Zomato share price has given multibagger returns of more than 214% in the past one year and analysts believe the stock has more upside potential on the back of higher growth supported by Blinkit business.
Emkay Global Financial Services has raised Zomato share price target to ₹230 per share from ₹170 earlier largely driven by Blinkit and has retained its ‘Buy’ rating on the stock. It values the food delivery business at ₹121 (DCF basis), Blinkit at ₹90 (DCF basis), and cash and other investments at ₹18 (book value).
The new target price for Zomato shares implies a potential upside of more than 17% from Thursday’s closing price.
The brokerage firm increased its revenue estimates by 0-2% and profit and EPS estimates by 42-53% for FY25 and FY26E, factoring-in better profitability in Quick Commerce and lower ETR.
Zomato’s food delivery Gross Order Value (GOV) grew 20.5% in 9MFY24 after being muted for the previous three quarters. Emkay Global expects healthy growth momentum in the near term on the back of steady increase in MTUs and ordering frequency, benefits accruing in take rate from new restaurants addition and reducing dispersion in commission rates and platform fees.
The three major Quick Commerce (QC) companies in India – Blinkit, Instamart, and Zepto — have found good product market fit in metros and large cities and are gradually expanding their coverage in these markets and testing adjacent markets in a calibrated manner.
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The QC companies have seen limited success globally and key variables driving success in India are: i) population density, ii) high prevalence of unorganized retail/local kirana stores enables QC companies to exercise relative buying power with scale, and iii) cheap labor costs, Emkay Global senior research analyst Dipeshkumar Mehta said in a note.
“These companies have gradually expanded TAM by entering into newer categories. This shift will drive frequencies, AOV, and contribution margin. Overall, the value proposition hinges on both convenience and value (better experience at cost, lower than alternatives, mainly convenience/kirana stores), which is driving more clicks and wallet share gain,” Mehta added.
Growing customer base with increasing frequency per customer (repeat transactions) augur well for profitability. Blinkit has sustained industry-leading AOV on the back of higher SKU availability, order fulfilment rates, better customer insights, and superior execution, which also aided profitability, he noted.
At 1:00 pm, Zomato shares were trading 0.56% lower at ₹194.20 apiece on the BSE.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 10 May 2024, 01:01 PM IST