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Nuvama Initiates Coverage of Zomato with ‘Buy’ Rating

Nuvama Institutional Equities has begun coverage of Zomato, a leading food delivery and rapid commerce platform in India, with a ‘Buy’ rating and a target price of ₹225. This positive outlook reflects Nuvama’s confidence in Zomato’s growth potential and its ability to capitalize on the expanding Indian food services market. The initiation of coverage was announced on November 10, 2023. Moneycontrol

Key Factors Driving the ‘Buy’ Rating

Nuvama’s optimistic assessment is based on several key factors. These include zomato’s dominant position in the food delivery segment, its growing quick commerce business (Blinkit), and its potential for profitability. The brokerage anticipates continued growth in both segments, driven by increasing internet penetration and changing consumer preferences.

Food Delivery market Leadership

Zomato currently holds a meaningful market share in India’s food delivery sector. Nuvama believes this leadership position will allow Zomato to benefit from the overall growth of the market, which is expected to continue expanding as more consumers adopt online food ordering. Statista estimates the Indian online food delivery market to reach US$11.23 billion in 2024.

Blinkit’s Quick Commerce Potential

The acquisition of Blinkit (formerly Grofers) has positioned Zomato to tap into the rapidly growing quick commerce market. Blinkit offers consumers the convenience of rapid delivery of groceries and other essential items. Nuvama highlights Blinkit’s potential to contribute significantly to Zomato’s overall revenue and profitability. Livemint reported a 10% growth in Blinkit’s gross order value in October 2023.

Path to Profitability

While Zomato has historically operated at a loss, Nuvama believes the company is on a clear path to profitability. This is driven by factors such as improved operational efficiency, increased order values, and a focus on cost optimization. The brokerage expects Zomato to achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the coming years.

Financial Highlights and Target Price

Nuvama’s target price of ₹225 represents a potential upside of approximately 25% from Zomato’s current market price (as of November 10, 2023). This valuation is based on a discounted cash flow (DCF) analysis and takes into account the company’s growth prospects and risk factors.

Risks to Consider

Despite the positive outlook, Nuvama acknowledges several risks that could impact Zomato’s performance. These include increased competition from other players in the food delivery and quick commerce markets, regulatory changes, and macroeconomic factors. Business Standard highlights competitive intensity as a key risk.

Key Takeaways

• Nuvama Institutional Equities initiated coverage of Zomato with a ‘Buy’ rating.
• The target price is set at ₹225, indicating a potential 25% upside.
• Growth in food delivery and quick commerce (Blinkit) are key drivers of the positive outlook.
• Zomato is expected to achieve profitability in the coming years.
• Competition and regulatory changes represent potential risks.

Zomato’s continued innovation and strategic investments