Shares of Zomato have managed to catch the attention of investors on Dalal Street. Notably, the stock is down over 57 per cent from its 52-week high of Rs 148.85, hit on December 9, 2021. However, it is up over 60 per cent from its 52-week low of Rs 40.55, hit on July 27, 2022.
Recently, Alipay dumped Rs 1,631 crore worth of company shares in the bulk deal and a subsidiary of Singapore-based sovereign wealth fund Temasek emerged as a buyer and bought 9.8 crore shares at Rs 62 a piece worth Rs 607.60 crore. The company's co-founder, Mohit Gupta, resigned earlier this month after about five years at the company.
So is the worst over for Zomato? Where is the stock headed in the near term? "The worse of news is factored in with the exit of much senior leadership, the exit of some anchor investors, fall in valuations of tech stocks globally," Divam Sharma, Founder at Green Portfolio told Business Today.
"If you look at Zomato’s balance sheet, they are debt free, they have a good cash
The ecosystem of food delivery is here to stay while the market is further consolidating. We have recently seen Amazon go out of the food delivery business. As it turns out, if you look at the 3 stages of a business cycle evolution, the people who were a part of the early stage, it's very rare that they are able to deliver at stage 2 or stage 3 of the business. Zomato is at stage 3 and will anyways need a new set of leaders," he added.
"There is a valuation for everything and these valuations are turning comfortable considering the moats, entry barriers, and inroads that the business has made. We are seeing a new set of FPIs and institutional investors entering the business at these levels and also giving Buy Research Ratings Although Indian markets are still evolving on these new-age companies. Very high-risk investors should consider investing or holding these stocks hereon," Sharma said.
He further added that it took Amazon many years to turn profitable. However, a significant value was created for the shareholders holding the shares for the long term. Zomato has significantly grown over the past many years and has a proven track record of establishing the business. Profitability continues to remain a concern, but post the significant fall, the valuations also look comfortable.
Currently in Zomato FIIs hold a 57.87% stake which in the previous quarter was at 10%, the significant change has been due to the movement of investors from public investors.
The FPI shareholding has grown from 17.7% in August to 26.7% in September. The company has not commented on whom they plan to hire or have hired. Most of the resignations have been non-KMPs.
Jefferies has a 'Buy' rating on the stock with a target price of Rs 100, suggesting an upside of 56 per cent. Tough times have changed the focus and brought acute focus on cash flow across start-ups. Zomato management has also accelerated its journey towards better unit economics. Management is targeting Ebitda break-even (ex-Blinkit) by Mar'23 or latest by Sep'23 - this would be led by better profits in food delivery. The company was already cashflow positive in 2QFY23, it said.
"The stock now trades at 1.0x 1Y forward blended EV/GMV and 3.5x EV/Revenue. While this is at a premium to global & regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV (30% for Zomato Food del vs. 10-20% for peers). We also see a consistent improvement in profitability in food delivery despite strong 30% CAGR over FY22-25E (well ahead of global/regional peers)," it added.
JM Financial believes that there is immense potential for the food delivery industry to enlarge its consumer base and grow meaningfully bigger over time.
It has a target of Rs 126 on the stock. However, it noted that macro challenges may weigh on the near-term growth trajectory of Zomato.
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