Kotak sees lower GMV for Zomato in short term, cuts target price to Rs 85
- ByStartupStory | December 28, 2022
Brokerage firm Kotak Institutional Equities has decreased the target price on the shares of Zomato Ltd. because it expects muted gross merchandise value (GMV) in the near future due to reduced demand.
Kotak has decreased its target price from Rs 100 per share to Rs 85. The target still indicates a potential 45 percent increase from the price of Rs 59.20 per share on Wednesday’s trading day.
“Our conversations with industry participants indicate that food delivery GMV growth may remain subdued in the near term owing to weak demand. As a result, we trim GMV growth forecasts for Zomato’s food delivery segment. We like Zomato’s comfortable market share position in a duopolistic market and believe the Indian delivery market has legs to grow, near-term slowdown notwithstanding,” Kotak Institutional Equities said in a note to investors.
The brokerage firm expects Zomato’s food delivery GMV growth, which increased by 35 percent year over year in the first half of FY23, will slow to 21 percent on-year in the second half of FY23. Despite the likelihood that AOVs will remain stable due to inflation and relatively higher delivery costs, Kotak predicted that weaker order growth would result in slower GMV growth.
“This, in turn, is owing to weak consumer demand in what otherwise is a seasonally strong quarter for outdoor food consumption. We reckon the weakness is pan-India, with a slowdown in demand in metro and non-metro geographies. The fact that restaurant chains are also witnessing a slowdown indicates the slowdown is across channels, and delivery is not necessarily losing share to in-store dining,” Kotak said in a report.
According to a December 19 Jefferies report, the brokerage house eliminated Zomato from its India Model Portfolio in order to give the metals sector more weight in light of China’s reopening and the anticipated rise in interest rates in the US.
“For the tactical move (exiting Zomato), we are incrementally wary of a potential rise in competitive activity in the sector… “As its chief competitor, Swiggy, has recently seen market share loss,” wrote Mahesh Nandurkar and Abhinav Sinha of Jeffery in the report.
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