Paytm deal risks: Nomura shares target price, key driver for Zomato stock in near term
Zomato: Unlike the Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to the management, the acquired Paytm team is completely unknown, Nomura India said.
- Aug 22, 2024,
- Updated Aug 22, 2024 5:35 PM IST
With Zomato Ltd acquiring the entertainment ticketing business of One 97 Communications Ltd (Paytm), foreign brokerage Zomato said there are two potential risks in the acquisition. The first is the smooth integration of the acquired businesses into the new 'District' app, which will be launched over the next few weeks. The initial cash burn to incentivise the users to migrate from Paytm’s app to Zomato and District apps is the risk number two. Zomato has already hinted at this in its shareholder letter.
"Unlike Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to Zomato management (as they were ex-employees of Zomato), here the acquired team (of 280 people) is completely unknown," Nomura India said.
The brokerage said it has not incorporated the newly-acquired business in its model pending the deal closure. It believes the key driver for Zomato’s share price in the near-term is the continuing growth momentum in quick commerce business. The broking firm expects a 100 per cent growth compounded annually in gross merchandise value (GOV) for the quick commerce business over FY24-26. The food delivery business is seen clocking a steady 20-25 per cent annual growth in the medium term.
Key risks include capital allocation of $1.5 billion, and slowing growth in food delivery and quick commerce businesses, the brokerage said while suggesting a target price of Rs 280 on the stock.
"Our back-of-the-envelope-
To recall, post its Q1FY25 results, Zomato had announced its intention to launch District app to bolster its “going out” business, which at present is mainly the table reservations at restaurants.
The Zomato management believes this acquisition will help the online food delivery platform increase its focus on this business where it expects to increase the GOV from Rs 3,200 crore in FY24 to Rs 10,000 crore in FY26, Nomura said.
"In longer term, Zomato believes this business can also generate 4-5 per cent adjusted Ebitda margin as percentage of GOV," it added.
With Zomato Ltd acquiring the entertainment ticketing business of One 97 Communications Ltd (Paytm), foreign brokerage Zomato said there are two potential risks in the acquisition. The first is the smooth integration of the acquired businesses into the new 'District' app, which will be launched over the next few weeks. The initial cash burn to incentivise the users to migrate from Paytm’s app to Zomato and District apps is the risk number two. Zomato has already hinted at this in its shareholder letter.
"Unlike Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to Zomato management (as they were ex-employees of Zomato), here the acquired team (of 280 people) is completely unknown," Nomura India said.
The brokerage said it has not incorporated the newly-acquired business in its model pending the deal closure. It believes the key driver for Zomato’s share price in the near-term is the continuing growth momentum in quick commerce business. The broking firm expects a 100 per cent growth compounded annually in gross merchandise value (GOV) for the quick commerce business over FY24-26. The food delivery business is seen clocking a steady 20-25 per cent annual growth in the medium term.
Key risks include capital allocation of $1.5 billion, and slowing growth in food delivery and quick commerce businesses, the brokerage said while suggesting a target price of Rs 280 on the stock.
"Our back-of-the-envelope-
To recall, post its Q1FY25 results, Zomato had announced its intention to launch District app to bolster its “going out” business, which at present is mainly the table reservations at restaurants.
The Zomato management believes this acquisition will help the online food delivery platform increase its focus on this business where it expects to increase the GOV from Rs 3,200 crore in FY24 to Rs 10,000 crore in FY26, Nomura said.
"In longer term, Zomato believes this business can also generate 4-5 per cent adjusted Ebitda margin as percentage of GOV," it added.