Zomato a great value stock? ICICI Securities sees huge upside from current level

Zomato delivery rider on a motorcycle in Mumbai, India. File photo (Bloomberg) — Zomato delivery rider on a motorcycle in Mumbai, India. File photo **(Bloomberg)**

1 min read . Updated: 23 Aug 2021, 11:16 AM IST Livemint

Zomato share price was down nearly 6% to ₹131 per share on the BSE in Monday's early trading session

Shares of online food delivery platform Zomato made its stock market debut last month which have soared more than 70% since listing. Domestic brokerage and research firm ICICI Securities in a note said that it has initiated coverage with a Buy rating on Zomato.

"Contrary to its global peers (DoorDash and Amazon etc.), Zomato witnessed a sharp and artificial drop in key metrics during the first wave. Accordingly, we expect a robust recovery going ahead. This bounce back should more than offset the unlock-led uptick in physical channel activity the near term. Nevertheless, the normalisation of AOVs and increasing bargaining power of restaurants are key variables to watch out for," the brokerage said in a note.

In ICICI Securities' view, Zomato is a great value stock, unlike what street believes it to be. It sees huge upside on the home-grown food-delivery company's stock with a target price of ₹220 per share. Its target price bets on around 22 million Indians ordering ~4 times/ month in FY25E.

"Likely lower discounts than its base case (< ₹15 / order) and scaling up in attractive adjacencies pose key upside risk to our estimates and target multiples, it said. “We would rate Zomato as one of the least vulnerable to a regulatory tech-lash. The actions elsewhere can be a key positive as investors indulge in regulatory arbitrage," the note added.

In its first earnings release after last month’s blockbuster initial public offering (IPO), the food-tech company reported a widening of its net loss to ₹360.7 crore for the quarter ended on June 30. The company had posted a net loss of ₹99.8 crore for the corresponding period of the previous fiscal. Its revenue from operations and delivery charges rose to ₹1,160 crore for the first quarter from ₹920 crore in the year earlier.

Zomato shares were trading over 6% lower to ₹130 per share on the BSE in Monday's early deals as the anchor book 30 days lock-in period ends today.

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

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