Zomato share price may rally 73%, gets buy rating as sell-off seems to be overdone; check raised target price

Zomato share price may rally 73%, gets buy rating as sell-off seems to be overdone; check raised target price

Zomato share price jumped 3.5 per cent to Rs 47.25 apiece intraday on BSE on Friday. The stock is likely to rally 73 per cent from the last close to Rs 79. The research and brokerage firm Kotak Institutional Equities has upgraded the stock to ‘buy’ from ‘add’, and raised target price to Rs 79 from earlier Rs 77 apiece. Earlier this Jefferies said that the food aggregator firm deserved much better valuation than what the market was ascribing. 

Zomato stock price tanked 8 per cent after the expiry of lock-in of pre-IPO investors. Kotak Institutional Equities believes that the sharp correction in the stock was unwarranted and current stock price was ‘baking in fairly pessimistic growth assumptions for the food delivery business’. During 25-27 July this year, Zomato stock price plunged 18 per cent. The research firm noted that the daily traded volume of the stock over the same period has increased sharply, suggesting some heightened stock supply in the market.

The research firm said that Zomato will need to make upfront investments in the quick commerce business. “Its March 2022 cash balance of US $1.6 billion is sufficient in our view to fund the next few years of losses. We project US $525 million of losses in food delivery and quick commerce over FY2023-24 implying that Zomato will still end up with a cash balance of US$1.1 billion by March 2024. The research firm doesn’t anticipate any near-term liquidity constraints for the company. Kotak Institutional Equities said that Zomato’s food delivery business is well-poised to grow at a strong pace over the next decade led by attractive market opportunity and strong execution capability. 

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