Zomato share price up 30% in one month, may rally much more; check target price, rating – buy, sell, hold-

Zomato share price up 30% in one month, may rally much more; check target price, rating – buy, sell, hold?

Zomato share price fell more than half a per cent down to Rs 61.90 apiece on BSE on Thursday. Kotak Institutional Equities has raised Zomato’s target price to Rs 85 from Rs 80 earlier, and has retained ‘buy’ rating on the stock. The target price implies a 36.5 per cent potential rally from the last close. The brokerage has increased its FY 2023-24 food delivery contribution margin on higher average order value (AOVs), and incorporated Blinkit in its estimates. This came after earlier this week, foreign brokerage Nomura initiated coverage on Zomato with a ‘reduce’ rating and a target of Rs 50.

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The research firm incorporated Blinkit’s financials in its forecasts effective August 2022. It baked in GMV of Rs 62 billion in FY2023 (full year) to increase to Rs 113 bn by FY2025 (2-year CAGR of 35%). “We model cumulative EBITDA loss of Rs 30 bn over FY2023-25; we model a loss in FY2026 as well but expect food business EBITDA to be large enough to result in overall positive adjusted EBITDA. Our assumptions for Blinkit can change meaningfully as the business is in a scaleup mode with limited historical information available,” it said in the report.

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Zomatos’ delivery efficiency to drive down the delivery cost

Restaurant availability increased substantially in FY2022 as more eateries recommenced operations post covid. It noted that only 34% of restaurants listed on Zomato partner with it for food delivery. “There is some potential thus to increase food delivery supply further on Zomato’s platform,” analysts at Kotak Institutional Equities, said. Moreover, it is important to watch out for delivery efficiency to drive down the delivery cost. “Zomato’s major cost item is the cost of delivery of parcels from restaurants to consumers. We believe Zomato delivers most orders using its own delivery fleet (Domino’s is one of the few chains that carry out their own delivery),” it said.

Zomato needs to keep driving up delivery efficiency such that it keeps the benefit of potential fuel price deflation with itself, while at the same time ensuring an 8-10% increase in overall payout to delivery riders. “Besides higher fuel cost in FY2022, we think Zomato’s expansion to a large number of cities within a span of a few months also resulted in lower order density and consequently a higher delivery cost,” it added.