Stocks

Broker's call: Zomato (Buy)

| Updated on October 12, 2021

Choice Broking

Zomato (Buy)

Target: ₹175

CMP: ₹136.65

Zomato is an online food delivery company which is used to search for restaurants, order food, book a table etc. Restaurant partners are provided with marketing tools which enables them to acquire customers, and an efficient delivery service where delivery partners get flexible earning opportunities. Apart from all this, it operates Hyperpure which supplies high quality ingredients and kitchen products to restaurant partners.

It witnessed a robust growth of 32.5 per cent CAGR in monthly active users, 96.2 per cent CAGR in monthly transacting users, and 92.3 per cent CAGR in gross order value (GOV) over FY18–FY21. However, on account of pandemic led lockdown, FY21 saw a dip in revenue led by a fall in GOV.

According to our estimates, Zomato’s GOV is expected to grow at 31.8 per cent CAGR over FY21–FY25, on the back of increased household penetration, monthly transacting users and order frequencies. Average order value is likely to remain in the range of ₹400–450 during the period. The company has improved its unit economics significantly on the back of higher commission charges and lower discounts for promotion. Their asset-light model with strong customer base gives them an opportunity to further improve their unit economics leading to higher contribution margins.

Published on October 12, 2021

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