Zomato's stock experienced a notable 6% rise on Monday, reaching a new 52-week high of Rs 280 on the Bombay Stock Exchange (BSE). This significant increase in share value came after global brokerage firm UBS raised its target price for the online food delivery giant from Rs 260 to Rs 320. The upgrade reflects Zomato's impressive performance and promising future prospects.
UBS has revised its forecasts for Zomato's Gross Merchandise Value (GMV), predicting a 2-3% growth in GMV for the food delivery segment and a substantial 20-30% increase in quick commerce for the fiscal years 2026-2028. This revision follows Zomato's strong showing in the first quarter and the company's positive outlook for future growth.
Despite the optimistic projections, UBS made only slight adjustments to its Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) estimates for the upcoming 1-2 years. The brokerage noted that Zomato's substantial investments in expanding its quick commerce services could lead to slower margin growth in the short term. Additionally, UBS raised its employee cost estimates to reflect Zomato's increased investment in its workforce. The elevated target price of Rs 320 also accounts for a roll-forward of valuations and higher multiples attributed to Zomato's Going Out and Hyperpure services.
UBS's new valuation places Zomato at a forecasted Enterprise Value to EBITDA (EV/EBITDA) ratio of 35 times for fiscal year 2027, which is higher than the average of 30 times for Indian consumer and retail peers. The brokerage believes that Zomato's superior growth trajectory and margin expansion justify this higher valuation.
In contrast, other brokerage firms have set varied target prices for Zomato. CLSA has established the highest target at Rs 350, while Motilal Oswal has set its target at Rs 300. Nomura and Bernstein have set their targets at Rs 280 and Rs 275, respectively.
Zomato's financial performance for the June quarter of 2024 has been robust. The company reported a remarkable increase in its Q1 profit, which surged from Rs 2 crore in the same quarter last year to Rs 253 crore in the current fiscal year’s first quarter. Revenue from operations also saw a significant year-on-year increase of 74%, reaching Rs 4,206 crore.
In 2024, Zomato’s shares have more than doubled in value, driving its market capitalization to nearly Rs 2.5 lakh crore. This surge in stock price and market value underscores the company's successful execution of its business strategies and its growing influence in the online food delivery and quick commerce sectors.
Â
