Updated March 27th, 2024 at 14:21 IST

ICICI Securities sees 72% upside in Zomato, here's why

ICICI Securities' proprietary model predicts a robust growth trajectory for Zomato's food delivery business.

Reported by: Abhishek Vasudev
Zomato | Image:Zomato
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Zomato, the leading player in food delivery and quick commerce segments, is set for a remarkable growth according to brokerage firm ICICI Securities. The firm expects Zomato shares to surge to Rs 300, indicating an upside potential of around 70 per cent from current levels.

ICICI Securities highlighted key factors driving Zomato's growth trajectory and addressed critical investor queries. 

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With profitability goals achieved, ICICI Securities now shifts focus to Zomato's longer-term growth outlook. The report delved into extensive analysis, incorporating insights from NSSO data and a bi-annual restaurant survey, to forecast the growth potential of both the food delivery and quick commerce markets in India.

ICICI Securities' proprietary model predicts a robust growth trajectory for Zomato's food delivery business, with a projected Compound Annual Growth Rate (CAGR) exceeding 20 per cent until FY33. Similarly, the quick commerce segment is expected to witness accelerated growth, with a CAGR surpassing 29 per cent over the same period.

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Addressing concerns about competitive threats, the report stressed on establishment of a 'duopoly of scale' in the food delivery market, with Zomato and its main competitor dominating the landscape. While acknowledging potential challenges in the quick commerce space, ICICI Securities highlighted Zomato's strategic advantages and the difficulty for new entrants to replicate success.

The report also shed light on Zomato's initiatives such as Hyperpure and 'Going out,' stressing their role in strengthening relationships with restaurants and expanding service offerings to enhance customer engagement. While scalability might take time, these initiatives are viewed as strategic moves to solidify Zomato's position in the market.

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Despite trading at a premium to global peers, ICICI Securities believes that Zomato's rich valuations are justified, considering its significantly higher revenue and EBITDA growth rates. The report pointed out potential triggers for the stock, including milestones in profitability margins and market share gains.

ICICI Securities reiterated its buy call on Zomato, citing a compelling risk-reward ratio. The firm increased its target price to Rs 300, reflecting improved visibility on Zomato's sustained growth trajectory and enhanced profitability metrics.

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However, the report also highlighted key risks, including a slowdown in discretionary spending and negative externalities disrupting business operations. 
 

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Published March 27th, 2024 at 13:28 IST