zomato stock price: Zomato@Rs 100? Jefferies sees 125% upside potential for stock

Shares of the food delivery platform continued to fall on Tuesday amid massive selling after the mandatory pre-IPO shareholder lockup ended on Saturday, July 23, 2022 at the end of one year of listing.

Zomato shares have lost about 17% over the past two sessions and hit new record lows for the second straight session as selling pressure continued on the counter.

Zomato shares fell more than 7% to Rs 44.10, a new all-time low since listing. At 9:45 a.m., it was trading at Rs 44.35. On Monday, the sum settled at 47.55 rupees.

According to the National Stock Exchange (NSE), has sold over Rs 7.65 crore of Zomato shares for Rs 342.33 crore so far. UN BSE46.22 lakh shares were sold for Rs 20.73 crores.

However, the brokerage Jeffreys remains optimistic as it believes management has accelerated its path to better unit economics. The target price of the shares is Rs 100, indicating upside potential of 125%.

“The acquisition of Blinkit lengthens the path to profitability, and despite management’s recommendation to break even food delivery, investors are not too skeptical,” the company added. “The night is darkest just before the dawn.”

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The brokerage firm added that concerns about the Fed’s tightening and investors’ attention to cash flow are weighing on internet names, including food tech, around the world. Zomato is a very convincing buy for Jeffreys.

Despite a wild listing last year, Zomato has been underperforming since the beginning of the year. In fact, these are the worst domestic stocks, down 70% since the beginning of the year.

The shares are trading about 42% below their issue price of Rs 76, while down 75% from their 52-week high of Rs 169.1. The shares wiped out over Rs 98,300 crore from investors’ pockets.

“Management has accelerated its path to a better unit economy,” said Jeffreys. “The company expects a breakthrough even in the food delivery business in the near future.”

After the worst competition is behind him, the industry’s profit pool should increase as the sector is already consolidated, unlike some other areas in India where this scale still exists, which could lead to temporary problems, he said.

Jeffreys said Zomato intends to save money. He has invested in several businesses in the past, as well as some strategic acquisitions. “The company does not plan to commit any resources to existing or currently minority investments.”

After a sharp correction in Zomato share price, the stock currently trades at a full-year EV/GMV of 0.9x and 3.5x EV/revenue, the brokerage said in a report. “We are also seeing continuous improvement in the profitability of food delivery.”

The report added that while this is higher than global and regional peers, it is justified in the context of a long period of growth as well as higher explicit medium-term GMV forecasts.

Zomato, founded in 2010, is one of the leading online catering platforms with B2C offerings such as food delivery and catering services where customers can search and find restaurants, order food delivery and make reservations.

Other analysts are not overly pessimistic given the last path of the new age Internet players, but do not expect sustained pressure from stock selling in the near future.

Rajnath Yadav, research analyst at Choice Broking, said investors with high risk appetite might consider these stocks for investment, but they are not suitable for retail investors.

Mohit Nigam, head of PMS, Hem Securities, said investors who still hold or have recently invested in these fintech stocks should wait until the market stabilizes to average the price or make a new entry. “We do not recommend any new entries before any new positive trigger.”

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