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Zomato share price rallied over six percent Tuesday to touch an all-time high of Rs 152.75 on the BSE. The stock price has doubled from its IPO issue price of Rs 76 per share and has gained over 31 percent from the listing price of Rs 116.
Analysts see more upside to the stock on the back of the company’s leadership position in a fast-growing underpenetrated market, strong business model and the potential to add new adjacencies.
Credit Suisse initiated its coverage on Zomato with an 'outperform' rating and a target price of Rs 185. It values the food delivery business at 3.2x EV/GMV, a 100 percent premium to DoorDash.
However, the brokerage believes that worsening of unit economics will be a key risk.
The brokerage expects India’s food delivery market to see a 30 percent CAGR in FY20-FY30, to $45 billion in FY30 and contribute to 21 percent of the out of home food consumption.
It expects Zomato’s food delivery business to see around 50 percent compounded annual growth over FY21-FY26 as it comes out of the adverse impact of the Covid pandemic.
“Unit economics are likely to gradually improve after FY22 due to scale and breakeven on the operating front is likely to happen by FY25,” Credit Suisse said in a report.
Zomato had earlier announced that it will stop its grocery delivery service from September 17 due to gaps in order fulfilment, leading to poor customer experience.
The company said that it believes that its investment in Grofers will generate better outcomes for its shareholders than in-house grocery efforts.
Zomato had launched the pilot grocery delivery service in July in select markets offering grocery delivery within 45 minutes to its customers.
The company had earlier invested $100 million (around Rs 745 crore) for acquiring a minority stake in the grocery delivery platform Grofers.
Earlier, domestic brokerage Kotak Institutional Equities initiated coverage on Zomato with a buy rating and a target price of Rs 175. It expects a healthy revenue CAGR of 36 percent over FY21-30 for the company.
“Turnaround in unit economics will lead to profitability by FY25, leaving Zomato with the bulk of its current around $2 billion cash balance intact, which can drive the company’s entry into fresh adjacencies enabling further value creation,” Kotak Institutional Equities had said.
At 12:20 pm, the shares of Zomato were trading 3.49 percent higher at Rs 148.20 apiece on the BSE.