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

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

Zomato share price may rally 73%, gets buy rating as sell-off seems to be overdone; check raised target price
Garima Mishra, an analyst at Kotak Institutional Equities, said that the fair value of Rs 79 already bakes in $400 million of cash investment in Blinkit but nil value accretion. Image: Reuters

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.

Garima Mishra, an analyst at Kotak Institutional Equities, said that the fair value of Rs 79 already bakes in $400 million of cash investment in Blinkit but nil value accretion. Mishra further added that at Rs 44, Kotak Institutional Equities’ analysis implies that the stock is pricing in an extremely bearish view, which also presents a buying opportunity to investors. The report noted that Zomato stock is also pricing in cumulative cash burn of $1.6 billion in food delivery, sharply lower contribution margins of core food delivery business, and nil value accretion from the existing minority investments as well as Blinkit.

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. 

The stock recommendation in this story are by the respective research analyst and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos