Shares of Food delivery platform have fallen over 58 per cent from its all-time high putting the stock firmly in a bear grip. Global brokerages, however, have maintained their mixed stance on this new-age internet company.
Global Research firm HSBC believes that building a grocery business will work as a “poison pill” for Zomato.
It would need reasonably high investment and hence cash burn and is likely to be a significant logistical challenge to execute as well, it added.
The brokerage highlighted that Zomato has to attempt to build its grocery business closer to the middle of this framework and leverage technology to design and manage its dark stores to offer 4,000-5,000 stock-keeping units with a 10-60 minutes delivery turnaround time.
It further added that average order values (AOVs) remained stable since the Covid-19-led rise, and that’s been the single biggest positive surprise since August 2021.
“Also, fundamentally, we believe that unlike many other segments in the new-tech space, food delivery is relatively mature, with a healthy duopoly structure and clear value proposition. Build-up and ramp-up of hyperlocal businesses will remain a key challenge in the coming quarters, but we don’t think much value is ascribed to these businesses anyway,” they added.
HSBC has a ‘Buy’ call on the stock with a target price of Rs 85 per share.
Macquarie, however, initiated its coverage on the stock with an ‘Underperform’ rating with a target price of Rs 55 per share.
It said that Zomato needs 70 lakh user additions every year to meet earnings estimates. Scale is key for driving improvements in profitability, and if Zomato is unable to rapidly grow its transacting user base, then the negative impact to consensus estimates is magnified with sharper cuts required to Ebitda.
For the quarter ended March 2022, the company’s losses nearly tripled to Rs 360 crore while revenue spiked 75 per cent. For the fiscal year 2022, losses of the company came in at Rs 1,222.5 crore, compared to Rs 816.4 in the previous year.
Zomato was listed in July 2021 with a strong premium. Retail investors owned 3.52 per cent stake as of March quarter compared with 1.6 per cent stake at the end of December quarter and 1.4 per cent stake as of September 30, 2021, data available with corporate database AceEquity suggests.
At 3:19 pm, the shares were trading 0.07 per cent lower at Rs 69.95 on the BSE. Zomato now commands a market capitalisation of Rs 54,958 crore compared with Rs 98,731.59 crore on July 23, 2021, its listing day.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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