Zomato share price rallied over five percent Monday after the global brokerages Goldman Sachs and Morgan Stanley initiated coverage on the stock.
Goldman Sachs believes that Zomato is well-positioned to grow its share of the $155 billion food services TAM (Total Addressable Market) in FY30E. It forecasts GOV/revenues for Zomato to grow 11x/13x from FY21 levels to reach $14 billion/ $4.5 billion by FY30E.
It expects Zomato to be EBITDA profitable by FY24E, driven by a larger scale, higher take rates and improving rider efficiency.
“Despite being a relatively late-entrant, Zomato has captured half of India's online food delivery market, driven, in our view, by its strong execution, large restaurant review platform, and an initial focus on less competitive cities,” Goldman Sachs said.
In addition, the brokerage believes expertise in food delivery will help Zomato enter and expand into adjacent categories such as restaurant supplies and grocery, aiding overall growth and profitability.
Goldman Sachs has a 'buy' rating on the stock with a target price of Rs 180 per share.
“While Zomato trades at a premium valuation vs global food delivery peers (FY23E EV/GOV of 3.4x vs 0.7x for peers), we note that Zomato’s GOV growth profile at a 46 percent FY21-25E CAGR is superior vs global peers; we believe investors will be willing to pay a premium valuation for Zomato as long as the company is able to maintain an elevated growth profile and a dominant market position,” it said.
Morgan Stanley has initiated the coverage on the stock with an Equal-weight rating and a target price of Rs 140 per share.
The brokerage is of the view that Zomato has strong business moats with the potential to add new adjacencies. It views risk-reward as balanced at the current stock price.
At 11:05 am, the shares of Zomato were trading 4.73 percent higher at Rs 130.55 apiece on the BSE.
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