Motilal Oswal sees 31% upside in Zomato ahead of Q4 results Apextalk

In a year, the stock is down 35.01 per cent in the last one year and fallen 9.17 per cent so far in 2023. The stock hit a 52-week high of ₹84.40 on 18 April, 2022 and a 52-week low of ₹40.55 on 27 July, 2022.

Motilal Oswal in its report said that the food delivery industry in India is all set to grow rapidly in the medium term driven by intensifying internet penetration, rising consumption and growth in urbanization. 

It said that  Zomato is a dominant player in the industry, with market share of 55%.

“We forecast the company to report 29% revenue CAGR over FY23-25. We expect strong growth to be complemented by the company turning profitable over FY25, despite elevated competitive intensity. We initiate our coverage on the stock with a BUY rating and a target price of INR70,” said Motilal Oswal in its report.

“We expect India’s food delivery market to clock a rapid 19% CAGR over FY23-25 (v/s slowing growth in other markets) fueled by growth in the number of transacting users and order frequency. This should lead to a higher share of online food ordering (24% by FY25E from 13% in FY21),” it added.

Zomato to report a strong 29% revenue CAGR over FY23–25 fueled by higher penetration, higher proportion of transacting users, and increased ordering frequency.

The food delivery AOV is expected to remain flat in FY23E and increase to ₹409 by FY25. 

“Higher penetration and usage of Zomato should drive 13% CAGR in MTU over FY23-25, resulting in a 23% CAGR for the vertical during FY23-25 despite high-teens growth in FY24E amid near-term weakness. Revenue from Hyperpure (36% CAGR between FY23-25E) and Blinkit (27% CAGR between FY23-25E, adjusted for full FY23) is also likely to remain strong for the next few years as the company expands its operations,” it said.

It added that Zomato’s food business recording EBITDA breakeven in 1QFY23, it expect the company to turn profitable over FY25.

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