Zomato stock rose 6% on Monday, setting a fresh 52-week high of Rs 280 on the BSE. The increase occurred when global brokerage firm UBS boosted its target price for the online meal delivery company from Rs 260 to Rs 320.
UBS has changed its expectations for Zomato's Gross Merchandise Value (GMV) in meal delivery and rapid commerce.
Following Zomato's outstanding performance in the first quarter and its positive future view, the brokerage now predicts a 2-3% growth in GMV for food delivery and a considerable 20-30% increase in rapid commerce for fiscal years 2026-2028.
Despite these changes, UBS only marginally revised its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) predictions for the next 1-2 years. The brokerage stated that Zomato's expenditures in extending its rapid commerce offerings may result in weaker margin expansion in the short future.
UBS also stated that it has increased its staff cost forecasts to reflect Zomato's manpower spending. These considerations, together with a roll forward of valuations and higher multiples for Zomato's Going Out and Hyperpure offerings, resulted in a rise in the target price to Rs 320.
According to UBS, Zomato is trading at an anticipated Enterprise Value to EBITDA (EV/EBITDA) ratio of 35 times for fiscal year 2027, which is higher than the Indian consumer and retail rivals' average of 30 times. UBS feels Zomato's stronger growth and margin expansion justifies its higher value.
Among other brokerage companies, CLSA has set the highest target price for Zomato at Rs 350. Motilal Oswal, another brokerage, has set a target of Rs 300, while Nomura and Bernstein have objectives of Rs 280 and Rs 275, respectively.
Zomato's financial performance during the June quarter of 2024 was remarkable. The firm recorded a huge rise in Q1 earnings, rising from Rs 2 crore in the same period last year to Rs 253 crore in Q1 this fiscal year. Revenue from activities increased 74% year on year to Rs 4,206 crore.
Zomato's shares have more than quadrupled thus far in the calendar year 2024, with its market capitalization already nearing Rs 2.5 lakh crore.
