Shares of Zomato surged 6% on Monday, reaching a freh 52-week high of Rs 280 on the BSE. The rise came after global brokerage firm UBS raised its target price for the online food delivery giant from Rs 260 to Rs 320.
UBS revised its estimates for Zomato’s Gross Merchandise Value (GMV) in food delivery and quick commerce.
The brokerage now expects a 2-3% increase in GMV for food delivery and a significant 20-30% jump in quick commerce for the fiscal years 2026-2028, following Zomato’s strong performance in the first quarter and its robust future outlook.
Despite these revisions, UBS adjusted its Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) estimates only slightly for the next 1-2 years.
The brokerage said that Zomato’s investments in expanding its quick commerce services might lead to a slower margin growth in the near term.
UBS also mentioned that it has raised its employee cost estimates to account for Zomato’s investments in manpower. These factors, combined with a roll forward of its valuations and higher multiples for Zomato’s Going Out and Hyperpure services, resulted in the increased target price of Rs 320.
According to UBS, Zomato is trading at a forecasted Enterprise Value to EBITDA (EV/EBITDA) ratio of 35 times for the fiscal year 2027, which is higher than the average of Indian consumer and retail peers at 30 times. UBS believes that Zomato’s superior growth and margin expansion justify this higher valuation.
Among other brokerage firms, CLSA has set the highest target price for Zomato at Rs 350. Motilal Oswal, another brokerage, has set its target at Rs 300, while Nomura and Bernstein have targets of Rs 280 and Rs 275, respectively.
Zomato’s financial performance in the June quarter of 2024 has been impressive. The company reported a significant increase in its Q1 profit, jumping from Rs 2 crore in the same quarter last year to Rs 253 crore in Q1 of this fiscal year. Revenue from operations also saw a substantial rise, growing 74% year-on-year to Rs 4,206 crore.
Zomato’s shares have more than doubled so far in the calendar year 2024, with its market capitalisation now approaching Rs 2.5 lakh crore.
