Zomato hits new high of Rs 150, zooms 98% over issue price of Rs 76

Shares of Zomata hit a new high of Rs 150.50 as they 9 per cent on the BSE in intra-day trade on the back of heavy volumes. The stock of the online food delivery company surpassed its previous high of Rs 147.80 touched on July 27, 2021. Till 03:05 pm, a combined 102 million equity shares had changed hands on the NSE BSE so far.

Zomato, the country’s first internet unicorn to tap the capital markets, had made its stock market debut on July 23, 2021. In the past one week, the stock has rallied 21 per cent, as compared to a 3.4 per cent gain in the S&P BSE Sensex. The market price of Zomato has nearly doubled from its issue price of Rs 76 per share.

With a sharp rally in the stock price, Zomato has surpassed personal products companies like Godrej Consumer Products Dabur India in the overall market capitalisation (market cap) ranking of the BSE listed companies. At 02:46 pm, Zomata with a Rs 1.16 trillion market cap stood at number 40 position, ahead of Vedanta, NTPC, Shree Cement Bajaj Auto.

In its first-ever quarterly results as a listed entity, food service provider Zomato put up a mixed show. The company’s revenue from operations in the June quarter (Q1FY22) rose 217 per cent year-on-year (YoY) to Rs 844 crore from Rs 266 crore a year ago, on the back of Zomato’s core food delivery business, which continued to grow despite the severe Covid wave that started in April.

That said, the company’s loss swelled by over three times to Rs 356 crore in Q1. Further, the company’s EBITDA (earnings before interest, tax, depreciation amortisation) loss widened by 42 per cent to Rs 170 crore on a quarterly basis.

Analysts at ICICI Securities have a ‘buy’ rating on Zomato with a target price of Rs 220 per share on the conviction that the industry will remain a duopoly with discount/cost discipline deminelasticity.

“Maturing customer cohorts, restaurants (esp. in Next 500) delivery dynamics will likely lead a ‘J’ shaped improvement in unit economics over FY21-23E (contribution/order = Rs 21 to Rs 26). Given street’s ‘unreasonably’ pessimistic margin estimates, we expect a big surprise by FY23 (pre ESOP EBITDA margin = 8 per cent). Steady-state EBITDA margin/ROE for the platform will likely be around 38 per cent/20 per cent,” the brokerage firm said in its initiate coverage report on the stock.

On the back of strong demtailwinds, the analysts expect a 46 per cent/33 per cent revenue CAGR over the next 5/10 years. Unlock should not have a noticeable decelerating effect like in the case of global tech (e.g. Amazon, DoorDash), the brokerage said, adding that our deep dive into the regulatory framework suggests Zomato is one of the least vulnerable internet companies across the world for a regulatory tech-lash.

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