Global brokerage firm Jefferies has maintained its ‘Buy’ recommendation on Zomato and increased its price target on the stock to ₹335 from ₹275 earlier.
Jefferies’ price target of ₹335 on Zomato is the second highest on the street after CLSA’s price target of ₹350.
After months of speculation, Zomato announced the acquisition of Paytm’s entertainment ticketing business.
The brokerage said that the valuation of Paytm’s ticketing business acquisition looks compelling in context of growth forecast and ultimate margins — like food delivery (and unlike Blinkit), low capital intensity promises high return ratio in steady-state.
According to a Jefferies note, the management sees this as an extension to ‘goingout’ and with it, the third clear growth vector is established.
The food delivery aggregator is expected to focus on market share, with even the potential to claim leadership, which may entail investments.
Jefferies noted that Zomato is now challenging the market leader ‘BookMyShow’—can Zomato succeed once more?
Bernstein has assigned an ‘Outperform’ rating on Zomato, with a price target of ₹275 per share.
The foreign brokerage that the acquisition of Paytm’s ticketing business for $250 million in a cash deal will expand into “Going Out” segment.
It also said that the acquisition will expand Total Addressable Market (TAM) for Zomato into event ticketing business — sports ticketing (IPL), movies, music events expanding customer wallet share.
The acquired business will now be a part of Zomato’s new app “District”, which is expected to launch in a few weeks.
Bernstein also mentioned that Zomato has a strong track record of successfully acquiring consumer tech businesses — UberEats, Blinkit and Runner.
Nomura, which has a ‘Buy’ call on Zomato, and a price target of ₹280, said the management believes this acquisition will help Zomato increase its focus on this business where it expects to grow the GOV from ₹3,200 crore in FY24 to ₹10,000 crore in FY26E
In the longer term, Zomato believes this business can also generate 4-5% adjusted EBITDA margin (as a percentage of GOV).
The biggest risks, as per the brokerage, include:
– Smooth integration of acquired businesses into new District app.
– Cash burn initially to incentivise users to migrate from Paytm’s app to Zomato and District apps.
Shares of Zomato Ltd. settled 1.27% lower at ₹259.77 on Wednesday. The stock has already doubled so far in 2024 and is trading with gains of 108%. Over the last 12 months, the stock has almost tripled in value with gains of close to 183%.
Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
