Brokerage firm ICICI Securities has initiated coverage on the stock with a buy call, fixing the target price of Rs 220 – a 73 percent upside from the stock’s August 23 close at Rs 127.
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Traders and investors seem to be on a profit-booking spree in Zomato as the stock fell 5 percent in the morning trade on August 24, a day after suffering a massive loss of 9 percent.
The stock has been on a bumpy track since its debut on bourses on July 23. There have been 21 sessions of trade since its debut, it has suffered losses in as many as 13 sessions out of those 21.
However, the stock is still 67 percent up from its issue price of Rs 76.
Zomato’s shares have been witnessing profit-booking as the lock-in period for anchor investors ended. As many market participants have been pointing fingers towards the rich valuation of the stock, some selling was expected.
Should you jump on the bandwagon and sell the stock?
Santosh Meena, Head of Research, Swastika Investmart, pointed out that some selling pressure is seen for 1-2 days in most of the newly-listed counters after the lock-in period ends.
Meena, however, believes such a fall in prices could be a good buying opportunity in quality stocks.
“It acts as a buying opportunity in most of the quality stocks where low made during this period acts as strong support for the next leg of the rally. If we talk about Zomato, Rs 120 is strong support and we could see some buying attraction around this level,” said Meena.
Brokerage firm ICICI Securities has initiated coverage on the stock with a buy call, fixing the target price of Rs 220 – which is a 73 percent upside from the stock’s August 23 close at Rs 127.
“Our target price bets on nearly 2.2 crore Indians ordering nearly 4 times per month in FY25E. This is a low bar, given that India today has nearly 3.5 crore credit cards and 11.4 crore Paytm transacting users who likely fall in the superuser category,” ICICI Securities said.
“On the back of strong demand tailwinds, we expect 46 percent and 33 percent revenue CAGR over next 5 and 10 years. We initiate coverage with Zomato as our high conviction buy,” ICICI Securities said in a report on August 22.
The brokerage believes the unlock should not have a noticeable decelerating effect like in the case of global tech players such as Amazon and DoorDash.
“Our deep dive into the regulatory framework suggests Zomato is one of the least vulnerable internet companies across the world for a regulatory tech-lash. As growth and PAT margins are yet to reach steady-state, PEG (price/earnings to growth) is better against P/E (price-to-earnings) for relative comparisons, in our view,” ICICI Securities said.
The brokerage does not see the valuation of the stock as a concern. Rather it finds Zomato’s valuation cheaper against food services, technology and consumer stocks.
“At 0.5 times FY24E PEG, Zomato is way cheaper against median food services (1.9 times), technology (1.8 times), or consumer (2.9 times) stocks. We value it at 55 times, 2-year forward P/E, in-line with median consumer discretionary multiple,” ICICI Securities said.
Zomato is a good value stock and its growth prospects make it a long-term play. However, in the short-term some profit-booking can continue in the stock, said experts.
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