Zomato Outlook: Questions are being raised about the valuation of Zomato even before the listing and now a brokerage firm has kept its target price below 9 per cent from the current price. JP Morgan has started coverage of Zomato and has kept its target price of Rs 112 per share, which is about 9 percent less than its current price. According to the brokerage firm, the premium valuation of this online food delivery platform is very expensive. According to JP Morgan’s note, Zomato is trading at 21x CY22 (Calendar Year 2022) EV (Enterprise Value) / Sales, which is almost four times the average valuation of global foot tech companies. Analysts say that its valuation is not correct as its market share gains and expansion of average order value are not showing significant growth.
The brokerage firm has fixed a target price of Rs 112 giving this stock an underweight rating. Shares of Zomato have gained 74 percent so far against the IPO price of Rs 72 and its price is currently Rs 132 per share. Since listing, it has outperformed the Sensex and Nifty.
Stock Tips: Invest in these four stocks including Reliance and Titan, you will get great returns amidst uncertain global conditions
This rating given to Zomato on this basis
- Valuation Not Justified: Zomato is currently trading at 21x CY22 (Calendar Year 2022) EV (Enterprise Value)/Sales price which is four times higher than the average valuation of global foot tech companies. According to JP Morgan, there is no significant increase in market share gains and expansion of average order value, due to which the valuation is not justified.
- The probability of a fall in the average order value: Analysts believe that Zomato’s Average Order Value (AOV) may decline due to cyclical factors. At present, Zomato’s AOV is Rs 460 (1.6 times as compared to before Corona) and it is more than Swiggy. Analysts believe that the increase in orders from existing Zomato customers may come from lower ticket size customers while new customers from Tier 2 and Tier 2 cities may switch to lower basket sizes. According to analysts, AOV has the biggest impact on the contribution factor and if it is lower, the contribution margin stops growing and this will have an impact on profits in the long run.
- Increase in Discount: In the last two years, Zomato had cut the discount but now it is increasing again. To increase your market, it can increase further. The brokerage firm estimates that this discount could be up to 6 per cent of AOV in FY 2022-23 and up to 4 per cent in the longer run, which will impact its profits.
- Not much increase in market share: The food delivery market is occupied by Zomato and Swiggy and both the food tech companies hold half-half. According to analysts at JP Morgan, Zomato’s market share is showing no signs of increasing as both the companies are competing to save their stake.
(Story: Kshitij Bhargava)
(The stock recommendations given in the story are those of the respective research analysts and brokerage firms. Financial Express Online takes no responsibility for the same. Investments in capital markets are subject to risks. Please consult your advisor before investing.)
Get Business News ,, latest India News ,, and other breaking news on share market, investment scheme and much more on Business Khabar. Like us on Facebook, Follow us on Twitter for latest financial news and share market updates.
.