Zomato Outlook: Brokerage firm Kotak Securities has started coverage of online food delivery platform Zomato and has given it a ‘Buy’ rating. Investors can get up to 24 percent profit on investment in this. According to the brokerage firm, its valuation looks fair considering its better growth forecast. Kotak Securities has fixed a target price of Rs 175 for Zomato.
Online food delivery platform Zomato has started trading on the domestic exchange from July 2021 this year. Its 9375 crore IPO got a tremendous response from investors and it was listed in the market at a premium of 84 percent against the IPO price of Rs 76. Most of the domestic brokerage houses have given buy advice on this stock but value investors like Rakesh Jhunjhunwala and global brokerage firm HSBC have advised not to invest in this stock.
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Mixed Opinions on Zomato
- Zomato Stock is trading at 11X FY2024 EV (Enterprise Value) / Adjusted Sales. It is at a premium to multiples of globally listed food delivery companies.
- Kotak Securities has valued Zomato at 13X FY2024 EV (Enterprise Value)/adjusted sales against global peers, which is at a premium to global peers.
- According to the brokerage firm, the company may enter the business of grocery or other types of doorstep delivery in future, which will give it cross-sell opportunity.
- There have been constant questions about the valuation of Zomato and its price is being overstated. NYU Professor Ashwath Damodaran wrote in his blog that the actual price of Zomato should be Rs 41 per share.
- Veteran investor Rakesh Jhunjhunwala had talked about investing in other stocks instead of Zomato.
Profit forecast for Zomato by FY25
- The food delivery industry in the country is not fully developed yet and due to the changing preferences of the people, now the growth prospects are looking good in it. According to Kotak Securities, the demand for food services in India is increasing rapidly and Zomato will benefit the most. The brokerage firm estimates that by FY20-FY2025, every month transacting users can grow at a CAGR of 19 per cent (Compound Annual Growth Rate) to reach 45 million and the industry will grow at a CAGR of 28 per cent (Compound Annual Growth Rate). Can reach 1040 million dollars (76.67 thousand crore rupees). There may be a break-even situation for Zomato by the financial year 2024-25 and it can make profits.
- Zomato occupies more than half the market in the food delivery industry in India. It is getting tough competition from Swiggy but Kotak Securities believes that Zomato is in a very strong position.
(Article: Kshitij Bhargava)
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