In the last 5 sessions, there has been a sharp decline in the shares of Zomato. Good Buying Opportunity?

“The sharp fall in the share price of Zomato is tracking the decline in global tech stock prices. There is no change in our fundamental outlook on Zomato and we maintain Buy rating with unchanged FV 170,” brokerage house Kotak Institutional Equities said in a note.

Zomato’s share price has lost 27.4% in the past two sessions, driven by a correction in global tech names such as DoorDash, Delivery Hero and Deliveroo, according to analysts. Kotak said there has been no company-specific development of the note which may have affected Zomato’s share price.

“We retain the buy on Zomato stock as we believe the food delivery business offers solid long-term growth potential. Cities with higher density of restaurants are seeing better contribution margins than nascent cities; Their relative mix may impact near-term margins, however we retain our expectation of Zomato’s EBITDA breakeven by FY2025, adjusted for ESOP expense,” the brokerage said.

In addition, Zomato bought about 9% stake in Grofers (now Blinkit) for US$100 million. Kotak expects Zomato to increase its stake in the company and/or make further investments within the next 6-12 months as it moves towards making a mark in the hyperlocal grocery delivery space.

It also has minority stake in MagicPin and ShipRocket, however, the brokerage believes that it may take time to realize the value addition from these small investments. “With approximately $1.9 billion in cash as of September 2021, Zomato is well capitalized to meet its losses and make fresh investments in Grofers,” it added.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.