The brokerage firm sees as much as 44 per cent upside in the stock in the next 12 months. Based on discounted cash flow model, the brokerage has a price target of Rs 180 on the stock. However, in its bull case for the company, Goldman Sachs sees an upside of as high as 109 per cent from current level.
“We believe expertise in food delivery will help Zomato enter and expand into adjacent categories such as restaurant supplies and grocery, aiding overall growth and profitability,” the brokerage firm said in a note.
Goldman Sachs believes Zomato can achieve profitability at an operating level by 2023-24 driven by larger scale, higher take rates and improving rider efficiency. “Despite being a relatively late-entrant, Zomato has captured half of India’s online food delivery market, driven, in our view, by its strong execution, large restaurant review platform, and initial focus on less competitive cities,” Goldman Sachs said.
Shares of the online food delivery startup have tanked 15 per cent from their record high of Rs 147.80 hit earlier this month largely due to offloading of shares by anchor investors, who participated in the company’s initial public offering in July. The stock is still up about 74 per cent from its issue price of Rs 76.
Goldman Sachs noted that Zomato is currently trading at a premium to its global peers but indicated that the company’s expected 46 per cent annualized growth in gross order value is superior to those peers.
“We believe investors will be willing to pay a premium valuation for Zomato as long as the company is able to maintain an elevated growth profile and a dominant market position,” the brokerage said.
Goldman Sachs, however, noted that increased competitive intensity, regulatory changes, higher-than-expected average order value decline, and a sub-optimal capital allocation could hurt its forecasts for the company.