Zomato share price surged 6% on Wednesday to Rs 44.40 apiece on the NSE intraday, snapping two-days losing streak. Zomato stock has plunged around 70% so far this year, and analysts have cautioned that the company’s share price may face further sell-off pressure. Concerns around Zomato have been anchored on its lack of profitability. “Worries of Fed tightening are weighing on the profitless Internet names globally. The entire sector has been going through a period of readjustment as the focus is shifting from growth to cash flow,” Jefferies said in a report. The brokerage has pinned a target price of Rs 100 apiece on the stock.
Investors with high risk tolerance can consider Zomato
Zomato share price touched an all-time low price of Rs 40 intraday, 75% down from its all-time high price. The shares of the company got listed on 23 July 2021 and yesterday was the end of one year lock-in period for the shareholders. “This selling pressure doesn’t seem to be sustainable, as the investors sitting on negative returns will hold the stock and may offload the shares at the IPO price. Mainly on the concerns of Blinkit acquisition and sell-off in the global technology stocks, the stock is almost down 75% from its all-time high price, while on a year-to-date basis, it is lower by 65%. Investor’s with high risk taking capacities can consider this stock for investment, but not suitable for retail investors,” said Rajnath Yadav, Research Analyst, Choice Broking.
Avoid fresh positions before any new positive trigger
According to Mohit Nigam, Head – PMS, Hem Securities, the shine of new age IT stocks like Zomato is fading away at a very fast pace in the ongoing market correction due to geopolitical crisis and interest rate hikes due to inflation, as the lock-in period for investors who owned the stake in the company before its IPO ended yesterday. Recently, Zomato also acquired Blinkit (formerly known as Grofers) for Rs 4,447 crore which acted as a catalyst in Zomato’s downward movement as Blinkit is a loss making start-up. Blinkit losses around Rs 84 per order and their annual cash burn is around $165 million.
“Given the choice, all big investors, FIIs and DIIs would prefer to invest in leading tech stocks of the world rather than making risky bets in new age startups. Another reason for investors to be cautious is that the recent ongoing events globally has changed investor’s mindset to invest in new age growth stocks to traditional defensive stocks. Investors who are still holding or have freshly entered into these fintech stocks should wait for the market to stabilize to average down the price or make a fresh entry. We do not recommend any fresh entries before any new positive trigger,” he said.
Could be attractive for long-term investors
Meanwhile, according to analysts at global brokerage and research firm Jefferies, Zomato stock could now be an attractive entry point for long-term investors. “Following the sharp correction in Zomato share price, the stock now trades at 0.9x 1Y forward EV/GMV and 3.5x EV/Revenue. While this is at a premium to global & regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV,” a report by Jefferies said.
Bull case Zomato target price is pinned at Rs 160 per share. Here, a strong up-tick in new user acquisition/ order volume growth is projected and AOVs are also expected to hold at a healthy level. The downside scenario or the bear case scenario puts target price at Rs 40 per share. In the downside scenario, Delivery GOV growth is slower at 25% cagr over FY20-26E to reach $7 billion in FY26.
With 33% CAGR in delivery GOV over FY20-26E to reach $9 billion by FY26, the base case target price for Zomato is set at Rs 100 per share. “Unit economics is likely to dip in FY23 as Zomato invests behind new user acquisition and order volume growth, before recovering gradually over FY24-26,” Jefferies analyst said.
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