Zomato Price Target Raised by ICICI Securities on Robust Revenue CAGR

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Three points you will get to know in this article:

  • ICICI Securities ups Zomato’s price target to INR 300.
  • Zomato’s financial growth prompts brokerage firm’s confidence.
  • Stock surge attributed to strong performance, innovative projects.
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Zomato's Price Target Recommendation and Analysis

ICICI Securities has once again recommended a ‘BUY’ rating for Zomato, a leading foodtech company, and has increased its price target to INR 300. This indicates a potential upside of over 67% from the stock’s previous closing price of INR 179.5 on the BSE on Wednesday (March 27). The brokerage firm cited the company’s consistent growth and improved profitability as reasons for raising the price target.

Zomato's Financial Performance and Growth Projections

“We uphold our recommendation to BUY Zomato and have revised our target price upward to INR 300 from INR 182. This adjustment is based on our thorough analysis using a 3-stage discounted cash flow model. We have boosted our long-term projections significantly, reflecting our confidence in the company’s sustained growth trajectory and improving profitability. Zomato remains our top choice within the Indian internet sector,” stated ICICI Securities in their latest report.

Acknowledging Zomato’s premium valuation compared to its global counterparts, the brokerage justified the revised price target. This is attributed to Zomato’s notably higher revenue and earnings growth rates over time.

The brokerage also projected that Zomato’s food business could experience a growth in gross order volume (GOV) of over 20% year-on-year until FY33. They believe that the EBITDA margin for food delivery should stabilize at around 6% of GOV. The brokerage also anticipates that advertising revenues will continue to increase food delivery take rates in the medium term, eventually stabilizing at around 21%. This is expected to increase the contribution margin to 8.5%.

Milestones and Projects Driving Zomato's Stock Performance

At a time when the foodtech giant keeps hitting new highs on the stock market, a recent milestone has been reached. Today, during intraday trading on the BSE, the company’s shares surged to an all-time peak of INR 188.95, only to settle 1.7% lower at INR 179.50 by the end of the session.

Over the past year, the stock has witnessed an impressive surge of over 200%. This remarkable rise is mainly attributed to the company’s strong financial performance over the last three quarters. Zomato reported a consolidated profit after tax (PAT) of INR 138 Cr in the December quarter (Q3) of the financial year 2023-24 (FY24), a significant increase from INR 36 Cr in Q2 FY24 and INR 2 Cr in Q1.

The stock of the Delhi NCR-based startup is being propelled even higher thanks to its latest offerings and experimental projects. These include plans to establish a processing plant for creating value-added food supplies for its Hyperpure business, as well as introducing a daily payout feature for certain restaurants to ensure their satisfaction.

Brokerage Firms' Confidence and Controversies

Consequently, several brokerage firms, such as Jefferies, Nuvama, and Kotak, have recently increased their price targets for Zomato’s stock. While JM Financial, an investment banking firm, has maintained its price target for the stock at INR 200, Jefferies, just earlier this month, announced Zomato as one of its ‘top picks’ for the next five years, projecting a surge to INR 400 during this period.

Despite this, the company has recently encountered some controversies. There was criticism online when the foodtech major announced its plans to introduce a ‘Pure Veg Fleet’ with a green uniform. However, after facing backlash, the company decided to reverse its decision and not use the green uniform for the new fleet.

Zomato cofounder and CEO Deepinder Goyal expressed surprise at the negative response to the new fleet, as it had initially received positive feedback in a survey conducted by the company.

ICICI Securities raised Zomato’s price target, citing consistent growth and improved profitability. The company’s strong financial performance contributed to a surge of over 200% in the stock’s value over the past year. Zomato’s projection includes a rise in gross order volume, stabilized EBITDA margins, and increasing advertising revenues to enhance contribution margins. The company’s achievements, such as the surge in stock prices and innovative projects, are notable drivers of its positive stock performance, notwithstanding occasional controversies. This is backed by increased price targets from multiple brokerage firms, reflecting confidence despite challenges.

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