Zomato gains for the third day, hits 52-week high on bullish brokerage outlook
Zomato, the food aggregator, continued its winning streak for the third consecutive session, making a significant surge of nearly 4 percent. On October 12, it reached a 52-week high with its stock trading at Rs 113.25 in the morning. This upward trajectory was attributed to the positive outlook presented by various brokerages, which anticipate improved profitability and increased demand for the company.
Kotak Institutional Equities is the latest brokerage to contribute to the optimistic growth narrative surrounding Zomato. They have revised their price target for the stock upwards by almost 14 percent, setting it at Rs 125, while maintaining their “buy” recommendation.
The brokerage expressed their belief that Zomato’s year-on-year Gross Merchandise Value (GMV) growth had hit a low point in the first quarter at 14 percent year-on-year, and it is likely to demonstrate improved performance starting from the second quarter onwards. This suggests an encouraging and upward trajectory for the company’s financial performance and market standing.
Kotak Institutional Equities holds optimistic expectations for Zomato, particularly with regards to increased profitability in the forthcoming quarters. They attribute this optimism to various factors, including operating leverage-driven margin improvement within the food delivery business. Additionally, they anticipate a reduction in losses for the Hyperpure and Blinkit businesses, contributing to the overall profitability of Zomato.
As a reflection of their confidence in Zomato’s growth potential, the brokerage has revised its Gross Merchandise Value (GMV) growth estimates for the fiscal years 2024, 2025, and 2026 to 18 percent. This adjustment factors in the anticipation of heightened demand for food delivery services.
Moreover, the brokerage’s positive outlook extends to financial performance, with higher revenue forecasts that are expected to drive notable improvements. They anticipate a 10-22 percent increase in adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and a 10-30 percent boost in net profit for the fiscal years 2024 to 2026. These upward revisions in performance metrics highlight the belief in Zomato’s potential for growth and profitability in the coming years.
As of 10:45 am, Zomato’s stock continued to show strength, trading 3.3 percent higher at Rs 112.60 on the NSE. This marks a significant increase of around 7 percent during the ongoing week.
Kotak Institutional Equities (KIE) and global brokerage Bernstein have both presented favorable outlooks for Zomato’s growth prospects, contributing to the positive sentiment surrounding the company’s stock.
Bernstein emphasized the potential for recovery in the food delivery market, which is expected to drive stronger Gross Order Value (GOV) growth for Zomato. They also highlighted the positive influence of Zomato’s Gold loyalty program in enhancing purchasing behavior. These endorsements from prominent brokerages underscore the confidence in Zomato’s performance and its ability to capitalize on growth opportunities in the food delivery industry.
Global brokerage Bernstein has set a target price of Rs 120 for Zomato’s stock, suggesting an upside potential of 11 percent from the closing price on Wednesday.
Meanwhile, domestic brokerage ICICIDirect has also revised its target price for the stock, increasing it by over 33 percent to Rs 160 while maintaining its “buy” rating. ICICIDirect’s positive outlook is based on the expectation of significant improvement in profitability across all three of Zomato’s business segments. The brokerage views the stock’s valuation as reasonable and believes there is ample scope for a substantial reevaluation of the stock, favoring the upside.
Zomato holds a prominent position as the top pick within the Indian internet sector in ICICIDirect’s portfolio. The brokerage envisions the stock reaching Rs 200 in a bullish scenario, and even in its bearish case scenario, it anticipates the stock hitting Rs 70. These projections imply a risk-reward profile that is skewed toward the upside, further underscoring the positive sentiment surrounding Zomato’s future prospects and market performance.
