Zomato share price extended its correction on Tuesday morning, falling another 5% over and above the 27% correction the stock has seen in recent days. On the opening bell, Zomato share price was down at a new 52-week low of Rs 84.1 per share. Analysts at Kotak Securities have advised investors to buy Zomato stock, taking advantage of the steep correction. “Sharp decline in the stock price of Zomato seems to be tracking the decline in prices of global tech stocks. There is no change in our fundamental view on Zomato and we retain BUY rating,” they said. Kotak Securities has pinned a fair value of Rs 170 apiece on Zomato.
Global tech giants tank
The food-tech giant, which debuted on the stock exchanges in July last year has so far been a favoured pick among investors, and is still above the IPO price of Rs 72-76 per share. Kotak Securities believes there is no company-specific reason for the stock to have tanked the way it has. However, the global tech rout has been singled out as the key reason. So far this year, the technology-heavy Nasdaq is down 15.7%, meanwhile, DoorDash a San Francisco-based online food delivery firm has dropped 24.9%, Delivery Hero has nosedived 30.3%, and Deliveroo is down 24.1%.
Zomato’s business strong
Looking at Zomato’s business, Kotak Securities highlighted that it remains on strong footing. “Per disclosures provided by Prosus (a division of Naspers and a 36% shareholder in Swiggy), Swiggy’s food delivery GMV was $984 million in the first half of the calendar year 2021. Zomato’s food delivery GMV over the same period was$1.05 billion, indicating some market share gain by Zomato over the period,” analysts said. With no new player entering the market, the brokerage firm believes Zomato has maintained a strong market position.
Zomato is also expanding its business, having picked up almost a 9% stake in Grofers (now Blinkit) for $100 million. “We expect Zomato to up its stake in the company and/or make further investments within the next 6-12 months as it moves towards making its mark in the hyperlocal grocery delivery space,” the brokerage firm said. Further, it highlighted that Zomato’s has investments in Magicpin and Shiprocket which may take time to realise. “With close to $1.9 billion of cash as of September 2021, Zomato remains well-capitalized to fund its losses and carry out fresh investments in Grofers,” it added.
Stock may double
The long term growth potential of Zomato keeps it positioned as an interesting opportunity. “Cities with higher density of restaurants are witnessing much better contribution margins than nascent cities; their relative mix may impact near-term margins although we retain our expectation of Zomato turning EBITDA breakeven by financial year 2024-25 adjusted for ESOP expense,” Kotak Securities added. The fair value of Rs 170 per share implies an upside potential of more than 100%.
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