“We believe Zomato will eventually increase its pricing by offering higher renewal prices to existing customers (only three-month plans are on offer currently). Further, Zomato is also negotiating for higher take rates with restaurants, which can also offset any impact of Zomato Gold,” Kotak Equities said
Following the update, brokerage firm Kotak Institutional Equities retained its Buy rating on Zomato with a target price of Rs 82, signaling an upside potential of 60% from the current market price of Rs 51 per share.
“We believe Zomato will eventually increase its pricing by offering higher renewal prices to existing customers (only three-month plans are on offer currently). Further, Zomato is also negotiating for higher take rates with restaurants, which can also offset any impact of Zomato Gold,” Kotak Equities said.
Also, Zomato has been experimenting with its service proposition in Blinkit to drive the optimal product value fit. As per media reports, it is evaluating the launch of local services (plumber, electrician, etc, within minutes) on its platform.
“We note Zomato has tried other services on Blinkit in the past such as offering printouts, and high AOV items such as phones; it has quickly scuttled services that didn’t work. We reckon the launch of local services is another such attempt and shouldn’t involve any significant cash burn,” the brokerage firm said.
In Thursday’s intraday trade, shares of Zomato were trading 2% higher on BSE. On a year-to-date basis, the stock has fallen 14%, while it has declined 32% in the last year.
The brokerage firm further stated that discretionary consumption headwinds might weigh on near-term growth for Zomato. Revival in discretionary consumption may take 2-3 quarters, as high food price inflation is absorbed by consumers and non-metro demand comes back, it said.
4QFY23, thus, may fail to excite as inflationary pressures, seasonally weak demand (low festival days), and a lower number of days in the quarter all play on food delivery demand, it added.
“Our DCF of the food delivery business bakes in FY2023-30 food delivery GMV CAGR of 19%. Core business EBITDA can however increase at a much faster pace given the operating leverage potential in the business. Some level of experimentation in both Zomato and Blinkit businesses will continue, as Zomato attempts to increase its share of wallet of the customer,” Kotak said while setting a target price of Rs 82 per share.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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