ICICI Securities sees over 75% upside in this newly listed firm

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ICICI Securities has initiated coverage on the online food delivery firm Zomato as its high conviction bet. The brokerage has set a target price of Rs 220, indicating an upside of over 77% from the current market price of Rs 123.95.

Earlier, Zomato made a stellar debut on the bourses on July 23, as its shares surged nearly 66% against the issue price of Rs 76. The stock made its debut at Rs 115, reflecting a huge gain of 51.31% against the issue price on the BSE. At the NSE, it got listed at Rs 116, registering a premium of 52.63%.

“Our target price of Rs 220 bets on around 22 million Indians ordering around 4 times per month in FY25E. This is a low bar given that India ‘today’ has around 35 million / 114mn credit card / Paytm transacting users who likely fall in the superuser category/user funnel. We value the stock at 55 times 2-year forward P/E, in-line with a median consumer discretionary stock,” ICICI Securities said.

Zomato’s initial public offering (IPO) had received bumper 38 times subscription. The public offer of Zomato was India’s biggest initial share sale offer since March 2020. The IPO had opened for subscription on July 14, in a price band of Rs 72-76 per share. It closed on July 16.

The company, backed by Jack Ma’s Ant Group Co, is the first from a long list of Indian unicorn startups to launch an IPO. It is also the first among Indian online food aggregators. The IPO comprised a fresh issue of equity shares worth Rs 9,000 crore and an offer-for-sale (OFS) worth Rs 375 crore by existing investor Info Edge (India), which is the parent company of Naukri.com, according to the information provided in the draft red herring prospectus.

“On the back of strong demand tailwinds covered at depth in our food-tech thematic, we expect 46% and 33% revenue CAGR over next 5 and 10 years. Unlock should not have a noticeable decelerating effect like in case of global tech (eg Amazon, 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 versus P/E (price to earnings) for relative comparisons, in our view. At 0.5x FY24E PEG, Zomato is way cheaper against median food services (1.9x), technology (1.8x) or consumer (2.9x) stocks,” the brokerage said.

On the other hand, Santosh Meena, head of research, Swastika Investmart said, “Zomato’s share tanked more than 13% in the last two trading sessions as the lock-in period for anchor investors ends. It has been observed that some selling pressure is seen for 1-2 days in most of the counters after the lock-in period ends for their anchor investors post listing but 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 then Rs 120 is strong support and we could see some buying attraction around this level.”