Zomato gains 7% on heavy volumes; stock rebounds 73% from record low

The average trading volumes on the counter more-than-doubled with a combined 155.71 million shares changing hands on the NSE and BSE till 02:59 PM

Shares of Zomato moved higher by 7 per cent to Rs 70.20 on the BSE in Friday's intra-day trade amid heavy volumes. The stock of the food delivery start-up was trading higher for the third straight day, having surged 13 per cent during the period. With today's intra-day rally, the market price of Zomato has recovered 73 per cent from its record low level of Rs 40.55, which it had touched on July 27, 2022.

At 02:59 PM, Zomato was trading 6.6 per cent higher at Rs 69.90, as compared to unchanged S&P BSE Sensex. The average trading volumes on the counter more-than-doubled with a combined 155.71 million shares having changed hands on the NSE and BSE till the time of writing of this report.

On August 3, 2022, American ride-hailing giant, Uber, had sold its entire 7.78 per cent stake in domestic food-delivery company Zomato to mop up Rs 3,088 crore ($390 million). A total of 612 million shares were sold at Rs 50.44 apiece to over a dozen institutional investors. Fidelity Investments bought shares worth Rs 274 crore and ICICI Prudential Life Insurance bought another Rs 226 crore, showed block deal data. CLICK HERE FOR DETAILS

Meanwhile, on September 28, 2022, Emkay Global Financial Services had initiated coverage on Zomato with a 'Buy' rating and a target price of Rs 90, based on SoTP methodology, comprising: OFD business (ex-Blinkit) valued using DCF at Rs 75 per share; and remaining value from cash and other strategic minority investments.

The brokerage firm expects India's online food delivery (OFD) market to grow around 7 times over the next decade, led by an increase in per capita income; online penetration/availability; eating out habit or behavior; and women labor force participation.

"Zomato's path to profitability and future value creation and, therefore, the investment case primarily rest on continuation of the duopoly market structure, supported by inherent network effects, with Zomato maintaining around 50 per cent market share," it said.

It added: We expect OFD companies to capitalize on captive customers and exploit ‘adjacencies’ like hyper local delivery. We believe Zomato’s high market share (and losses so far) in the OFD market leaves little to be exploited by competition. We believe Zomato’s around 50 per cent market share in the rapidly expanding OFD market is a moat; expansion into adjacencies will further expand TAM and potentially drive more efficiency gains.

Management’s guidance of $320 million investment through breakeven would limit the cash burn. Zomato's strong market position, brand recall, expanding TAM with Hyperpure and Blinkit, and anticipated turnaround in profitability will lead to a 40 per cent revenue CAGR and positive net profit in the next four years.

The key risks are slower-than-expected turnaround in profitability because of AOV decline and/or regulatory changes; poor capital allocation; and higher competitive intensity in quick commerce, the brokerage firm said.