Zomato's Acquisition Of Paytm Ticketing Business Positive But Most Brokerages Yet To Price In

Zomato Ltd.'s acquisition of the entertainment and ticketing business from One97 Communications Ltd. is poised to aid in the long run, according to brokerages tracking the company. However, the stock has received only one upgrade, as of Thursday morning from Jefferies, as others are yet to price in the acquisition.

The valuation looks compelling in the context of growth and margins, Jefferies said adding that the low capital intensity promises a high return ratio in a steady state.

After pricing in the deal, Jefferies maintained 'buy' on the delivery platform with a price target of Rs 335 per share versus Rs 275 apiece earlier.

Analysts at Elara Capital do not expect any major revenue and earnings upgrade or a multiple re-rating for Zomato as it has just a 4% positive impact on Ebitda, on a consolidated basis. "But medium-term, the going-out business can become Zomato's third largest B2C business, per management guidance."

Zomato has a big advantage with a large customer base which it can leverage to cross-sell respective business segments, the brokerage said.

Its main competitor, BookMyShow, may remain the market leader in the entertainment ticketing business but the live ticketing business will continue to account for a larger share of revenue for both aggregators, it said.

Zomato will acquire the entertainment, sports, and events ticketing business—Insider and TicketNew—from Paytm operator One97 Communications for Rs 2,048 crore.

According to Paytm, the deal works towards Paytm's focus on core payments and financial services distribution. "The transaction generates significant profits for Paytm and further strengthens its balance sheet," it said.

Nomura Research has not incorporated the newly-acquired business in their model pending the deal closure. The near-term key drivers are the continuing growth momentum in quick commerce business while food delivery clocks steady 20-25% annual growth in the medium term, it said.

Slowing growth in food delivery and quick commerce, the smooth integration into the new District app and the initial cash burn are the Key risks, the note said.

The acquisition gives size and scale to Zomato's 'going-out' business and will act as an additional growth engine over the medium-to-long term.

Zomato Ltd.'s stock rose as much as 2.68% before paring gains to trade 0.10% lower at Rs 259.7 apiece, compared to a 0.18% advance in the benchmark Nifty 50 as of 11:04 a.m.

Shares of Paytm rose as much as 5.34% during the day. They pared gains to trade 1.03% higher at Rs 579.9 apiece.