CLSA, UBS bullish on Zomato stock; Morgan Stanley recommends buying on dips

According to Morgan Stanley analysts, any correction in Zomato could be a buying opportunity for the long-term investors.

Shares of Zomato gained over 2 percent on June 25 as several brokerages reaffirmed their bullish calls on the stock following Prosus’ FY24 annual report which showed Zomato is growing faster then Swiggy.

The stock has been on investors' radar since global brokerages turned bullish on the counter post its confirmation on initial talks with Paytm to acquire its ticketing business.

As per Prosus’ annual report for FY24, Swiggy’s overall gross order value (GOV) grew by 26 percent on-year which lagged Zomato’s corresponding growth of 36 percent during the same period.

Swiggy’s overall revenue growth of 24 percent YoY was also lower than Zomato’s adjusted revenue growth of 55.9 percent YoY. Meanwhile, Swiggy’s trading losses reduced to $158mn during FY24 while Zomato reported a positive Ebitda of $5mn during FY24.

According to analysts at Emkay Global, Zomato’s higher growth has been aided by the superior performance of its Quick Commerce. Meanwhile, Swiggy's revenue increased 24 percent on-year, while Zomato's adjusted revenue rose by nearly 56 percent YoY.

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CLSA has issued a buy call on Zomato with a target price of Rs 248 per share. Another international brokerage UBS has also recommended a buy rating on the food aggregator's stock with a target price of Rs 250.

According to Emkay Global's analysts, Swiggy’s performance reflects the continued traction of food delivery and rise of quick commerce.

"Steady improvement in operational performance and the planned IPO of Swiggy are likely to keep investor interest high in the space," the brokerage said as it maintained its 'buy' call on Zomato with a target price of Rs 230 per share.

Recently, Morgan Stanley retained its ‘overweight’ rating on Zomato with a target of Rs 235. The brokerage said Zepto raising funding round increases the relevance of Quick Commerce (QC) channel.

Last week, Zepto announced that it has raised $665 million in a funding round that has doubled its valuations to $3.6 billion. This fundraise marked the biggest financing this year in the QC segment.

Also Read | Morgan Stanley remains logged into internet stocks, prefers Zomato and PB Fintech

Morgan Stanley said there is a probability that the competitive intensity may increase in the segment over the near term. It noted that assuming competitive intensity increases further, a push out of profitability for Quick commerce business versus the current assumptions is possible.

According to analysts, any correction in Zomato could be a buying opportunity for the long-term investors.

Bernstein also has a 'Buy' call on Zomato stock with a target price of Rs 230 per share. The brokerage cited the company's market leadership, pricing power, and reduced delivery costs as key factors enabling it to achieve expanding margins and improved returns.

At 9:17 am, Zomato shares were trading 2.2 percent higher at Rs 203.04 on NSE. With today's jump, the stock has delivered 63 percent returns on a year-to-date (YTD) basis

In the last one year, the stock has risen over 170 percent, massively outperforming benchmark Nifty 50 which rose 26 percent during this period.

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