Multibagger stock: Buy Zomato; stock has 51% upside potential, says ICICI Securities

Zomato, whose shares are up 139 per cent from February low of Rs 44.35, has potential to rise another 51 per cent, ICICI Securities said on Wednesday while suggesting a revised target price of Rs 160 on the stock from Rs 120 earlier. The domestic brokerage tried to address five key investor questions and said Zomato is looking attractively-valued compared with many global and Indian peers on profit multiples.

The stock, which settled at Rs 106.10 level on Tuesday, rose 2.78 per cent to hit a 52-week high of Rs 109.05 on BSE.

In its takeaways, ICICI Securities expected Zomato's medium term guidance of 4-5 per cent adjusted Ebitda as a proportion of gross order value (GOV) to be achieved as early as the December quarter. It expects Zomato to achieve quick commerce adjusted Ebitda profitability by June quarter of 2024 and said Hyperpure's adjusted Ebitda losses should reduce from 5.7 per cent in Q1FY24 to 3.2 per cent in Q1FY25.

"Given the outlook of sharp profitability improvement in all three businesses of Zomato, we believe valuations for the stock are now pretty sensible. We therefore think there is enough room for meaningful rerating of the stock. While our target of Rs 160 is DCF based, we have tried to back calculate implied multiples for each of the business using an SOTP framework," ICICI Securities said.

The brokerage has priced in revenue growth of 25 per cent in FY24, 26 per cent in FY25 and 20 per cent in FY26 for the food delivery business. Overall, it sees Zomato to see revenue growth of 43 per cent in FY24, 34 per cent in FY25 and 25 per cent in FY26. Besides, ICICI Securities has priced in adjusted Ebitda margin of 14 per cent for FY24, 21 per cent in FY25 and 23 per cent in FY26 for food delivery business.

For Zomato as a whole, it sees Ebitda margin of 5 per cent for FY24, 12 per cent for FY25 and 15 per cent for FY26.

"We re-iterate our BUY rating on Zomato and increase our 3 stage DCF-based target price to Rs 160 from Rs 120 led by earnings upgrades, given improved visibility of profitability and sustained improvement in the underlying operating metrics. Zomato remains our top pick in the Indian internet space," it said.

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