Zomato Shares Rebound After Slump To Record Low, Credit Suisse Says 'Outperform'

Shares of Zomato Ltd. gained over 6% after shareholders approved the Gurugram-based restaurant aggregator's deal to acquire quick-commerce startup Blinkit.

More than 97% of the votes polled were in favour of the Rs 4,447-crore all-stock deal, according to the company's exchange filing.

This is in line with its strategy of investing in the quick-commerce business, the company had said.

Shares of the Deepinder Goyal-led company gained as much as 6.6%, before ending 5.5% higher at Rs 43.95 on Wednesday. Still, this is lower than its IPO price of Rs 76/share and its all-time high of Rs 162/share.

Zomato's stock had tumbled nearly 24% to record lows in the last two days after the lock-in period ended for investors who owned stakes in the company before its initial public offering. Selling pressure was seen across new-age stocks on Tuesday as well.

Separately, Credit Suisse initiated coverage on the company with an 'outperform' rating and a target price of Rs 90, implying a potential upside of 89.1%.

It said Zomato is "on a clear road to profitability", owing to a "favourable industry structure" and its core user base. According to Credit Suisse, the next phase of growth of its food delivery business will be driven by higher ordering frequency from its existing user base, with 80% of orders over FY23-27 coming from them.

Also, the duopoly industry structure and core urban base provide Zomato the leverage to drive restaurant take rates higher and increase delivery charges, while higher order density improves rider efficiencies. "This will lead to food contribution margin reaching 7.2% by FY27 vs 1.5% in FY22."

The brokerage arrived at the Rs 90 target price without assigning any value to Zomato's quick-commerce business, Blinkit, since it will continue to burn cash in a six-player market that is "unsustainable." "We consolidate Blinkit, which pushes the consolidated adjusted Ebitda positive timeline by a year to FY26."

Of the 18 analysts tracking the company, 14 maintain a 'buy' and two each suggest a 'hold' and a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 100.8%.