Zomato share price in focus as company pulls the plug on grocery delivery, Nutraceutical
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Zomato stock price is in focus as the company has decided to pull the plug on another business - Nutraceutical.
Food tech platform Zomato will also stop its nascent grocery delivery service due to gaps in order fulfillment, poor customer experience and increasing competition from rivals that are promising express delivery in 15 minutes. The company said its investment in Grofers will generate better outcomes than its in-house grocery effort.
The company has decided to shut it at a time when the government is trying to get stricter about private label norms for marketplace businesses in the country.
Moneycontrol reported about this foray on November 10, 2020.
While the company confirmed the development, it declined to share further details.
Nutraceuticals are defined as any food-related product which provides medical or health benefits. This could range from food to beverages or even tablets with a claim of prevention or cure of chronic diseases. Following the onslaught of COVID-19, there has been a gradual rise in the adoption of healthy food among the average Indian.
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Zomato has been on a ‘cleaning-up’ drive since the last few weeks.
Zomato which got listed last month also reported a net loss of Rs 356 crore during the quarter ended June 30, 2021, against Rs 99.8 crore during the like period of the previous financial year.
The total income of the company stood at Rs 916 crore during the quarter under review. This was a massive jump from a revenue of Rs 283.5 crore reported in the year-ago period.
Global research firm Credit Suisse has initiated with an outperform rating on the stock with target at Rs 185 per share, an upside of 30 percent from current market price. The brokerage firm values food delivery business at 3.2x EV/GMV, 100% premium to DoorDash. However, it feels that worsening of unit economics is a key risk, according to a CNBC-TV18 report.
The stock was trading at Rs 142.65, up Rs 1.10, or 0.78 percent. It has touched an intraday high of Rs 143.80 and an intraday low of Rs 142.
The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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Zomato share price may rally 24% more; Kotak Securities says ‘buy’, valuation justified
Kotak Securities has initiated coverage on Zomato stock with a ‘buy’ rating, saying that the share price could rally another 24% from the current levels.
Kotak Securities has initiated coverage on Zomato stock with a ‘buy’ rating, saying that the share price could rally another 24% from the current levels. Zomato’s stock valuations are justified by the superior growth expected, the brokerage firm said in a note. Kotak has pinned a fair value of Rs 175 per share on Zomato. The food delivery giant began trading on Dalal Street in July this year after its Rs 9,375-crore IPO was oversubscribed. The stock has rallied a whopping 84% from the upper end of the IPO price of Rs 76 per share.
While most domestic brokerage houses have given a ‘buy’ rating to Zomato, value investors such as Rakesh Jhunjhunwala and global brokerage firm HSBC have said not to buy the stock.
Stock Talk: Zomato share price valuations justified
-Zomato stock is trading at 11X FY2024 EV/adjusted sales. This is at a premium to multiples of food delivery companies listed globally.
–The divergence is due to Zomato’s stronger growth trajectory, and country-specific issues of regulatory concerns, Kotak Securities said.
-Kotak Securities values the stock at 13X FY2024 EV/adjusted sales, a significant premium to global peers.
-“… we still believe the company has legs to grow driven by non-home cooked food consumption, thereby making food services industry a large addressable market.” – Kotak Securities
-“Further, the company can explore new business adjacencies like grocery or any other type of doorstep delivery in the future, thereby providing cross-sell opportunity.” – Kotak Securities
-Zomato’s valuations have been in question since the stock began trading on the bourses.
-NYU professor Aswath Damodaran wrote in his blog that Zomato’s true value should be just Rs 41 per share.
-Billionaire investor Rakesh Jhunjhunwala said he would invest in other sectors offering better valuations.
Well placed to drive growth
“Zomato will be a key beneficiary of the steady increase in demand for food services in India,” Kotak Securities said in the report. The food delivery industry in India is still underdeveloped and with the changing preferences is likely to witness growth ahead. “We expect the industry to grow at a 28% CAGR to$10.4 billion with monthly transacting users (MTUs) growing at 19% CAGR to 45 million over FY2020-25E,” they added.
With this, the company is expected to break even by the financial year 2024-25. “Turnaround in unit economics will lead to profitability by FY2025, leaving Zomato with the bulk of its current ~US$2 bn cash balance intact, which can drive the company’s entry into fresh adjacencies enabling further value creation,” the report said.
Although Zomato currently controls half the market in a two-player market, the food-deliver industry is seeing the entry of new players. Swiggy’s Direct service is also attempting to provide lower commission plans to restaurants, according to Kotak Securities. However, they do not believe this could worry Zomato and any disruption would be small as restaurants require discovery which is possible only on platforms with reasonable traffic, and food delivery requires very swift delivery during certain daily peaks, something that Zomato and Swiggy has managed to achieve.