Brokerage firm JM Financial has initiated buy coverage on the newly listed Zomato for a target price of Rs 170, indicating an upside gain of 30 per cent from Wednesday’s closing price. In a report titled “Zomato| Conveniently positioned to deliver”, JM Financial said, “Zomato is poised to leverage the decadal growth opportunity in India’s on-demand hyperlocal delivery ecosystem.”
The company is a market leader in the food delivery vertical and could explore adjacent growth opportunities, JM Financial said.
“Our proprietary analysis of global peers indicates that profitability would be the natural outcome of economies of scale; the absence of the latter could have a detrimental impact on long-term viability, as seen for a few global peers. Robust industry tailwinds such as improving tech penetration and rising number of digitally native millennials/GenZ within the income share are likely to support the company’s growth ambitions,” JM Financial said in a report.
JM Financial has valued Zomato using 11 times enterprise value to adjusted sales multiple to better factor in its long-term growth potential. However, key downside risks to target price include slower-than-expected penetration of tech-enabled transactions in India and a sharp rise in competitive intensity in the near term, the brokerage firm added.
Zomato made a stellar market debut last week wherein its market value moved above Rs 1 lakh crore mark. The shares opened at Rs 116, a premium of more than 50 per cent on the National Stock Exchange over the issue price of Rs 76. Zomato has advanced as much as 94 per cent over its IPO price.
The IPO of the online food delivery service provider was the second largest IPO after the Rs 15,199.44 crore Coal India share sale way back in October 2010. It is also the first Indian mega startup to go public, paving the way for the other leading digital companies such as Paytm, Flipkart and Ola to take the IPO route.
As of 2:50 pm, Zomato shares were trading 7 per cent higher at Rs 140, outperforming the Nifty which was up 0.5 per cent.