 148% from February lows of Rs 44.35, and has the potential to rise another 51%, ICICI Securities said in a note, reiterating its 'Buy' rating.
Zomato shares have rallied 82% since the beginning of this year and is up 72% in the past one year.
Zomato remains the brokerage's top pick in the Indian internet space.
In a bull case scenario, the brokerage sees the
stock trading at Rs 200 per share, and at Rs 70 in a bear case scenario. "This re-inforces our view that Zomato remains a buy despite the 120% re-rating from all time lows."
ICICI Securities has increased its target price on Zomato to Rs 160 led by earnings upgrades, given improved visibility of profitability and sustained improvement in the underlying operating metrics.
The brokerage has tried to answer five key investor questions and said at current market price, Zomato is looking attractively-valued as compared to many global and Indian peers on profit multiples.
"Given the outlook of sharp profitability improvement in all three businesses of Zomato, we believe valuations for the stock are now pretty sensible," ICICI Securities said, adding that there is enough room for meaningful rerating of the stock.
In key takeaways, the brokerage expects the company’s medium term guidance of 4-5% adjusted EBITDA as a proportion of gross order value (GOV) to be achieved as early as the December quarter (Q3FY24).
ICICI Securities expects Zomato to achieve quick commerce adjusted Ebitda profitability by June quarter of fiscal 2024-25 and Hyperpure's adjusted EBITDA losses should reduce from -5.7% in Q1FY24 to -3.2% in Q1FY25.
"This, in our view is likely to be driven primarily by scale efficiencies on corporate overheads (150 bps), gross margin improvement (40 bps) and scale efficiencies on fulfilment costs (25 bps)," it said.
The brokerage has priced in revenue growth of 25% in FY24, 26% in FY25 and 20% in FY26 for the food delivery business. Overall, it sees Zomato's revenue growth at 43% in FY24, 34% in FY25 and 25% in FY26.
Besides, the brokerage has priced in adjusted Ebitda margin of 14% for FY24, 21% in FY25 and 23% in FY26 for food delivery business.
For Zomato as a whole, ICICI Securities sees Ebitda margin of 5% for FY24, 12% for FY25 and 15% for FY26.
"Zomato remains our top pick in the Indian internet space," it said.
Key risks, as per the brokerage, include a slowdown in discretionary spending, negative externalities disrupting business operations.
First Published: Oct 12, 2023 8:26 AM IST
