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Kotak Securities
Zomato (Buy)
Target: ₹175
CMP: ₹141.25
Zomato offers a wide array of online food services including online food delivery, advertisement, user-generated content and other dine-out services. The platform attracted 32 million MAUs and acquired 68 per cent of its new customers in FY-21 organically on account of rich content of restaurant listings on the platform. While Zomato was a relatively late entrant into the food delivery business, its sheer execution capability and technological prowess have led it to become one of the two leading food services platforms in the country.
Rise in income levels, evolving tastes and preferences will drive a greater demand for food delivery in the future. This will manifest in strong growth in users on food delivery platforms as well as in ordering frequencies.
We thus model healthy 55 per cent revenue CAGR for Zomato over FY2021-24 and 36 per cent revenue CAGR over FY2021-30.
We initiate coverage on Zomato with Buy rating and FV of ₹175. Our FV is based on a DCF based valuation of the core food services business, to which we separately add the value of Zomato’s stake in Grofers and associated value creation and cash. Our FV implies FY2024 EV/adjusted sales multiple of 13X, a sharp premium to global peers, as we expect Zomato’s future growth and potential entry into other businesses to trump revenue growth of peers.
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