Zomato Share Price Spikes After CLSA Target Price Raise

Zomato Ltd.'s share price rose over 7% after CLSA raised its target price on the stock to Rs 400 per share, implying an upside of 64%. The brokerage firm has also added Zomato to its high conviction outperform list, saying the recent correction is a buying opportunity.

CLSA has projected strong revenue growth for the company, forecasting a 51% compound annual growth rate in revenue and a 502% CAGR in Ebitda between fiscal 2024 and 2027.

Zomato's expansion in the quick commerce space is seen as a key driver of future growth. Margins in the quick commerce segment are expected to be slightly softer in the upcoming quarter, due to aggressive store rollouts and category expansions, CLSA said. But it remains confident in Zomato’s long-term prospects.

The competitive landscape for quick commerce is heating up, with new players like Flipkart Minutes and BigBasket entering the market in fiscal 2024, while existing players such as Blinkit, Zepto, and Swiggy Instamart have accelerated store rollouts and geographical expansion. Despite rising competition, Total Addressable Market for quick commerce is growing faster than initially expected, presenting opportunities for Zomato and its competitors, CLSA said.

Zomato’s pricing strategy remains disciplined, despite the heightened competition, with aggressive pricing seen as necessary for expansion, rather than unsustainable discounting. The market is large enough for multiple players to operate profitably, with Zomato’s position as a market leader ensuring its place in the evolving sector, the brokerage said.

In addition to the robust outlook in the quick commerce space, Zomato is expected to continue expanding its product offerings across various categories, including electronics, apparel, and general merchandise, which further boosts its growth prospects.

Shares of Zomato rose as much as 7.42% to Rs 262 apiece. It pared gains to trade 7.11% higher at Rs 261.25 apiece, as of 9:18 a.m. This compares to a 0.56% advance in the NSE Nifty 50.

The stock has risen 90.38% in the last 12 months. Total traded volume so far in the day stood at 0.11 times its 30-day average. The relative strength index was at 44.

Out of 28 analysts tracking the company, 24 maintain a 'buy' rating, one recommends a 'hold' and three suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 25.6%.