ICICI Securities, the brokerage firm, has maintained its ‘BUY’ recommendation for the foodtech giant Zomato and has adjusted its price target (PT) to INR 300.
This indicates a potential increase of over 67% from the stock’s previous close of INR 179.5 on the BSE on Wednesday. The brokerage attributed the upward adjustment in PT to the company’s “consistent growth trajectory and ongoing improvement in profitability metrics.”
“Our 3-stage DCF-based target price is now INR 300 instead of INR 182, and we are keeping our BUY recommendation on Zomato. This adjustment reflects our updated long-term explicit forecasts, supported by the improved visibility of a consistent growth trajectory and ongoing improvement in profitability metrics. Zomato continues to be our top choice in the Indian internet sector,” stated ICICI Securities in a report.
The brokerage observed that the company is trading at a premium compared to its global peers. However, they stated that the price target (PT) is “justified” due to Zomato’s notably higher revenue and compounded annual growth rates (CAGRs) in earnings before interest, taxes, depreciation, and amortisation (EBITDA).
The brokerage projected that Zomato’s food business could see a gross order volume (GOV) growth of over 20% year-over-year until FY33. “It is projected that the EBITDA margin for food delivery will level out at around 6% of GOV. We expect advertising revenues to consistently increase food delivery take rates in the medium term, leveling off at around 21%. This is expected to raise the contribution margin to 8.5%,” the brokerage commented.
The news comes as the foodtech leader continues to set new record levels on the stock market. The stock hit an all-time peak of INR 188.95 during yesterday’s intraday trading on the BSE but closed the session 1.7% down at INR 179.50.
The stock has surged by more than 200% in the last 12 months.
Continue Exploring: Zomato’s shares reach record high of INR 175.5 amidst bullish market sentiment
This surge has mainly been driven by the favorable financial results the company has reported in the last three quarters. Zomato recorded a consolidated profit after tax (PAT) of INR 138 Cr in the December quarter (Q3) of the financial year 2023-24 (FY24), compared to INR 36 Cr in Q2 FY24 and INR 2 Cr in Q1.
Driving the stock higher are the new initiatives and tests from the Delhi NCR-based startup, such as the establishment of a plant for processing value-added food supplies for its Hyperpure business and a daily payout feature for selected restaurants to improve their satisfaction.
Consequently, several brokerages, including Jefferies, Nuvama, and Kotak, have increased their price targets (PT) for Zomato stock in recent months. While investment banking firm JM Financial has maintained the stock’s PT at INR 200, Jefferies stated earlier this month that Zomato is one of its ‘top picks’ for the next five years, anticipating the price to rise to INR 400 during this period.
Continue Exploring: Zomato among Jefferies’ top picks for next five years, anticipates 2.5X share price increase by 2029
Nevertheless, the company has encountered some controversies lately. The foodtech giant’s proposal to launch a ‘Pure Veg Fleet’ adorned with a green uniform received backlash online. Eventually, the company decided to retract the use of the green uniform for the new fleet.
Zomato co-founder and CEO, Deepinder Goyal, expressed surprise at the backlash against the introduction of the new fleet, as it had received positive feedback in a company-conducted survey prior to its rollout.
Continue Exploring: Zomato renames ‘Pure Veg’ mode to ‘Veg Only’ amid social media backlash